<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:75756.wais]
MEDICARE DRUG REIMBURSEMENTS: A BROKEN SYSTEM FOR PATIENTS AND
TAXPAYERS
=======================================================================
JOINT HEARING
before the
SUBCOMMITTEE ON HEALTH
and the
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 21, 2001
__________
Serial No. 107-65
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
U.S. GOVERNMENT PRINTING OFFICE
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____________________________________________________________________________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia BILL LUTHER, Minnesota
ED BRYANT, Tennessee LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania TED STRICKLAND, Ohio
NATHAN DEAL, Georgia THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina LOIS CAPPS, California
ED WHITFIELD, Kentucky RALPH M. HALL, Texas
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
Vice Chairman PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
Subcommittee on Oversight and Investigations
JAMES C. GREENWOOD, Pennsylvania, Chairman
MICHAEL BILIRAKIS, Florida PETER DEUTSCH, Florida
CLIFF STEARNS, Florida BART STUPAK, Michigan
PAUL E. GILLMOR, Ohio TED STRICKLAND, Ohio
STEVE LARGENT, Oklahoma DIANA DeGETTE, Colorado
RICHARD BURR, North Carolina CHRISTOPHER JOHN, Louisiana
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
Vice Chairman JOHN D. DINGELL, Michigan,
CHARLES F. BASS, New Hampshire (Ex Officio)
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(iii)
C O N T E N T S
__________
Page
Testimony of:
Bentley, Zachary T., President, Ven-A-Care, Inc.............. 46
Connaughton, Thomas A., President, American Association of
Homecare................................................... 110
Emanuel, Ezekiel, Chief, Clinical Bioethics Department,
Warren G. Magnuson Clinical Center, National Institutes of
Health..................................................... 117
Grob, George F., Deputy Inspector General, Department of
Health and Human Services.................................. 38
Lamphere, JoAnn, Lewin Group................................. 115
Martyn, Kevin, Executive Director, Care For Life............. 107
Norton, Larry, President, American Society of Clinical
Oncologists................................................ 101
Scanlon, William J., Director, Health Care Issues, General
Accounting Office.......................................... 30
Scully, Thomas A., Administrator, Centers for Medicare and
Medicaid Services.......................................... 82
Material submitted for the record by:
Sands, Leo E., Executive Vice President, Chief Compliance
Officer, US Oncology, Inc., letter dated September 19,
2001, to Hon. James Greenwood, enclosing material for the
record..................................................... 145
Stark, Hon. Pete, a Representative in Congress from the State
of California, prepared statement of....................... 143
(v)
MEDICARE DRUG REIMBURSEMENTS: A BROKEN SYSTEM FOR PATIENTS AND
TAXPAYERS
----------
FRIDAY, SEPTEMBER 21, 2001
House of Representatives,
Committee on Energy and Commerce,
Subcommittees on Health,
and Oversight and Investigations,
Washington, DC.
The subcommittees met, pursuant to notice, at 9:40 a.m., in
room 2123, Rayburn House Office Building, Hon. Michael
Bilirakis and Hon. James C. Greenwood presiding.
Members present Subcommittee on Health: Representatives
Bilirakis, Barton, Upton, Greenwood, Burr, Ganske, Norwood,
Bryant, Buyer, Pitts, Tauzin (ex officio), Brown, Barrett,
Capps, Hall, Pallone, Deutsch, Stupak, Engel, and Green.
Members present Subcommittee on Oversight and
Investigations: Greenwood, Bilirakis, Stearns, Gillmor,
Largent, Burr, Bass, Tauzin (ex officio), Deutsch, and Stupak.
Staff present: Chuck Clapton, majority counsel; Yong Choe,
legislative clerk; and Edith Holleman, minority counsel.
Mr. Greenwood. Good morning. This joint hearing of the
Energy and Commerce Committee's Subcommittees on Oversight and
Investigation and Health will now come to order. Before we
proceed with the members' opening statements, Mr. Bilirakis and
I would like to make a few remarks.
Among the thousands of lives so hideously taken from us on
September 11 was that of Lisa Raines. Lisa Raines was the
senior vice president of government relations for Genzyme
Corporation. Those of you who knew her know she was a giant in
the biotech and pharmaceutical industry for at least the past
15 years and a friend to many. Her memorial service is
scheduled for 11 o'clock this morning, and for that reason
these subcommittees considered very seriously postponing once
again this hearing. We wish we could have done that.
By the conclusion of this hearing, I think it will be
apparent to all the urgency to fix this broken AWP system.
Given the fact that we have only about 4 weeks for session for
this year, we concluded that it was impossible, particularly
given next week's short schedule, to postpone this hearing once
again. We regret we had to make that decision because we know
there were many who would like to be here, but also felt their
priority was to be at the memorial service.
Having said that, I would like to recognize Chairman
Bilirakis for his comments.
Mr. Bilirakis. Thank you, Mr. Chairman.
On September 11 of this year, American's calm was shattered
by a horrendous act of terrorism that will long be remembered.
Our thoughts and prayers are with those whose lives have been
forever altered by this tragedy.
When American Airlines flight 77 went down, the health
community lost a dear friend and respected colleague, Lisa
Raines. Lisa was a senior vice president of government
relations for Genzyme Corporation. Lisa had worked closely and
often with the Energy and Commerce Committee through the years,
working to enact the Drug Export Amendments Act of 1986, the
prescription drug user fee, PDUFA, the FDA Export Reform and
Enhancements Act of 1996, and the Food and Drug Administration
Monitorization Act, or FDAMA.
A vital member of the Washington biotechnology and
pharmaceutical community, Lisa previously worked for the
Industrial Biotechnology Association, now BIO, and the
Congressional Office of Technology Assessment. Lisa's expertise
and insight as well as her bright personality and charm will be
missed by this committee, the Congress and the health
community. I think the publication BioCentury said it best when
it said Lisa was as much a fixture of the biotech industry as a
double helix, and it is hard to comprehend that she is gone.
She leaves a hole in the industry's relationship with the
outside world that will be difficult to fill.
I join with the chairman and members of this committee as
we offer our condolences and prayers to Lisa's family and
friends. Please join us in a moment of silence in honor of Lisa
Raines.
[The prepared statement of Hon. Michael Bilirakis follows:]
Prepared Statement of Hon. Michael Bilirakis, Chairman, Subcommittee on
Health
I'd like to thank Chairman Greenwood for joining me today to
examine the issues surrounding the current system for Medicare drug
reimbursement. The Health Subcommittee has spent a considerable amount
of time in this Congress examining how best to add a comprehensive
prescription drug benefit to the Medicare program. This hearing builds
off of work we began in the last Congress where we examined the
reimbursements for the limited drug coverage currently available in the
Medicare program.
I'd like to welcome and thank all of the witnesses, including Tom
Scully from CMS and Bill Scanlon from GAO. We rely often on these
government officials and their offices for factual information and
detailed analysis, thank you for coming today. I'd also like to welcome
Mr. Zachary Bentley from my home state of Florida. I know that your
testimony, and that of all the witnesses, will help inform the
Committee and the public about the issues regarding Medicare's current
reimbursements to health care providers for certain drugs used to treat
patients.
The Medicare program currently provides coverage for a small number
of drugs, limited principally to those that are administered incident
to a physician's treatment or in conjunction with covered durable
medical equipment, such as inhalation drugs used with a nebulizer.
Since at least 1992, Medicare has determined the appropriate
reimbursement price for these covered drugs by referring to an industry
trade publication known as the Red Book, which lists what manufacturers
purport to be the Average Wholesale Price for their drugs. Since 1997,
providers who administer these drugs to Medicare beneficiaries have
been reimbursed for their cost at prices equal to Average Wholesale
Price (AWP) minus five percent. Of this set amount, Medicare Part B
covers 80 percent, while Medicare beneficiaries can be required to pay
the remaining 20 percent as a co-payment. Today's hearing will examine
how Medicare's current reimbursement system, for the relatively few
drugs that are covered, is costing beneficiaries and taxpayers more
than is necessary and may be having an adverse impact on the health of
some of our most vulnerable citizens.
I recently toured a Clearwater oncology center in my Florida
district and I can tell you what great work oncologists do and how
important their work is to so many Americans. At the request of my
constituent Dr. Marcos Joppert I would like to admit this white paper
on oncology payments into the record.
This will prove to be a lengthy hearing and thus I will limit my
opening statement so that we may get to the important testimony of the
witnesses--who I again thank for their effort and cooperation.
Mr. Greenwood. Thank you, Chairman Bilirakis, for your
comments. As the President said, let us get back to work.
Let me begin by thanking all of the witnesses who have
agreed to testify today at today's hearing. Your testimony will
shed light on an insidious problem about how the Medicare
program reimburses health care providers for certain drugs used
to treat very sick patients. Today's hearing, which is a
culmination of years of investigative and audit work performed
by subcommittee staff and the witnesses from our first panel,
will examine how Medicare's reimbursement system for the
relatively few drugs currently covered by the program is
costing Medicare and its beneficiaries roughly $1 billion every
year in overcharges while having an adverse impact on the
health care of some of our most vulnerable elderly and disabled
citizens.
We will hear how the manufacturer of a chemotherapy drug
like Vincasar sold it to health care providers for $7.50, then
reported the price to Medicare as $740. Medicare paid the
doctor almost $600 for the same drug, and the poor sick patient
got hit up for another $150.
We will also hear today from the Department of Health and
Human Services Office of Inspector General about how many other
overcharges result in Medicare paying more than $886 million
every year in inflated prices for just a sample of 24 Medicare-
covered drugs reviewed by that office. The total figure for all
Medicare-covered drugs very likely exceeds a billion dollars
each year.
It should be noted that Medicare currently reimburses for a
very limited number of drugs, chemotherapy agents, blood-
clotting factors used to treat hemophilia and inhalant drugs
used to treat respiratory diseases, the total cost of which is
approximately $4 billion a year. A billion dollars of taxpayer
dollars is wasted every year in this program because under
current Federal law and regulations, Medicare is paying for
drugs at AWP. AWP, or average wholesale price, could also be an
acronym for ``ain't what's paid.'' It is quite clear that
despite its name, AWP is not the average wholesale price at
which these drugs are sold to health care providers or anything
close to it. To the contrary, it appears that for many of these
drugs, AWP is simply an artificial price established by certain
drug manufacturers and reported to industry trade publications
for purposes of third-party reimbursement, a price which bears
little, if any, relationship to what is actually paid for these
drugs by health care providers.
Before we go further, however, let us be clear about one
thing. Most drug companies establish AWPs that are, in fact,
fairly reliable indicators of average wholesale prices, but in
those instances where they do not, the difference between what
providers actually pay and what Medicare reimburses results in
what is commonly referred to as a spread, an unwarranted profit
pocketed by the health care provider each time he or she
utilizes that particular drug. We will see evidence today
demonstrating how some drug manufacturers have manipulated the
reported AWPs and thus the spreads on their drugs in order to
create financial incentives for providers to use their drugs
over competitors' products. In doing so they have provided a
financial windfall to the health care providers that enables
them to sell more of their drugs. In the words of one
manufacturer, this is a win-win-win situation for
manufacturers, wholesalers and health care providers. The big
losers in these marketing ploys are the Medicare program, its
elderly and disabled beneficiaries, and the American taxpayer,
all of whom have to foot the bill for greatly inflated drug
costs.
Of even greater concern to America's seniors than the
impact of having to pay inflated copayments on drugs based on
prices that are sometimes tens or hundreds of times higher than
what their health care provider actually paid for the drugs is
that they also may have had the quality of their health care
adversely affected by this perverse system. We will hear how
the profits available for utilizing certain drugs appear to be
improperly affecting some health care providers' clinical
decisions, influencing them to provide unnecessary care and
utilize drugs based on profit margins rather than therapeutic
efficiency.
