From the pages of Forbes.com.
Medicare Budget Cuts Could Threaten Cancer Patients' Access To Drug TreatmentsBy Peter J. Pitts
Earlier this month, Forbes guest commentator John Wilson celebrated cuts planned for Medicare Part B as a result of sequestration and called for additional “savings” to be wrung out of the program.
Across-the-board federal budget trimming has forced the Centers for Medicare and Medicaid Services (CMS) to significantly reduce the reimbursement rate for healthcare providers that participate in Part B, which covers drugs that have to be administered under professional supervision.
Mr. Wilson thinks these rate cuts are a good start — and he wants more. He claims that “Part B drugs have a history of CMS overpayments” and suggests additional reimbursement reductions won’t have any ill effects.
He’s mistaken.
The model for Part B provider payments is working well to bring down long-term healthcare costs and ensure enrollees have access to needed medication. Additional reimbursement reductions will compromise care in communities throughout the country while doing little to curtail Medicare expenses.
Under Part B, doctors pay for medications on their own and are then reimbursed according to a formula: the average market price for that drug plus an add-on to cover administrative expenses. That additional compensation above the prevailing price is crucial. It helps participating healthcare providers finance other crucial, resource-intensive aspects of treatment, like drug acquisition and storage.
Under this unique, market-like setup, caregivers have an incentive to find the best treatment for the lowest price. Indeed, the Congressional Budget Office projected that this reimbursement system would generate $16 billion in savings over its first decade of operation. And yearly cost growth for the program has been below overall medical inflation.
One major study found that Part B’s reimbursement formula reduced drug spending by over seven percent during the program’s first year of operations. And it limited Part B’s average annual expense growth rate to just 2.4 percent, compared to nearly 11 percent for all of Medicare.
Community health clinics are major participants in Part B. These locally oriented operations tend to be significantly more cost-efficient than larger hospitals. By properly compensating clinics and encouraging them to treat Medicare enrollees, Part B saves the government money over the long-run. For instance, research from the consulting group Milliman has found that Medicare saves an average of $6,500 per year when a patient receives chemotherapy treatment at a clinic rather than a hospital.
All in all, Part B’s reimbursement formula has been working terrifically well. But as a result of sequestration, CMS will be cutting that administrative add-on by about two percentage points — from six to four percent. And some in Washington are looking to ratchet back this reimbursement even further, to closer to three percent.
Further cutting this rate would seriously threatens the financial viability of many of the community health clinics currently participating in Part B. These operations already run on exceedingly thin profit margins. They depend on proper compensation from Part B and other public programs to stay afloat. Reducing reimbursements would force many clinics to close and physicians to turn away enrollees.
New cuts would make a bad situation even worse, particularly in the realm of cancer treatment. According to the Community Oncology Alliance, over the last six years, 288 cancer clinics have closed. Another 469 have entered into a contractual relationship with a hospital or been acquired by a hospital. And 407 report they’re struggling financially.
The American Society of Clinical Oncology predicts that Part B cuts could force up to three-quarters of the remaining cancer clinics in the country to start redirecting Medicare patients to other caregivers.
Mr. Wilson also argues for scaling back the intellectual property protections currently afforded an advanced class of pharmaceutical drugs called biologics. These are highly complex treatments derived from living organisms. In addition to standard patent controls, biologics are also provided 12 years worth of data protection preventing generic competitors from accessing the original innovators research information.
The provision establishing these 12 years of data protection was included in the President’s 2010 health care reform law — and it was one of the few provisions that enjoyed broad bipartisan support from both chambers of Congress.
After noting that 12 years is “far longer than for most other drugs,” Mr. Wilson joins the chorus of misinformed critics calling for biologic data exclusivity to be scaled back to seven years. He thinks such a move would save the public health system billions in drug expenses by expanding the pool of low-cost generic alternatives.
But that 12 year set point isn’t arbitrary. Virtually all the research on this subject shows that that’s about as long as it takes for the average biologic to break even in sales. The average new drug costs on average $1.2 billion to research, develop and bring to market. And just two out of every ten new drugs ever turns a profit.
Cutting down the period of data protection to just seven years would flood the biologic market with generic competition well before most innovators have had time to get out of the red. Drug developers would be much less likely to invest in new products in the future and patients would be deprived of new breakthrough treatments.
Mr. Wilson and I are in agreement that public officials need to find effective ways of controlling Medicare costs without compromising enrollee care. But further cutting Part B reimbursements and reducing the protection of intellectual property for innovative drug companies doesn’t fit the bill — it will undermine community caregivers and choke off patient access to needed medicines.
Peter J. Pitts, a former FDA Associate Commissioner for External Affairs, is President of the Center for Medicine in the Public Interest.