For example, we will learn of cases in which the
utilization of certain drugs skyrocketed without any reasonable
clinical justification after manufacturers created large
Medicare-funded financial windfalls to health care providers to
encourage them to use their drugs. In one such case, and the
case is on the screen there, Medicare utilization and
reimbursements of the inhalation drug ipratropium bromide used
to treat respiratory diseases increased more that twentyfold
between 1995 and 2000, from $14 million in 1995 to more than
$300 million in 2001, a time period in which the drug went from
having no spread to having a Medicare-covered spread of 300
percent.
We will also hear about how terminal cancer patients
received aggressive courses of chemotherapy, raising questions
about whether the motivation for providing such care was the
profit available from the use of Medicare-covered chemotherapy
drugs.
Congress has long championed the fight against cancer. We
supported increased funding for research at the National
Institutes of Health and to improve the quality of clinical
care. We fought to ensure that the proper incentives exist to
develop new and innovative drugs. To then learn of the
instances in which quality of patient care might have been
adversely affected by the financial benefits available to
providers from utilizing certain drugs is nothing short of
outrageous. While providers and their associations strongly
denied being influenced by any such considerations, we cannot
tolerate a system that could leave such motivations even open
to question.
Providers do not generally deny that they often reap huge
profits on the utilization of certain Medicare-covered drugs.
Instead they argue that they currently depend on these profits
in order to make up for other services in which Medicare under-
reimburses them. We will hear testimony today that will confirm
that like many other groups of providers, these providers who
administer Medicare-covered drugs are not fully reimbursed for
all the costs associated with treating their patients.
We should reimburse all providers fairly for their
expenses; nevertheless a system in which the use of certain
drugs can influence clinical medical decisions is not the
answer. Life-and-death decisions about the treatment of those
who suffer from the scourge of cancer should be governed
exclusively by a concern for the patient and not the margin of
profit.
When this hearing is over, my colleagues and I will work
with this new administration as well as providers and drug
companies to scrap this flawed system. We will need to develop
a solution that results in Medicare paying prices for drugs
that are closer to the actual prices paid by health care
providers. Similarly we will need to take steps to ensure that
health care providers are sufficiently reimbursed for all of
their services so that the quality of care they provide to the
Medicare patients is not diminished by changes made to the drug
reimbursement system.
I look forward to hearing from CMS Administrator Scully
today about what steps his agency can be directed to take to
guarantee that this scandal is resolved as quickly as and
effectively as possible. In these new and perilous times when
our Nation and our people may be called upon to make great
personal and financial sacrifices in the defense of our
country, Congress has the heavy burden of making sure that
every available resource is used wisely, and if we hope to find
a way to pay for an expanded Medicare drug benefit that will
assist seniors to purchase prescription drugs even as we take
on a renewed and determined defense of our homeland, these
abuses cannot be tolerated.
If we are going to provide Medicare beneficiaries with a
comprehensive prescription drug benefit, and we must, we have
to stop wasting billions of dollars on the existing program. We
will need every Medicare dollar we can find. In addition, our
efforts to resolve this problem will hopefully serve as an
example for those State Medicaid problems and other third-party
payers who face similar issues in their reimbursements for the
costs of drugs. This in turn could result in billions of
additional dollars in taxpayers' savings beyond those amounts
that were discussed above applicable only to Medicare.
There is one more important lesson in all of this.
Government-run programs such as this, which escape the rigors
and discipline of the marketplace, inevitably end as expensive
failures. It is only by forming an honest partnership between
Government and private sector that we can hope to build a new
and better Medicare program on a sound financial footing.
Again, I wish to extend my thanks to all of the witnesses
who agreed to appear at today's hearing to inform us about this
serious problem. While I am disappointed that the invited drug
manufacturers declined to testify today about these practices
and how the system could be reformed, I am nonetheless
committed to moving forward on this issue in a positive and
productive manner with all parties so that we can fix this
system quickly and protect America's Medicare beneficiaries
from further financial and personal harm.
The Chair yields 5 minutes to the ranking member of the
Oversight and Investigations Subcommittee, Mr. Deutsch.
Mr. Deutsch. Thank you, Mr. Chairman. Thank you also for
your opening comments. I think for any of us not to mention
September 11 would be a mistake. This is, I know, my first
hearing since then, and I think for all of us on this dais, and
America and the world changed on September 11, and even our
work here in a sense has changed. I think if we do everything
we do in our lives, I think all Americans do everything they do
a little bit differently, in fact maybe a lot differently
than--after September 11.
Let me mention three things and summarize an opening
statement. The three things in terms of the issue in front of
us that are most disconcerting, the first issue is there
appears to be some evidence, and I hope it is developed in the
course of the hearing, that some manufacturers, by increasing
the spread on the average wholesale price, have encouraged
physicians to actually do substitutions on medication. That is
obviously incredibly disserving from best medical practices to
best financial incentives for that individual position or
office, and that is obviously a system which is fundamentally
broken.
The second issue, which again is a very disconcerting
issue, is that for Medicare beneficiaries, as most people are
aware, their copayments are based upon Medicare reimbursements,
not on the reimbursement that the physician is paying for the
drug. So there apparently, again, the testimony, I think, will
be brought out during the course of this hearing cases, and
apparently many cases, where the 20 percent copayment is, in
fact, more than the physician actually paid for the drug, and
obviously the situation of Medicare beneficiaries, that is an
absolutely absurd situation.
As we develop this--and this is part of the problem, and I
am looking forward to testimony about this as well--is we have
a situation where we have a reimbursement system which I don't
think anyone can honestly defend in terms of the average
wholesale price, but I think we also have a reimbursement
system on the physicians' side that is hard to defend as well.
Obviously these two things are related. I guess there is debate
about how related they actually are, but I think that we need
to acknowledge that, and we need to do our part in terms of
fixing it.
I have a lengthy statement, which I think at this point,
based on the time, I would rather submit for the record. So I
will submit that for the record as well as Mr. Dingell has a
statement and the chairman of the Ways and Means Committee, Mr.
Stark, also has a statement that they were going to submit for
the record as well.
[The prepared statement of Hon. Peter Deutsch follows:]
Prepared Statement of Hon. Peter Deutsch, a Representative in Congress
from the State of Florida
Thank you, Mr. Chairman, for holding this very important and long
overdue hearing. For many years, the Inspector General of the
Department of Health and Human Services--like a voice crying in the
wilderness--has been issuing reports telling the Department and the
Congress that the taxpayers were being gouged for drug payments under
both the Medicaid and the Medicare programs. These federal programs
were paying providers the published Average Wholesale Price or AWP for
prescription drugs which was, in truth, far more than the drug
manufacturers were charging them. The program now has spun so far out
of control that the annual overpayments may be as high as $1.9 billion.
We will hear testimony today of a scheme where doctors prescribing
drugs to be administered in patients' homes wanted a kickback from the
infusion companies based on the AWP spread over actual cost. The
Justice Department and numerous states have been investigating this
situation, and hundreds of millions of dollars have been recovered.
Only Congress and the reimbursing agency have been silent. In fact,
we--particularly those on the other side of the aisle who are concerned
about anything that they think might resemble setting prices--have
stopped almost every reform effort. We must take steps now to eliminate
this abuse.
Over the years, Medicaid at both the federal and state levels has
been able to get a 15 percent discount from the AWP plus a rebate from
the manufacturer that can reach up to another15 percent based on the
reported Average Manufacturers Price or AMP. But drug manufacturers,
the Medicare carriers, the Centers for Medicare and Medicaid Services
(CMS) and its predecessor, the Health Care Financing Administration, or
HCFA, the Congress and the providers have all combined to establish,
further and abuse the fraudulent Medicare drug reimbursement system.
The drug companies--who, Mr. Chairman, are notable by their absence at
this hearing since they were, I believe, the instigators of this
scheme--reported artificial and false Average Wholesale Prices to the
public for reimbursement purposes while at the same time not one of
their customers was paying those prices.
The Medicare carriers paid those prices and failed their
responsibility to assure that actual drug prices were being paid. HCFA
tried to reform the system, but often gave up because of provider
objections. Congress and the Executive branch also aborted HCFA's
reform attempts by citing the Paperwork Reduction Act and requiring
reports from the General Accounting Office before any changes could be
made. The reports we are receiving today are the most recent mandated
by Congress in place of real action.
As we will hear in testimony today and is verified by the documents
to be placed into the record, the pricing abuses have reached the point
at which drug manufacturers use the ``spread'' between the AWP and the
actual price paid as a marketing tool to sell their products. Not only
does the taxpayer get gouged; so does the Medicare beneficiary who is
required to pay 20 percent of the total cost of the drug. A chart
prepared by one of the witnesses provides nine examples in which the 20
percent copayment covered the entire cost of the drug to the provider.
A breast cancer treatment costs the provider $450; it charges Medicare
$1,359. The co-pay is $272; the profit is $909.
Some of the providers of out-patient drug treatment that we will
hear from today will say that they are using these excessive payments
to cover their treatment costs in other areas. They allege that they
will not be able to continue providing service if this is not remedied.
If that is true, their arguments and those of other specialities
suffering from similar under payments should be documented and
presented to CMS. However, there is a pilot Medicare drug program in
Texas underway in which competitive drug pricing is used. The costs are
down, and there is no evidence of the withdrawal of any providers. We
must also remember that the General Accounting Office has found a
number of times that there is little or no evidence of under-
reimbursement of providers under either Medicare or Medicaid.
Mr. Chairman, I look forward to hearing from these witnesses.
Mr. Greenwood. Without objection, all members' opening
statements will be submitted for the record.
The Chair recognizes the chairman of the full committee,
the gentleman from Louisiana, Mr. Tauzin.
Chairman Tauzin. Thank you, Mr. Chairman.
Mr. Chairman, I, too, want to thank you for the moment of
silence for the recognition of Lisa Raines and the loss of so
many friends across America, but also your determination to
move forward with this important hearing, and I want to
congratulate the staff who worked with you to develop this
hearing, which I believe will highlight one of the most
important abuses within the Medicare system that this committee
has ever uncovered.
What you will see today is a situation that has turned Adam
Smith on his head; a situation which, because of the system in
which we reimburse physicians for the cost of certain drugs
particularly in chemotherapy and inhalants and several other
categories, but the Government of the United States is paying
in some cases many times the price that the physician is
actually buying the drugs for. Worse than that, worse than this
loss of billions of dollars of Medicare dollars that taxpayers
put up to make sure that our mothers and fathers and
grandmothers and grandfathers and all our relatives are
properly cared for in the Medicare health system and in the
Medicaid system, by the way, worse than this loss of the funds
that are critical to sustain the program is the fact that the
patients, those loved ones we protect under this system, are
being required under this system to put up not 20 percent of
the cost of the drugs to the doctor, but in one case--and I
have a chart I want to show you up there, the Medicare 20
percent copay chart--in one case with a drug called
Doxorubicin, the patient is putting up not 20 percent, but 200
percent of the cost. The patient who is supposed to put up 20
percent is putting up 200 percent of the true cost of the drug.
Look at the drug etoposide. In that case the patient is
putting up not 20 percent, but 300 percent of the cost, triple
the cost the doctor spends on the drug. The poor Medicare
patient ends up tripling his contribution for the total cost of
that drug instead of putting up just one-fifth of the cost.
Look at the drug Leucovorin. It sounds like a character in
The Godfather, maybe properly named. In that case the Medicare
patient is putting up 500 percent of the cost of the Medicare
drug as a copay.
Look at the column of the Florida Medicare allowable. Look
at what the doctor is getting back from the Medicare system in
Florida for those three drugs. The doctor is paying for
Leucovorin $1.25 for 50 milligrams, and the patient is putting
up $7.09, and the Medicare system is paying the doctor up to
$35.47. That is the spread we have been talking about. The
spread between the real cost of the physician and the cost the
Medicare system is paying for the drug, and perhaps the copay
cost the poor patient has to put up, in some cases as high as
500 percent of the real cost of the drug to the doctor. How can
we tolerate such a system any longer?
Mr. Chairman, I really appreciate your uncovering this and
allowing this hearing literally to go forward when I know most
people are concerned about us getting back to work too fast. We
have got to get to work on this one fast. Not only does this
rob the Treasury and the Medicare fund of billions of dollars
that should not be paid because they are not the average
wholesale prices, they are some kind of awful artificial
wholesale price, but, again, it turns Adam Smith on his head.
Think about this with me for a second. We introduced
generic drugs into the system to create competition. Do you
know what happens to the system when a generic drug comes into
play? Evidence we have that we will develop today indicates
that when a generic drug comes into competition with a patent
drug finally, the price doesn't come down. The price goes up
because both of the drug companies understand that if they are
going to sell that drug to the doctor, they have got to give
them a bigger spread. So they are in competition to give them a
bigger spread, and they both post higher and higher artificial
wholesale prices to the Medicare system.
It is a game that turns ordinary economics on its head. As
competition comes into the field, prices go up not only to the
government, but to the poor patient who has to pay not 20
percent, but 300, 400, 500 percent of the cost of the drug. It
is a rotten system.
And, Mr. Chairman, perhaps the most pernicious part of it
all is the evidence you uncovered with our staff that indicates
that--at least some evidence that in some cases chemotherapy
may be dumped into patients in the last 3 years of life because
there is so much profit to be made. There is so much profit to
be made on some of these drugs, when that chemotherapy just
literally rips up bodies and the welfare of those patients in
the last 3 months of their life, maybe chemotherapy that might
not be needed. Maybe drugs are being substituted when a better
drug is available because the drug substituted has a better
kickback, if you will.
Now it is time the system be reformed, Mr. Chairman. I want
to thank you and the staff for uncovering it as much as you
have. If there was one thing certain about this, it is that the
responsibility lies in this Congress to straighten it out. We
permitted this to happen. We have got to straighten it out. And
I have asked you to do one thing before you went forward with
this hearing, and that was to be prepared to straighten it out;
not just to talk about it, not just to make Americans
understand how rotten the system is and how all the players in
it hate it as much as I hope we all do now, because we are all
forced to play this ugly game with one another, but more
importantly you are prepared to cure it. You and Mr. Bilirakis,
the chairman of our Health Subcommittee, are prepared to offer
solutions not next year, but immediately, and I think every
patient in America who is getting skinned by this system to the
tune of 500 percent of the real cost of the drug when they
ought to be paying one-fifth of it, I think they will thank you
today for doing the Nation a real favor by getting rid of a
system that robs the American taxpayer, the Medicare system,
corrupts the system, deprives patients of their critical
dollars at a time most needed, and in some cases may encourage
the few, I hope, unscrupulous people to improperly medicate
people in their worst hours, in their last final hours on this
Earth.
I yield back the balance of my time.
[The prepared statement of Hon. W.J. ``Billy'' Tauzin
follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Let me begin by thanking Subcommittee Chairmen Greenwood and
Bilirakis for holding this joint hearing today. I appreciate their
efforts to highlight the problems that this Committee has uncovered
concerning Medicare drug prices. I sincerely hope that, by holding this
hearing, we can begin the process of fixing these problems.
As Chairman Greenwood has pointed out, the Committee has uncovered
disturbing evidence that Medicare may be wasting over one billion
dollars a year, paying unnecessarily inflated prices for drugs. This
intolerable situation not only affects the finances of the Medicare
program and the American taxpayer, but also directly impacts the
finances of America's Medicare beneficiaries.
We all have parents, grandparents, friends, or neighbors who depend
on Medicare to help them pay for the small number of drugs that
Medicare currently covers. It is unacceptable that--because of the
government's ineptitude in the way it pays for these drugs--our loved
ones are being forced to pay inflated co-payments for their
chemotherapy drugs to cure their cancers, inhalation drugs to treat
their respiratory diseases, and antibiotics to treat their infections.
The Inspector General's Office at the Department of Health and
Human Services recently prepared a report for me that shows how, last
year alone, Medicare beneficiaries paid an extra one hundred and
seventy seven million dollars in co-payments due to inflated
reimbursements for Medicare-covered drugs. For example, this means that
cancer patients are paying an extra $6.56 for each dose of Doxorubicin,
and an extra $3.01 for each dose of Leucovorin Calcium. These costs
quickly add up in treatment regimens requiring multiple doses, and
often can make an enormous difference for somebody living on a fixed-
income.
Of even greater concern to me is the evidence uncovered by the
Committee indicating that these overpayments to health care providers
may be affecting the quality of care received by Medicare patients.
Patients may not be receiving the most clinically effective treatments,
due at least in part to the perverse incentives of the Medicare
reimbursement system. The Committee has learned of instances in which
the Medicare reimbursement ``spreads'' on certain older, less
clinically effective drugs were so large that drug manufacturers were
unable to successfully market improved, more clinically effective drugs
to health care providers.
The Committee also has learned that some patients may be receiving
unnecessary medical therapies--again due at least in part to the
excessive reimbursements available to health care providers for use of
certain drugs. Given the powerful effects that these drugs can have on
patients, we must ensure that no patient receives a particular drug
regimen for any reason other than to provide the best clinical care.
Medicare's broken reimbursement system also turns Adam Smith's
conception of market competition on its head. Only under Medicare could
a drug manufacturer raise its prices, or at least the ones it reports
for purposes of government reimbursement, to increase sales. The
Committee has uncovered evidence that at least one manufacturer has
done exactly this. Upon learning that a competitor raised its reported
Average Wholesale Price and thus its Medicare reimbursement spread,
this manufacturer responded promptly in the same fashion, noting how
simple it was to change its AWP--something that could be done
overnight--in order to maintain sales.
Here's another example of this crazy AWP system at work: an
internal drug manufacturer document from 1994 discusses the
consequences of increasing the spread on one of its top drugs, quote,
``in order to increase the amount of Medicaid reimbursement for
clinical oncology practices.'' In a particularly blunt assessment, the
author notes with irony how, quote, ``on the surface, it seems that in
response to the entrance of a competitor in the market, Glaxo has
actually raised its price on Zofran--perhaps twice in one year.'' The
memo goes on to ask: ``How do we explain a single 9% increase in the
AWP? What arguments can we make to explain to congressional watchdogs
that we are cost-shifting at the expense of government?'' Despite
recognizing the troubling issues raised by such a pricing strategy,
Glaxo succumbed to the system anyway, raising its Zofran AWP two months
later, while actually lowering the real costs of the drug to providers.
Medicare also distorts the benefits of the generic drug market.
Generic drugs hold the potential to decrease pharmaceutical costs
dramatically, through price competition with brand-name drugs. Under
Medicare, however, the Committee has uncovered situations in which some
generic manufacturers competed for market share by raising the prices
they reported to the government--thus increasing costs to taxpayers and
patients--while actually selling the drugs to providers at steep
discounts.
Today's hearing will highlight these abuses. It is my hope that, by
bringing this information to the attention of Congress and the American
public, we can build support for reforming the currently flawed
Medicare drug reimbursement system. Chairmen Greenwood and Bilirakis
should be commended for their role in this effort, and I look forward
to working with them and all the Members of this Committee in solving
this problem. I believe that Medicare's beneficiaries and America's
taxpayers deserve no less.
Mr. Greenwood. I thank the gentleman for his comments and
cooperation and support in this project and inform the chairman
that it is our intent to have legislation included in an
omnibus--whatever omnibus appropriations bill is finally
adopted by the Congress that will fix this system soon.
The statement of the ranking member of the full committee
has been entered into the record, and with that the chairman
then turns to the ranking member of the Health Subcommittee for
5 minutes.
Mr. Brown. I thank the chairman. I thank both Chairman
Bilirakis and Chairman Greenwood for holding these hearings.
A recent poll conducted by Pew Research Center told us that
Americans are finding it difficult to reengage in their daily
lives after the heart-breaking events of last week. We
certainly didn't need a poll to tell us that. I think most
people in this room are struggling, as all of us up here are,
to regain our footing and return to their lives despite the
anger and sense of loss that has paralyzed in some sense many
of us. But I think most of us also feel it is time to get back
to work.
Staggering prescription drug costs are still pushing
retirees deeper into poverty. Forty-four million Americans are
still uninsured, and that number pretty clearly is rising. The
uncertain economic climate makes it more important than ever to
fortify the Nation's core public programs, Medicare, Social
Security, Medicaid, our public health infrastructure.
Our job today is to look at some shady dealings between
drug companies and the Medicare program. The Medicare program
and Medicare beneficiaries are being scammed to the tune of
$800 million annually. Some drug companies mark up their prices
before reporting those prices to Medicare. What do the drug
companies gain from this deception? They gain a higher volume
of sales. What do doctors gain from this? They gain a healthy
margin in the drugs they administer to Medicare beneficiaries.
What do Medicare beneficiaries gain? They gain significantly
higher out-of-pocket cost when the copayment is artificially
inflated. Medicare pays more than it should, Medicare
beneficiaries pay more than they should, and doctors not only
receive higher reimbursements than they should, they have an
incentive to overtreat patients. There is evidence that a few
doctors actually take the bait and administer more medication
than is necessary.
When you think about the type of drugs Medicare currently
covers, chemotherapy, immunosuppressives, respiratory therapy
drugs, other medications for serious, serious illness, it is
truly disturbing to think that any doctor would compromise the
Hippocratic oath in this manner. On the face of it, the so-
called average wholesale price scam looks like a textbook case
of fraud, waste and abuse. AWP is a bit like the Holy Roman
Empire we learned about in school. The Holy Roman Empire to be
sure was not holy, and it wasn't really Roman, and you could
hardly call it an empire. It is the same with the average
wholesale price. They aren't the average of anything, they
certainly aren't wholesale, and, in fact, they aren't even
prices. They are a marketing tool.
Unfortunately in some cases the excess Medicare spending
appears to compensate for inadequate Medicare reimbursement.
That makes the job of this subcommittee or both subcommittees
and this committee more difficult. Not only do we have to
figure out how much to pay for these drugs, we have to figure
out how and how much to pay providers who are not receiving
adequate reimbursement for administering these drugs.
But there are also opportunities here. When we look at how
to pay appropriately for this limited set of prescription
drugs, we should also think about how to pay appropriately for
all prescription drugs. We can tell that the prices Medicare
pays are artificially inflated across the board, in the
majority of cases are artificially inflated, by comparing them
to the prices other U.S. Purchasers, large HMOs, the VA,
certain big hospitals that other U.S. Purchasers pay. We can
tell that the drug prices that American consumers pay are
artificially inflated by looking at the prices consumers in
other countries, in other developed wealthy countries, pay.
Consumers, employers, and other purchasers in the United
States pay two, three, sometimes four times more than their
counterparts in every other developed country in the world for
prescription drugs. As a Nation we are the worst equipped to
weather artificially inflated drug prices. Every other
developed country has universal health insurance. We have 44
million uninsured individuals under age 65. We have 12 million
Medicare beneficiaries who have no prescription drug coverage.
Mr. Chairman, we have a lot of work to do. Thank you.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes for his opening statement the chairman of the
Subcommittee on Health, Mr. Bilirakis.
Mr. Bilirakis. Thank you, Mr. Chairman. I, too, would like
to thank you for raising and staying with this issue
surrounding this current system of Medicare drug reimbursement
which has resulted in this joint hearing. The Health
Subcommittee has spent a considerable amount in this Congress
examining how best to add a comprehensive prescription drug
benefit to the Medicare program. This hearing builds off the
work that began in the last Congress where we examined the
reimbursements for the limited drug coverage currently
available in the Medicare program.
I would like to welcome and thank our witnesses, including
Tom Scully from CMS and Bill Scanlon from GAO. We rely on these
government officials for factual information and detailed
analyses. I also would like to welcome Mr. Zachary Bentley from
my home State of Florida, the southern part, and I know your
testimony, Mr. Bentley. All the witnesses will help inform the
committee and the public about the issues regarding Medicare's
current reimbursements to health care providers for certain
drugs used to treat patients.
The Medicare program currently provides coverage for a
small number of drugs, as we know, much too small, but a small
number, limited principally to those that are administered
incident to physicians' treatment or in conjunction with
covered durable medical equipment such as inhalation drugs used
with a nebulizer. Since at least 1992, Medicare has determined
the appropriate reimbursement price for these covered drugs by
referring to an industry trade publication known as the Red
Book, which looks at what manufacturers purport to be the
average wholesale price for their drugs. Since 1977, providers
who administer these drugs to Medicare beneficiaries have been
reimbursed for their cost at prices equal to AWP, average
wholesale price, minus the 5 percent. Of this set amount,
Medicare Part B covers 80 percent--this has all been said, I
realize--while Medicare beneficiaries can be required to pay
the remaining 20 percent as copayment.
Today's hearing will examine how Medicare's current
reimbursement system for the relatively few drugs that are
covered is costing beneficiaries and taxpayers more than is
necessary and maybe having an adverse impact on the health of
some of our most vulnerable citizens.
I recently toured, Mr. Chairman, Clearwater Oncology Center
in my Florida district, and I am sure we are all aware of what
great work oncologists do and how important they are to us and
just to all Americans. At the request of my constituent Dr.
Marcus Chopart, I would like to admit this white paper prepared
by U.S. Oncology, which is entitled Reimbursement Versus
Reality, into the record and ask unanimous consent for that.
Mr. Greenwood. Without objection.
[The following was received for the record:]
Reimbursement vs. Reality
a us oncology discussion paper on medicare payments for cancer
treatment
Introduction:
Today, the Medicare program makes a significant and well-recognized
overpayment for oncology drugs. The program also makes a nearly
equivalent but less well-recognized underpayment for practice expenses
associated with the delivery of cancer care. This paper is intended to
discuss the causal factors and current experience of this practice
expense underpayment. It is offered in the hope of furthering the
public policy discussion and the cancer community's longstanding
support for balanced reform, which will address Medicare's overpayment
of drugs and underpayment of services. In this manner, the Medicare
program will provide a stable source of adequate reimbursement for
cancer care supplies and services and preserve patient access to
community-based cancer services.
Discussion:
Medicare practice expense reimbursement for chemotherapy
administration was established to accommodate a delivery system profile
that no longer exists in the US. Whereas most chemotherapy was
administered in hospital settings as recently as the late 1980s,
Centers for Disease Control and Prevention (CDC) data currently
indicate that more than 80 percent of all chemotherapy treatment
encounters occur in non-hospital outpatient settings (freestanding
oncology physicians' offices and community cancer centers).
Reimbursement policy changes, managed care cost-saving pressure,
patient preference, the advent of more effective ambulatory therapies,
and the advanced capability of freestanding facilities to provide
highly-complex care are the major causal factors that fueled the
migration of patients from hospital to non-hospital settings.
This historical perspective is important because it helps to
explain the flaws plaguing the Medicare program's practice expense
reimbursement policy for cancer care. When the Resource-Based Relative
Value Scale (RBRVS) was established in 1992, the Practice Expense (PE)
components within the RBRVS were based upon historical ``usual and
customary'' physician fee schedule systems that evolved at a time when
most chemotherapy was administered in hospitals. As a result,
reimbursement levels for the RBRVS codes relating to physicians'
offices and other freestanding facilities were based on the few
resources that were used in those settings during the period preceding
the RBRVS implementation.
The evolution of cancer care and the resulting reimbursement
discrepancy described above has long been recognized by Congress and
HCFA/CMS. For example, after it became clear in the mid-1980s that
chemotherapy was moving to freestanding facilities, Congress required
the Secretary (in section 4055(d) of OBRA 1987) to study and report to
Congress on possible Medicare reimbursement changes to more accurately
reflect the costs associated with providing chemotherapy in physicians'
offices. HCFA subsequently published a notice in the Federal Register
that recognized that Medicare payment for chemotherapy administration
may be inadequate:
``Changes in treatment methods and advances in technology now
allow chemotherapy to be furnished to many patients in the
physician's office, thus reducing the need for hospitalization
to administer chemotherapy. Furnishing these services in the
physician's office is more convenient for some patients and may
provide other benefits as well.
``Current Medicare Part B payment rules for physicians'
services, however, may fail to compensate adequately for these
services because the usual reasonable charge methodology may
not fully recognize the overhead costs involved in these
procedures. Some sources of additional costs include employment
of nurse oncologists, special patient rooms, and safety
equipment required because of the toxicity of the
chemotherapeutic agents and safety procedures issued by the
Occupational Safety and Health Administration.''
Unfortunately, this recognition has never been translated into more
accurate Medicare reimbursement for cancer care services. As a result,
inadequate and inaccurate payment levels have been utilized since the
creation of RBRVS, with updates for inflation but without any
significant revision, even though the locus of non-surgical cancer care
has moved from hospital settings to freestanding physicians' offices
and community cancer centers.
In other words, the resource-based codes currently used by Medicare
to reimburse for oncology practice expenses do not reflect the transfer
of resources from hospitals to freestanding facilities and the
additional costs that have arisen consistent with advances in and the
complexity of today's more effective treatment regimens. Put another
way, hospital care and complex services moved to freestanding
facilities--but Medicare's practice expense reimbursement policy has
never been significantly and continuously updated to reflect that fact.
Summary Points:
The implications of the above can be identified through examination
of the many instances of shortfall which exist between the delivery and
reimbursement of cancer care in freestanding facilities. The following
bullet points summarize just a few of these:
<bullet> Today, nursing and pharmacy time comprise the principal
components of the direct labor costs of oncology practice
expenses (PEs). However, the allocation of values and minutes
within the CPT codes does not match the actual cost and
duration of nursing services and does not address pharmacist
and pharmacy technician labor and related medical supplies and
quality control processes. For example, CPT 96410 (first hour
of chemotherapy infusion) does not adequately reimburse for the
actual costs of the activities which currently fall under the
definition of that code. In addition, activities which need to
be performed in the care of a typical patient often exceed
96410's 121 minute estimate of total nursing time. This is a
commonplace problem in oncology due to:
<bullet> The compromised physical and mental condition of many
seniors with cancer,
<bullet> The complex procedures integral to the care provided to
all cancer patients undergoing chemotherapy treatment (for
example: patient assessment prior to chemotherapy
administration, evaluation of laboratory data such as blood
counts and renal and liver functions, calculation of drug
dosages based on body surface areas to prevent medication
errors, insertion of intravenous or central venous catheter
devices, continuous monitoring to address potential adverse
reactions, a variety of assistive care activities, and
hazardous materials preparation and disposal).
<bullet> The amount of patient and family member training required
due to the delivery of outpatient rather than inpatient
care, the complexity of care provided, and the side effects
and potential complications associated with multi-drug
agent chemotherapy regimens,
<bullet> The time-intensive nature of patient care-related follow-
up and monitoring required due to the life threatening side
effects and complications routinely experienced by cancer
patients during a typical chemotherapy protocol, and
<bullet> The recently-established standard of practice in which
pharmacists and pharmacy technicians are utilized within
cancer care facilities to enhance the safety of the drug
administration process. As the recent Kansas City
experience clearly demonstrates, on-site skilled pharmacy
services are integral to the delivery of safe and effective
cancer care.
<bullet> Medicare utilizes chemotherapy administration codes published
in the AMA's Current Procedural Terminology (CPT) manual but
applies rules that differ from the CPT's descriptions. For
example:
<bullet> Medicare only allows code 96408 (administration by push
technique) to be reported once per day for a patient
regardless of the number of drugs administered by push.
Many treatment regimens require the administration of
multiple drugs, however, some of the most common of which
are vesicant. Drugs classified as vesicant are agents that
will cause serious tissue damage (including potential loss
of limb) if they leak into the tissues of the patient's
hand or arm; as a result of the potential for this serious
complication, the administration of vesicant drugs requires
prolonged one-on-one nursing care. As a result, caregivers
routinely bear significant multiple push and specialized
care costs that are not adequately reimbursed under current
practice expense policy.
<bullet> CPT 90784 (intravenous push of therapeutic medication) is
a code that was established to cover the costs of
administering non-chemotherapy agents such as anti-nausea
medications, anti-sensitivity drugs, and steroids. Despite
the intention that code 90784 provide reimbursement for
therapeutic agents and despite the fact that such agents
are often a necessary component of a chemotherapy regimen,
Medicare will not make a payment for 90784 activities that
are undertaken on the same day as the infusion of a
chemotherapeutic agent.
CPT 96410 includes a general description of the service (first
hour of chemotherapy administration). Based upon that
description, CMS' Clinical Practice Expert Panel (CPEP)
process has estimated a time allotment of 121 minutes, an
allotment included in published Medicare payment policy.
However, actual Medicare reimbursement does not currently
cover 121 minutes of nursing time and instead provides for
a payment level that covers just an estimated 20 percent of
costs associated with 96410.
<bullet> Current Medicare practice expense reimbursement for oncology
either does not take any account of a wide variety of
activities which are common and integral to the delivery of
cancer care in freestanding facilities or allocates
significantly insufficient minutes and resources to them. For
example:
<bullet> Triage and patient/family education, which consumes an
estimated 25-40 percent of a typical oncology nurse's day
(versus the 15 minutes now allocated by Medicare) and
involves frequent and lengthy phone interaction with the
patient and/or the patient's family support person,
<bullet> Tumor registry-related activities (required by most state
health departments and managed by the Centers for Disease
Control and Prevention),
<bullet> Clinical research-related activities (recently approved
for Medicare coverage but currently lacking any PE
adjustments for the significant labor adjustments required
due to the data intensive nature of the clinical research
process),
<bullet> On-site pharmacy-related activities (increasingly becoming
the standard of practice due to the increasingly complex
nature of new chemotherapy drugs and biotechnology agents
and due to the necessity to free up oncology nurse time in
light of the national shortage of trained nurses),
<bullet> Biohazardous waste disposal (including federally-mandated
disposal systems and required monitoring of disposal by
specialized vendors in federally approved disposal sites),
and
<bullet> Financial counseling and financial aide assistance
(requiring an estimated 10-20 percent of a typical oncology
nurse's day due to the aggressive denial of benefit
standards-of-practice within the insurance industry and by
Medicare intermediaries).
<bullet> As a result of the scope of services that are not currently
being reimbursed or that are inadequately reimbursed, oncology
nurses estimate that a majority of their time is devoted to
activities that are not currently ``billable'' (i.e. considered
within the components of the various CPT-4 codes) under
Medicare. Of those activities which can be billed today, the
vast majority are reimbursed at levels that are far below the
actual cost of undertaking them (at levels estimated to be less
than 20 percent of actual costs reimbursed).
<bullet> Current Medicare practice expense reimbursement for oncology
does not take into adequate account a wide variety of
processes, supplies and equipment which are common, frequently
mandated by federal law or regulation, and integral to
freestanding facilities. For example:
<bullet> Hepa-filter equipped hoods for admixture (to prevent
exposure and contamination),
<bullet> Safe-needle systems (to prevent caregiver needle sticks),
<bullet> Biohazardous waste containers (to prevent exposure and
contamination),
<bullet> Reinforced gowns and gloves (to prevent exposure and
contamination),
<bullet> Specialized devices required to access implantable central
venous ports to safely administer toxic chemotherapeutic
agents and reduce the complications (especially life
threatening infections) associated with frequently repeated
intravenous drug administration processes,
<bullet> Business and clinical record audits and internal reviews
required to ensure compliance with billing regulations as
recommended by the OIG Guidelines For Medical Practices,
and
<bullet> Business and clinical record audits required by the FDA,
OIG, and Medicare intermediaries associated with standard
of care procedures and drugs utilized in the clinical
research process.
<bullet> In the late 1990s, Medicare practice expense components were
made resource-based, a process which presented an opportunity
for the inadequacy of drug administration payments to be
addressed:
<bullet> HCFA initially pursued an approach that would have
increased payments to cover costs; the Agency adopted a
``bottom up'' approach under which clinical practice expert
panels (CPEPs) were formed to estimate the staff time,
supplies, and equipment used in each service.
<bullet> Because the bottom up methodology would have resulted in
significant shifts of Medicare payments among various
specialties, however, legislation was enacted that
postponed implementation of the resource-based practice
expense components for one year and specified new criteria
for HCFA to consider in adopting a methodology.
<bullet> As a result, HCFA changed to a ``top down'' methodology,
which resulted in the preservation of the status quo.
<bullet> On November 1, 2000, HCFA published the final rule for the FY
2001 physician fee schedule that also presented an opportunity
for the inadequacy of drug administration payments to be
addressed:
<bullet> HCFA accepted and published recommendations made by the
American Medical Society's Relative Value Update Committee
(RUC) and Practice Expense Advisory Committee (PEAC) for
CPT codes 96408 and 96410. [42 CFR Parts 410 and 414,
65392-65393]
<bullet> In its rule, HCFA stated ``We will now use the RUC-
recommended total times of 102 minutes of clinical staff
time for CPT code 96408 and 121 minutes for CPT code
96410.'' HCFA also posted a complete database on its
website (http://www.hcfa.gov/stats/resource.htm) that
provided dollar values (inclusive of direct and indirect
expenses) for the updated codes, as follows:
------------------------------------------------------------------------
Published Percent
Value Actual Value Difference
------------------------------------------------------------------------
96408.......................... 183.67 37.11 495%
96410.......................... 267.05 59.684 47%
------------------------------------------------------------------------
<bullet> Despite being accepted and published by HCFA in its final
rule, the significant increases were not adopted into the
Medicare program's actual payment levels.
<bullet> For codes lacking a physician work value (such as all
chemotherapy administration codes), HCFA adopted a methodology
in which a special ``zero work value pool'' was created. HCFA
has never published an explanation of this methodology, but the
pool reportedly is assigned dollars based on the practice
expenses per hour of the average physician, and non-physician
time for each procedure is substituted for the physician time
that would otherwise be used.
<bullet> As a result of this methodology, Medicare payment amounts
were kept at approximately the same levels as existed prior
to the institution of the resource-based system (in fact,
it has been suggested that HCFA selected this methodology
to maintain the status quo in payment amounts).
<bullet> Medicare pays a ``bad debt credit'' to offset uncompensated
care provided by hospital settings but does not currently have
any provision for such a payment to freestanding facilities
(which provide the majority of uncompensated chemotherapy
services to Medicare beneficiaries who cannot meet their
coinsurance obligation, among other needy patients).
<bullet> According to the Medical Group Management Association
(MGMA), the typical physician office setting experiences a
non-collection rate equivalent to 7.5 percent of allowable
reimbursement.
<bullet> In many community-based cancer care facilities--where a
large segment of the Medicare patient population is
dependent upon Social Security as a main source of income--
non-collection levels may be much higher than MGMA's
estimate.
<bullet> A number of activities and infrastructural resources are
needed to operate an efficient and compliant oncology office.
However, many of the costs associated with those activities and
resources are not currently reimbursed. As a result, additional
practice expense allotments or reasonable returns on services,
products, and other resources are needed to: attract and retain
staff (due to the inadequacy of current practice expense
reimbursement); invest in facilities, therapy inventories, and
required diagnosis and treatment technology; finance accounts
receivable; invest in information and operational systems to
meet NCI/FDA clinical trial research data requirements; retain
outside compliance advisors and auditors; and meet HIPPA
regulatory requirements.
Conclusion:
It is our hope that this information will be helpful as Congress
and the Administration seek to address the disparity between typical,
necessary practice expenses and the reimbursement currently provided
under the Medicare program (and, as a consequence, by private payers).
It is also our hope that a clear focus on the nature, complexity,
resource intensity, and technological advances of community-based
cancer care--as well as the reliance by the vast majority of Americans
with cancer on care provided in community-based settings--will lead to
an updating of Medicare practice expense reimbursement to accurately
reflect the realities of cancer care delivery today.
Mr. Bilirakis. This will prove to be a lengthy hearing, and
thus I am limiting my opening statements so we may get to the
important testimony of the witnesses, who, again, I thank for
their efforts and cooperation. Thank you, sir.
Mr. Greenwood. I thank the gentleman and thank him also for
limiting his remarks. I will ask if the opening statements of
the Members could be limited to 3 minutes, and all opening
statements will be entered into the record.
The Chair recognizes for the opening statement the
gentleman from New Jersey Mr. Pallone.
Mr. Pallone. Thank you, Mr. Chairman, and I want to thank
you both, you as the Oversight Chairman and also Mr. Bilirakis
as the Health Subcommittee Chair for holding this hearing.
The issue on the table today critically analyzing the
marketing practices of drug companies will show the immense
amount of fraud perpetrated on the taxpayers and the senior
citizens of this country. I along with all of my colleagues
condemn practices that raid the Federal Treasury of at least
$800 million annually. Further, I am particularly outraged at
the impact of this pervasive fraud on Medicare beneficiaries by
massively increasing the dollars coming out of pocket to cover
the drug costs of sick and dying seniors as a result of the 20
percent copay overcharges.
Mr. Chairman, the GAO, the HHS, inspector general, and some
particularly well-informed whistleblowers will testify today
and leave no doubt that this system is broken and that the
people who can least afford the cost, our seniors, are the
primary victims.
Let us take a look at the winners and losers in the way
HCFA pays for the few outpatient drugs that Medicare covers
under Part B. The winners are obvious. They are the brand name
drug companies and some unscrupulous physicians that administer
the chemotherapy and other infusion drugs in their offices.
There have been some discussions that generic competition is
the cause for the broken system, but make no mistake, it is not
independent generics, but rather the brand name firms that are
the root cause of this fraud.
The companies named publicly in news stories as having pled
guilty to crimes are under active investigation. In addition,
Mr. Chairman, the competition is not always among drugs that
the FDA says are generic equivalents. The competition is also
among brand name drug companies that go to great pains to claim
that their products are not therapeutically interchangeable.
Documents which will be introduced at this hearing will
show that the salesmen peddling these drugs were not arguing
that their medicine was therapeutically superior to the
competition, but rather the internal company documents make
clear the field of battle was who could misrepresent their
prices more outrageously to Medicare so as to provide the
fattest profit. There are some greedy doctors, of course, who
pocket sums approaching a million dollars, and they are
obviously making a lot of money; however, it is the drug
companies' fraud that makes the money possible.
The Medicare reimbursement system is flawed, clearly, but
no law, no regulation, no guideline issued by HCFA or any other
government agency directed drug companies to commit fraud. Just
because a system can be gamed doesn't provide any person or any
firm with the right to defraud the government or their fellow
citizens, and the proof of that is that not all drug companies
played this game. Some chose to compete only on traditional
terms, and I certainly commend them for that. Unfortunately, at
least in segments of the market, the honest firms were the
exception and not the rule, and I find that very tragic.
Thank you very much, Mr. Chairman.
Mr. Greenwood. I thank the gentleman and recognize the
gentleman from Florida Mr. Stearns for his opening statement.
Mr. Stearns. I thank the chairman, and I also want to thank
Mr. Bilirakis for all the work he is doing on this hearing,
too. And, of course, I want to thank Administrator Scully for
coming here with Deputy Inspector Grob and Director Scanlon for
their dedicated analysis. And perhaps this is a quagmire that
they can help us out of by suggesting legislation, what we
should do.
This is sort of an embarrassing thing to be here, this many
people. Obviously when I see a lot of people like that, there
are pocketbooks involved here, but we have got to do something,
and as Chairman Tauzin mentioned, we cannot sit here and let
this continue. I almost think there is moral obligation to go
back and try to rectify this. No one is talking about all the
American citizens who have paid all this money and have paid
too much, and it is out of their pockets, and it has gone in
the wrong directions, and it is difficult to go back in
retrospect and try to come back with something to rectify this
but just move forward. Maybe that is all we can do.
I also want to thank Mr. Zachary Bentley from my State of
Florida. I know it is a little difficult for him to come up
here with airline travel, so I appreciate his efforts in coming
up here.
This is a very thorny question, reimbursing for drugs. Who
would have thought that when Medicare started, that you would
actually be doing a lot of the caring for patients in
outpatient clinics? I had the opportunity to visit and to tour
an oncology center in my hometown of Campbell, Florida, and it
is very satisfying to see patients cared for in this outpatient
clinic. The drugs are administered by nurses and doctors, and
these patients have their family right there. It is an informal
situation, but all the while this is happening and they are
administering these drugs and taking care of them, obviously
the question they brought to my attention is that Medicare is
overpaying for drugs, but underpays for services associated
with the administration of therapies. So this is a very poor
accounting practice.
It is immoral what we are doing. It is unsettling to
patients, and many patients, as the chairman has pointed out,
are paying 300 and 500 percent in their copayment. This cannot
be tolerated, and, Mr. Chairman, I commend you for your hearing
today, and your commitment to do legislation is very important.
Finally, it is hoped that whatever drug reimbursement
system is employed, it should not impose burdensome accounting
requirements on the medical facilities and providers. So
whatever we do, let us try to rectify the problem without
creating another overlay of government upon government with
some kind of accounting procedure. Remember, the caregivers who
take care of patients with cancer and all these respiratory
problems and devastating illnesses are healers. They are not
bean counters. They don't want to spend the rest of their life
filling out government forms to rectify this problem.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes the gentlelady from California Mrs. Capps.
Mrs. Capps. Thank you, Mr. Chairman.
Obviously for most of us our thoughts are elsewhere today.
They are in New York, at the Pentagon, in the homes of the
families across America who have lost loved ones in last week's
terrible events. I think especially of Lisa Raines, so closely
involved with many in this room today. Those events and their
ramifications will certainly be with us for a long time, and
clearly we need to spend significant time on our Nation's many
responses to them.
But I am very pleased that at this time this committee is
making an effort to continue its business. Although the attacks
have changed many of our priorities, we still must address
Medicare and Medicaid and other issues that may seem mundane in
comparison.
So I want to direct my attention to the issue at hand. It
is very disheartening to learn about efforts to take advantage
of our Nation's seniors and America's taxpayers. And clearly if
what we have been told is true, that is what has happened.
Pharmaceutical companies have worked to increase their profits
by artificially raising the Medicare reimbursement rates for
certain prescription drugs, particularly oncology drugs.
Sometimes this happens to the point where our beneficiary pays
more in his or her copayment than it costs to buy the drugs
outright. Clearly, given the current budget situation, Medicare
cannot afford to be paying too much for the services and
prescription drugs, and certainly our seniors are already too
strapped to afford most of their prescription drugs. To take
money from their already overextended pockets this way is
terrible.
It is even worse that this is being done with something as
important as oncology drugs. People suffering from cancer
should not be the target of anyone trying to make a profit.
Many provider groups are arguing that their reimbursement rates
for the services they provide are too low, and they need the
surplus payments to cover extra costs. It is true that
reimbursement rates for certain services are too low. This is
certainly true for oncology nursing, which I know from personal
experience is essential to cancer treatment. In fact, last year
I taped a message for a video about the importance of oncology
nursing and nurses and the need to improve their rates of
reimbursement. But I want to make it clear that just because
these rates are too low does not mean it is all right for other
rates to become too high.
Congress and the Centers for Medicare and Medicaid Services
need to act now to end this practice. We need to make sure that
Medicare is neither overpaying nor underpaying for any
services. To do otherwise threatens the very stability of
Medicare and the ability of our doctors to provide important
health care. We must stop the gouging of our seniors and
constituents by drug companies looking to gain a little market
share.
Mr. Chairman, I am glad you are holding this hearing, and I
look forward to working with you in the future.
Mr. Greenwood. The Chair thanks the gentlelady and
recognizes the gentleman from Georgia Mr. Deal for an opening
statement. Mr. Deal's not here.
Dr. Ganske for an opening statement.
Mr. Ganske. Thank you, Mr. Chairman.
I think it is important to have this hearing. We need to
look at the concept of the average wholesale price. In my mind
the question is, is it the wrong concept for us to be using in
terms of reimbursement, or is the information-gathering and the
actual way that it is being implemented wrong, and does that
need to be improved?
We have to remember that we are not just talking about
Medicare, we are talking about Medicaid and also proposals to
provide prescription drug coverage for Medicare recipients. I
have a proposal, for instance, that would extend Medicaid
coverage to the neediest, and so I think that--and the way the
AWP has done is important. We need to address issues of
potential fraud.
But I want to say this: This last Sunday I gave a speech at
my church on September--about the events on September 11, and
it was pretty emotional, but it was especially emotional for me
because I sat next to my former district staff director, who
has advanced lung cancer and is getting chemotherapy. And I
will tell you, Mr. Chairman, it makes me rather angry to hear
people sit up here and pontificate about the motives of the
physicians who are taking care of Luke. What is medical
necessity in his case? Some of the things that I have heard
would indicate that we questioned the motives of the doctors
who are taking care of him because they can't cure him, but
they are giving him chemotherapy that may give him a couple
extra months of life. I would ask my colleagues how much is
that worth?
So let us get away from some of this rhetoric up here about
the motives. Let us talk some of the facts. Here is a fact.
When Luke goes in for chemotherapy, his doctor is paid $62 for
the administration of that chemotherapy. Just the cost of the
nursing help is probably over $100. We are not even talking
about if he is a Medicare patient. We are not even talking
about the cost of the overhead. It is likely that the cost for
that physician to administer that type of chemotherapy for a
Medicare patient, reimbursement by Medicare is less than one-
half, maybe less than one-fourth of what the actual costs are,
and that isn't even taking into consideration the amount of
time for the personnel and the physicians involved with the
multiple phone calls that chemotherapy patients put in to a
physician's office.
So when we're talking about this threat, let us also talk
about the threat in Medicare and the totally inadequate payment
of Medicare services for this, because this is really
important. If this isn't addressed, then those Medicare
patients ultimately will not get the type of care that they
need, like my friend needs right now.
So let us look at fixing this AWP. Maybe it can be fixed.
Maybe we can prevent some of the problems. But you know what?
I'd have to say this. If a Medicare HMO negotiates a discount
with a pharmaceutical company and thereby increases its
profits, is that fraud? Should we be looking at that?
My suggestion is this: Why don't we get the actual data on
the average wholesale price. Let us collect the slips and find
out what the pharmaceuticals are actually charging and being
paid. I would predict then that you will see, when you get a
more accurate AWP, you'll see some changes in that, in those
amounts, and you'll then get a more accurate index of what, for
instance, the reimbursement truly ought to be for the physician
services.
So, Mr. Chairman, I think it's a pretty important hearing,
and I would just ask my colleagues to look at this in a
rational way. Thank you.
Mr. Greenwood. The Chair thanks the gentleman and assures
the gentleman that it is our intention to make sure that
oncologists and all providers are adequately compensated--
appropriately compensated, and, in fact, it will be the
testimony of the General Accounting Office that will give us
the facts that we need to determine what that reimbursement
should be.
The Chair recognizes for an opening statement the gentleman
from Texas Mr. Hall.
Mr. Hall. Mr. Chairman, thank you, and I think Mrs. Capps
really hit the nail on the hit when she talked about
priorities, because we all have priorities, and I think it is
great of this chairman and the ranking member to hold this
hearing in the midst of all the anxieties that the people have
all across this country.
This is very important, and I suppose if I could say
anything to add to the opening statements that's been made, it
would be that I'd like to see us come together, not slapping
one another around, but to come together to solve these
problems, Medicare, Medicaid, Social Security, the needs that
the people have out there, and come together as closely as
we're together after the President's speech last night on
foreign affairs and offense and defense. That is what is really
needed.
I'm very interested in the studies that have been made by
GAO and CMS. I hope they're on current data on costs for
physicians, particularly in chemotherapy, because in my family
I have that problem, have had that problem to one very dear to
me. We've all--we are all what our experiences are. But I think
the very fact that we have all these empty seats here indicates
that we are in a busy time, in an anxious time, and I thank you
for having this hearing.
I support the hearing and the things that we're going to
have here, and I'd make a request, if it has not already been
made, that we be allowed to submit questions and leave them on
the record to have their answers put into the record to where
the rest of the Congress and the rest of the Nation might have
the benefit of this hearing, and I yield back my time.
Mr. Greenwood. Without objection, questions posed by
members of the committee will be included in the official
record.
The Chair now recognizes the gentleman from Pennsylvania
Mr. Pitts for his opening statement.
Mr. Pitts. Thank you, Mr. Chairman. I want to commend you
and the staff and the whistleblowers for uncovering this
serious abuse in the Medicare drug reimbursement system. The
system deeply is in need of reform, and I want to thank you for
holding this important hearing. I look forward to hearing from
your distinguished witnesses today. Thank you. I yield back.
Mr. Greenwood. The Chair recognizes the gentleman Mr.
Stupak for an opening statement.
Mr. Stupak. Thank you, Mr. Chairman. I'll waive my opening
statement. Just thanks for having this hearing. I look forward
to the testimony we're going to hear today.
Mr. Greenwood. The Chair recognizes for an opening
statement the gentleman from Georgia Mr. Norwood.
Mr. Norwood. Thank you, Mr. Chairman.
I wonder if I could identify who developed that slide while
I'm beginning my opening statement so we can know who to talk
to about it and try to understand it. But I do thank you for
holding this important hearing this morning, and in the
interest of time, I'm going to try to be brief.
It is clearly obvious that CMS needs to be in a responsible
way paying for drug therapies that it does cover under
Medicare, and if CMS is overpaying, then that problem needs to
be corrected, period, now. If there is fraud in any way
occurring with the AWP, that problem needs to be corrected now.
But the tone of the hearing is one in which I think we
ought to be a little concerned about, and I'll spend my time
talking about that. If our effort here is to try to find
somebody to blame or scapegoats, we need to look, I believe, at
other obvious points and the bigger picture that might be
leading to some of these type of things.
I don't think it's a joke or anybody misunderstands that
Medicare significantly underpays providers for many services,
and you may not believe me or Dr. Ganske or Dr. Coburn or
others who have been saying for years that is the case, and it
is getting worse and worse, but it is the case, whether you
believe us or not.
I don't think we need to pat ourselves on the back today
and think we're making real progress on this one particular
problem through this hearing, because the truth of the matter
is we are still ignoring the fundamental problem of Medicare.
Health care costs money, folks, and it is hard to understand
sometimes why--when a patient is dying, perhaps the oncologist
is continuing to inject that patient to buy them a few more
months or weeks or make their life a little bit better.
Now, maybe we don't want to pay for that. Maybe we want to
say that we don't want to pay for that, but let us be honest
with our constituents. Let us be honest as a government entity.
If we don't want to pay for that or can't, for pity sakes,
stand up and say so. Don't try to find a scapegoat to blame.
Now, I don't understand the slide in the back of the room.
I have a hunch the implication there is that, for example,
Leucovorin costs $1.25, and isn't it absolutely awful that the
provider might be charging $42 to use that injection? How could
he possibly charge so much money when it only costs $1.25?
Well, how about extending that slide all the way out over to
here and show the real cost rather than to imply that one of
our oncologists is just trying to rip you off. That is all it
is. The poor government is getting beaten up by the medical
profession because they would dare charge $42 for a chemical
that costs $1.25. Now, I don't know if $1.25 is the right cost
or not, but I do absolutely know that slide is fraudulent. It
is set up there to imply that somebody is ripping somebody off.
Yet it ignores all the other costs that Dr. Ganske started to
begin to talk about that is inherent in the price of giving
that injection.
Now, if our staff is going to present to us information, I
would kindly recommend that they present to us factual
information and let us get at the truth, not have a witch hunt.
Now, Mr. Scully, you're here. We're going to talk to you
about it. If there is fraud going on, get after it. If there
are doctors absolutely cheating the system, get after them. But
let us be honest about what we are discussing in a government
program that year after year after year keeps trying to salvage
the problem by paying people less than it costs to deliver
services. Maybe we can't change that, but for pity sakes, let
us be honest about that with the American people.
I wasn't as brief as I intended, Mr. Chairman. I'm sorry. I
yield back the balance of my time.
Mr. Greenwood. The Chair thanks the gentleman. We'll deduct
that from his round of questioning.
I'll simply indicate to the gentleman that we will
recognize that many providers are underpaid. If we can recoup
this billion dollars that is being wasted on underpayment for
drugs, we'll probably have more than sufficient funds to pay a
whole lot of providers.
The Chair recognizes for an opening statement the gentleman
from Wisconsin Mr. Barrett.
Mr. Barrett. Thank you, Mr. Chairman. Thank you for
chairing this important meeting.
I agree with the previous speaker that we shouldn't be
looking for a scapegoat, but I think at the same time we have a
very serious responsibility to make sure that the taxpayers in
this country are treated fairly, and according to the
information that I have seen in fiscal year 2000, according to
the Office of the Inspector General, Medicare could have saved
between $887 million and $1.9 billion by paying prices that
other government to nongovernment purchasers were paying. These
amounts range from 17 to 32 percent to the total $5 billion
Part B costs to the government, and the recipients paying the
bills.
So we do have an obligation, and we're not just talking
about chump change here. This is a large amount of money, and
it is our responsibility, I believe, to hold hearings like this
to find out exactly what the problem is. So I, again, applaud
you, Mr. Chairman, for holding the hearing.
On another note, I know Mr. Scully will be testifying, and
I just want to highlight an issue that I think that we also
have to address, which is not 100 percent on point, but there
is a Federal barrier right now which prevents safety net
hospitals from negotiating better prices on in-patient
pharmaceuticals. There is an unreasonably narrow interpretation
by CMS of a Medicaid provision passed by Congress to facilitate
free market negotiations between drug manufacturers and safety
net providers. We need to make it possible for safety net
providers to negotiate better prices on in-patient and out-
patient drugs, and I hope to explore that further, and I would
yield back the balance of my time.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes for his opening statement the gentleman from
Michigan Mr. Upton.
Mr. Upton. Thank you, Mr. Chairman, and at the same time,
I, too, will ask unanimous consent to put my entire statement
into the record.
I just would like to add, we do need reform in the system.
It appears to be broken in lots of different ways. We need to
help both the beneficiaries as well as the taxpayers. We need
to make sure that the providers are adequately compensated in a
fair way to make their expenses as well.
We have a good task ahead of us. I welcome the hearing on
the debate this morning, this afternoon, and yield back.
[The prepared statement of Hon. Fred Upton follows:]
Prepared Statement of Hon. Fred Upton, a Representative in Congress
from the State of Michigan
Mr. Chairman, thank you for calling today's hearing on Medicare's
system for reimbursing prescription drugs administered in physicians'
offices and certain other settings. As the title of the hearing
indicates, the current system serves neither Medicare patients nor the
taxpayers well.
What our committee investigators and the GAO have uncovered is not
pretty and reflects badly on everyone involved. Medicare's
reimbursement system is being used as a tool in the intense competition
for drug market share, leading drug manufacturers to overstate--
sometimes grossly overstate--the average wholesale prices for their
drugs. The often substantial differences between what Medicare will pay
for drugs and what the drugs actually cost physicians may be
influencing prescribing practices. And Medicare patients--already
grappling with the ravages of cancer or other terrible diseases are
having their pockets picked--paying twenty percent of sometimes grossly
inflated Medicare prices rather than the often much lower actual cost
of the drug the doctors are using to treat them. Then they pay again
when Medicare premiums rise in response to rising program costs. And
the taxpayers, who foot 75 percent of the program's costs, are having
their pockets picked as well.
Mr. Chairman, I think all of us will agree today that we need to
act quickly to fix the system in the interests of both Medicare
beneficiaries and taxpayers.
I hope that today's hearing will give us the information we need to
do it right--and the impetus we need to do it quickly. We need to
figure out a way to get real data on real acquisition costs so Medicare
payments can be adjusted to reflect reality. At the same time, to
ensure continued access to care in community-based settings, we need to
fix portions of the physician fee schedule to ensure that the true
costs of administering these drugs are reimbursed. In short, we need to
give CMS the tools it needs, legislatively and administratively, to do
its job right and to protect some of the sickest and most vulnerable of
Medicare patients.
Mr. Greenwood. The Chair thanks the gentleman and turns for
an opening statement to the gentleman from Indiana Mr. Buyer.
Mr. Buyer. Thank you for the hearing, and I ask unanimous
consent that my statement be placed in the record, and I would
also be hopeful--I'm most hopeful that we will not try to
demonize those who are dedicated to saving life, whether it be
our health care providers or the those of whom manufacture
these great drugs that help extend life. I yield back my time.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes for an opening statement the gentleman Mr. Bass from
New Hampshire.
Mr. Bass. Thank you, Mr. Chairman.
It is clear this is not a simple problem. It will not
demand a simple conclusion. I appreciate the two subcommittee
chairmen holding this very important hearing, and I'll yield
back.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes for an opening statement the gentleman from Texas
Mr. Barton.
Mr. Barton. Thank you, Mr. Chairman, and Chairman, both of
you, for holding this joint hearing. Let the record show they
come to hearings other than energy hearings, that I'm on this
subcommittee.
I was visited yesterday in my office by a pharmaceutical
chemotherapy company located in my district. They had done some
mathematical analysis, financial analysis, not as extensive as
what our subcommittees have done, and showed that just based on
their review, there was almost a billion dollars that could be
saved in the numbers that they looked at and the drugs that
they were prescribing, that others were. So I'm going to have
to be convinced that the current system is worth saving before
I agree to save it.
If I had to vote today, I would vote to say that physicians
could not prescribe and treat cancer patients. They can choose
one or the other, but they can't do both, because it seems to
me that the system that we have today is broken. We can't fix
it. So we need to change it. So I'm going to lock forward to
the testimony, but put me down as a Doubting Thomas that the
current system is worth saving. And with that I yield back the
balance of my time.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes for his opening statement the gentleman from
Oklahoma Mr. Largent.
Mr. Largent. Mr. Chairman, in the interest of time, I want
to submit my full statement for the record, and I'll yield back
my time.
Mr. Greenwood. The Chair thanks the gentleman.
Mr. Greenwood. The gentleman from North Carolina for an
opening statement, Mr. Burr.
Mr. Burr. Mr. Chairman, let me thank you for this hearing.
Mr. Chairman, every time we look at health care, we find a
more difficult animal than sometimes on the surface we think it
is. I think what we're looking at today is, in fact, very
complicated. I think the important thing for Members to
remember is that over the years it has been, in fact, this body
that legislates much of what we do in health care. We respond
to providers, we respond to patients, and hopefully sometimes
we respond to need, the needs that exist in the delivery
systems that we have some jurisdiction on.
We seldom get it exactly right. Most of the time we do get
some things wrong, and, yes, in the last 7 years with the
leadership changes, we have gotten some things wrong. But one
thing that I have learned as a member of this committee as we
talk about health care policy is that, one, we always have to
strive to do a little bit better; and, two, we also have to be
very cautious as we make change that we don't make things
worse, that we look outside of the area that is our focus to
make sure that changes that we make don't adversely affect
other areas of the health care delivery system.
I believe that we'll hear a lot of information today. I as
one will take that information and try to put it through that
test of how do we make it a little bit better. How do we make
sure that we don't adversely affect other areas by not just the
actions of this committee potentially in the future, but by
some of the questions and some of the documents that, in fact,
we put on the record, because I think, as we all know,
throughout the health care system, whether you're in a hospital
or whether you're in a provider's office today, your legal
counsel watches what Congress says and what we do and
eventually what we pass. And all of it to some degree is
interpreted the same way when lawyers look at liability, and my
hope is that Members will remember that as they ask questions,
that they make sure that they clarify everything, and that in
the end we do something that addresses exactly the problem that
we're trying to get to, a faulty average wholesale price for
pharmaceuticals in this country. If there are other areas we
need to address, I note that this committee will have the will
and the patience to do it.
Mr. Chairman, thank you for your time, and I yield back.
Mr. Greenwood. The Chair thanks the gentleman.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Robert L. Ehrlich, Jr., a Representative in
Congress from the State of Maryland
Mr. Chairman, thank you for holding this important hearing on
legislative measures to address the Medicare reimbursement for
pharmaceuticals. As you know, Medicare drug reimbursement levels affect
millions of Americans who face a variety of serious illnesses.
As we will hear today from the GAO testimony and others, our
already-strapped Medicare program, which pays for a limited number of
critical drug therapies, overpays for the costs of these drugs. For
instance, the Committee notes that 24 highly used drugs may be
resulting in a Medicare overpayment of at least $750 million annually.
I am eager to hear the testimony before us today to learn more about
this overpayment and consider ways to save the Medicare program--and
Medicare beneficiaries who pay co-payments on these inflated values--a
considerable amount of money.
While it is crucial to address the overpayment calculation for
these drugs, I also see the other side of the argument. As I learned
during the August District Work Period, providers of care depend upon
these overpayments to provide critical care to their patients. As we
will also hear today, Oncology treatment facilities represent the front
line of defense for nearly 80% of cancer patients in our country.
Many in the cancer community acknowledge that the Medicare program
employs a flawed reimbursement structure which overpays them for drugs.
At the same time, however, they argue that Medicare also underpays for
many services. For example, Medicare does not adequately support the
critical role played by oncology nurses in the care of seniors and
people with disabilities. In visiting an Oncology treatment facility in
my district recently, I saw first-hand that preserving patient access
to cancer care may only be achieved by simultaneously fixing Medicare's
flawed reimbursement of cancer drugs and cancer services. Such serious
flaws have forced these caregivers to engage in a form of ``cost
shifting'' in which they use drug overpayments to offset Medicare's
underpayment for the treatment services provided to beneficiaries. This
is source of great uncertainty for seniors with cancer and places
significant pressures on the professional caregivers who treat them.
Given these two sides of the argument--with patients in the middle
simply seeking quality care--I am eager to review the testimony of our
witnesses and hope that we move forward to reform Medicare
appropriately with the best interests of patients in mind. Mr.
Chairman, I realize your deep concern about these issues as well and
thank you for your leadership. I look forward to our witnesses'
testimony and to working with you and our colleagues to ensure patient
access to high quality care.
______
Prepared Statement of Hon. Eliot Engel, a Representative in Congress
from the State of New York
Mr. Chairman, let me first express my profound sadness over the
events of last week and extend my sincerest sympathy to the families of
all the victims. But we must continue the business of the people.
Today's hearing is focusing on how Medicare reimburses for drugs. It is
apparent that it is a complex problem that affects many different
areas, from patients, to physicians, to drug companies. Any proposed
fix must consider the ramifications for all of these groups, however,
the interests of Medicare recipients must be our top priority.
Congress must consider any proposed fix carefully. There have been
several attempts to address this issue, which have either failed to
become law or failed when they became law and were repealed. The goal
that we must keep in mind here is that seniors receive safe, effective,
low-cost care. In order to achieve that end, providers must be
adequately reimbursed for drugs and the services they provide but fraud
and abuse must be rooted out. In the past, Congress has fallen back on
AWP (average wholesale price) when providers have said that they were
not being reimbursed for their costs. Instead of considering new
reimbursement policies, AWP was used to cover these costs. Now, this
money may be taken away and providers will be left with inadequate
reimbursements for their services. Clearly we must be sure to consider
these circumstances.
There is no doubt that there is fraud and abuse because of AWP. I
think we do need to fix this problem, but we need to make it better,
not worse. I have introduced legislation to address one of the major
problems with home infusion therapy. My bill, HR 2750, the Medicare
Home Infusion Therapy Act, addresses the particular problems associated
with home infusion therapy. Medicare's reimbursement policy for home
infusion therapy is simply outdated. Modern medicine has made the
administration of many drugs safe and effective in the home. However,
because of ludicrous reimbursement provisions seniors are forced to
stay in hospitals or trek to physicians offices on a daily basis to
receive their treatment. In many cases, this treatment can be conducted
in the home safely and at a fraction of the cost. To address this
issue, HR 2750 directs the Secretary of Health and Human Services to
set up a fee schedule for drug reimbursements and provider
reimbursements that would ensure adequate and fair payments to
providers. I feel that this legislation appropriately addresses the
needs of seniors and providers and could serve as a model for a broader
approach to the problems with AWP. I urge this Committee to examine
this legislation closely and I also ask you, Mr. Scully, to work with
me on this issue.
I want to thank all of our witnesses for attending this hearing
today under such difficult circumstances. I look forward to hearing
your testimony.
______
Prepared Statement of Hon. Gene Green, a Representative in Congress
from the State of Texas
Thank you Mr. Chairman for holding this hearing on Medicare's
reimbursement system for oncology treatments.
In light of last week's events, it is difficult to get too worked
up about issues like Medicare reimbursements and practice expenses.
But the truth is that we must continue to do our job in Washington,
and as members of this committee, we must continue to improve our
Medicare system for beneficiaries and providers.
This issue is an important one. Each day, 3,400 Americans learn
that they have cancer. Every minute, another American dies from some
form of this disease.
Cancer costs our country more than $107 billion each year.
And with more than 60 percent of all cancers being diagnosed in
individuals over age 55, the Medicare programs is bearing a significant
burden for treating cancer patients.
When the Medicare reimbursement system was first developed, most
cancer patients went to the hospital to receive treatment.
But nowadays, eighty-five percent of these cancer patients are
receiving their treatment at out-patient cancer centers.
Our reimbursement system does not reflect the changing world of
cancer treatment.
Medicare's reimbursement system for cancer drugs is based on an
artificial average wholesale price or (AWP).
As our witnesses will testify, however, this AWP is dramatically
inflated for cancer drugs, causing the Medicare program and its
beneficiaries to pay exorbitant costs for their life-saving cancer
therapies.
Medicare reimburses for 95% of the AWP for oncology drugs.
But, because the AWP does not actually reflect the costs of
oncology drugs, physicians are being reimbursed for considerably more
than they are paying.
As a result, physicians could be prescribing drugs based on how
much they'll profit from them.
There are allegations that physicians won't prescribe a newer, more
effective drug, because they don't profit enough.
Now oncologists, like most other Medicare providers, are underpaid
for their practice expenses.
As the GAO will testify, oncologists are underpaid by as much as
15%. They use the windfall from the AWP to make up for the underpayment
from practice expense.
This system is bad for patients, is wasteful, and is poor public
policy.
There is no question on either side of this debate that the current
system is broken.
But we must be careful to repair it in a way that does not endanger
cancer patients.
We were all troubled by recent media reports where a pharmacist in
Kansas was adulterating chemotherapy drugs, reducing their potency, and
endangering the lives of cancer patients.
We must ensure the integrity and quality of our cancer treatment
system.
But the reimbursement system we have in place must be changed.
It encourages dishonest behavior by both the pharmaceutical
manufacturers and the oncologists.
It results in higher costs for both the program and the
beneficiaries--patients who are probably facing the most daunting
health crisis of their lives.
But whatever solution we craft over the coming months, we must
ensure that all Medicare beneficiaries have access to the life saving
cancer therapies that they need.
I look forward to the testimony of our witnesses, and I yield back
the balance of my time.
______
Prepared Statement of Hon. Bobby L. Rush, a Representative in Congress
from the State of Illinois
Mr. Chairmen, I want to express my thanks to both of the Chairmen
for holding this very important joint hearing on the reimbursement
system for prescription drugs under the Medicare Part B program. While
the Part B prescription drug program is a relatively small component of
universe of prescription drugs used by seniors and others, it is,
nonetheless, of critical importance to its users.
The Part B program covers those drugs used with durable medical
equipment (DME) or infusion devices, and the host of drugs administered
in the treatment of cancer, hemophilia, organ transplantation,
emphysema, asthma, kidney dialysis, AIDS, and pain management therapies
which are administered on an out-patient basis or in home settings.
Many Medicare beneficiaries rely on these life-giving medications and
we must ensure their availability and affordability.
Since the beginning of the Medicare Part B program for drug
reimbursements, the cost of medications for beneficiaries under this
program has grown significantly. Current estimates are that the cost of
drug reimbursements has doubled in the last five years.
I am particularly concerned about the special needs of some of the
users of these drugs, and have a number of questions about the coverage
provided. For example, in hemophiliacs, what is the difference in cost
between home infusion and hospital treatment for a bleeding incident?
I look forward to hearing the testimony of the distinguished panel
of witnesses and to getting the answers to these, and many other
questions regarding the reimbursement rates and processes under
Medicare Part B program.
Thank you.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Chairman Greenwood and Chairman Bilirakis, thank you for convening
this hearing on Medicare's payment policy for prescription drugs. I
realize that this hearing may not seem terribly important in light of
the tragedy that struck our Nation on September 11th. The victims of
these horrific attacks, their families, friends, and coworkers, and the
security and safety of the American people are all at the forefront of
our minds.
Yet in a time when government resources may be needed for purposes
none of us could have imagined two weeks ago, we have an added
responsibility to ensure that more routine government expenditures are
not wasteful. This hearing concerns improper and excessive payments on
behalf of the Medicare program. As stewards of Medicare, the Committee
cannot and should not allow this practice of overpayments for
prescription drugs to continue.
However, before we rush to fix the problem with legislation, we
must ensure that any solution will do nothing to harm the patients who
need these drugs. We must also be conscious of the impact any change we
consider would have on the overall Medicare reimbursement system and
other health care payers.
Medicare pays for prescription drugs on an outpatient basis in
limited circumstances. One of these circumstances occurs when drugs are
administered by a physician, oftentimes during the treatment of cancer.
Medicare's reimbursement formula is set at 95 percent of the drug's
average wholesale price, or ``AWP.'' The problem with this formula is
that AWP is an artificial number reported by the drug manufacturer. In
fact, some drug manufacturers deliberately inflate the AWP that they
report in order to make the drug more attractive to physicians. The
results of this dubious behavior are higher copayments for seniors, an
incentive for patients to receive wrong or unnecessary drugs, and waste
to the Medicare program.
Congress has been aware of the problem with the current formula for
many years. Today, however, the stakes are higher, because any solution
we create could have a far-reaching effect on the senior citizens of
this country. This Committee will be considering a broad prescription
drug benefit in Medicare. It is crucial that the Committee focus on
developing a new reimbursement formula that is accurate and workable,
based upon a benchmark price that cannot be manipulated.
At today's hearing, some groups will testify that these outrageous
overpayments for prescription drugs are necessary to make up for
Medicare's under-payments for administering them. In correcting the
drug reimbursement formula, the Committee should carefully examine this
issue. We certainly do not want to create a situation where patients
who need these drugs cannot find the drugs or a physician to administer
them.
However, the primary issue before us today is that of prescription
drug pricing. Billions of dollars have already been wasted--dollars
that could have been spent providing broader prescription drug coverage
to seniors. We have a duty to make sure that this practice stops, and
to concentrate on creating a Medicare drug benefit where seniors are
protected from price-gouging incentives.
Mr. Greenwood. The Chair now calls forward our first panel:
Mr. William J. Scanlon, the Director of Health Care Issues for
the General Accounting Office; the honorable George Grob,
Deputy Inspector General, Department of Health and Human
Services; and Mr. Zachary Bentley, the President of Ven-A-Care,
Inc.
Thank you, gentlemen, for your presence today. This is a
joint hearing between the Energy and Commerce Subcommittee on
Oversight and Investigations as well as the Subcommittee on
Health. The Oversight and Investigation Subcommittee is an
investigative subcommittee, and as such we've had the practice
of taking testimony under oath. Do any of you object to
testifying under oath?
Seeing no such objection, the Chair then advises each of
you that under the rules of the House and the rules of the
committee, you are entitled to be advised by counsel. Do any of
you desire to be advised by counsel during your testimony
today?
Seeing no such request, in that case, would you please rise
and raise your right hand, and I will swear you in.
[Witnesses sworn.]
Mr. Greenwood. Thank you. You are now under oath, and we
will recognize first Mr. Scanlon for his 5-minute opening
statement. Welcome, sir.
TESTIMONY OF WILLIAM J. SCANLON, DIRECTOR, HEALTH CARE ISSUES,
GENERAL ACCOUNTING OFFICE; GEORGE F. GROB, DEPUTY INSPECTOR
GENERAL, DEPARTMENT OF HEALTH AND HUMAN SERVICES; AND ZACHARY
T. BENTLEY, PRESIDENT, VEN-A-CARE, INC.
Thank you very much, Mr. Chairman, and members of the
subcommittees. I'm pleased to be here today to discuss this
important issue and wish to share with you some of the work
that we've been doing on the payment by Medicare for
prescription drug coverage--the prescription drugs that it
covers. We are releasing today a study that was requested in
the Beneficiary Improvements and Protection Act on Medicare's
pricing of these drugs and will soon release a related study on
payments for drug administration services under Medicare's
physician fee schedule.
Today I'd like to provide highlights of these two studies,
both of which underscore the need for payment method
modifications. Our drug pricing study's findings echo those of
the Inspector General, the Justice Department, CMS and this
committee's. All reveal that Medicare's method, as we've heard,
for establishing drug payments is flawed. Simply put, tying
Medicare's drug payment to AWP is a recipe for inflation and
excess payments.
Even though AWP is often labeled a retail or sticker price,
it's not even that. A price is what a purchaser pays for a
product. AWP is closer to just a number that manufacturers can
specify without rules or criteria, a number not constrained by
the need to have a purchaser willing to pay it.
Like the Inspector General, we found that in 2001,
wholesalers' catalog prices that would be available to any
physician or pharmacy or supplier involved sizable discounts
from the AWP. These conservative estimates of providers'
acquisition costs indicated that discounts on physician-billed
drugs, mostly chemotherapy drugs, ranged from 13 to 34 percent
on most drugs and in some cases were even higher. Discounts on
two inhalation therapy drugs that account for three-quarters of
all the drugs billed to Medicare are startling: 78 percent for
one and 85 percent off of AWP for the other.
Medicare's troubling experience in terms of drug pricing is
often contrasted with that of the Veterans Administration. As
the VA is essentially a health care provider and not a third-
party payer like Medicare, its approach cannot simply be
transferred to the Medicare program, but key elements can be
emulated.
The VA uses the leverage of its and other Federal
purchasers' volume to secure prices that are similar to those
of other volume purchasers' market prices that someone actually
pays. To accomplish this, it uses its leverage to get
verifiable data on actual market transactions to establish
price schedules. Furthermore, for selected drugs, it has
consolidated purchasing power even more and used competition to
secure even lower prices.
CMS is in a similar position in that it has available to it
comparable information on market prices through the Medicare
drug rebate program. We are recommending that CMS assess how it
can use those data to ensure that Medicare's payments more
closely reflect market prices and to explore how competitive
procurements might be effectively used.
Let me turn now to the issue of payments for drug
administration. As has been indicated clearly, there is
widespread agreement in terms of drug pricing. Our findings are
not controversial. However, providers have indicated that
underpayment in terms of drug administration needs to be made
up for by overpayments in the drug purchase area.
Our second report looks at payments for drug administration
under the physician fee schedule, which include the bulk of
chemotherapy administration services provided by oncologists.
In the past, we have examined the then-named HCFA's
development of the resource-based practice expense component of
physicians' fees. That is the part of physician fees meant to
reflect the cost of operating a practice, like nursing and
administrative staff, equipment, rent and utilities. We
concluded then that the Agency's basic method of computing
these fees was sound. It achieves the goal laid out by the
Congress; that is, to stop having the money Medicare pays
physicians distributed according to what physicians
historically charge for their services, and to have that money
distributed according to the relative amounts of resources
needed to provide each service.
The implementation of the revised fee schedule, though, has
been controversial. Since Medicare payments in the aggregate
were deemed adequate, the Congress required that the new fees
be budget-neutral. Then if one specialty's fees increased on
average, some others would have to decline. Such
redistributions have occurred, and some are quite significant.
Oncology is one of the specialties that gain under the new fee
schedule. Its practice expense payments are 8 percent higher
than they would have been if the prior method of setting fees
stayed in place. However, that does not mean that we do not
believe there is a problem in the way fees for services, like
chemotherapy administration by nurses, are calculated.
HCFA modified its basic method in computing payments for
services delivered without direct physician involvement, which
include chemotherapy administration as well as some services
provided by other specialties. The modifications were intended
to correct for perceived low payments for these services, and
while they did increase payments for some, they lowered them
for many others. Moreover, the modifications increased payments
on average for services that did involve physicians directly.
Oncology payments were more affected by these modifications,
because their services not involving direct physician
participation constitute a bigger share of their billings than
other services. These services for oncologists are about one-
third of their billings compared to 5 percent for all
physicians.
The payments for nonphysician chemotherapy administration
are on average 15 percent lower than if HCFA used this basic
method. On the other hand, practice expense payments for
services provided by oncologists themselves are 1 percent
higher because of these changes. Using the basic method, which
we believe is correct, for all services would increase practice
expense payments to oncologists by 6 percent.
We don't think that the HCFA's adjustments, as I've
indicated, were appropriate, and our study will recommend that
they use the basic methodology--that CMS use the basic
methodology to determine practice expense payments for all
services.
Oncologists have raised other concerns about the physician
fee schedule, including the representativeness of data used to
estimate these practice expenses and whether the data reflects
current practices in delivering services.
We are currently conducting another study to determine how
CMS can improve and update the information used to estimate
practice expenses; however, what impact improved data may have
on payments is uncertain. Payments are based on the differences
in expenses of one specialty compared to another. Some of the
data concerns raised by oncologists may apply equally well to
other specialties so that additional and many current data may
reveal that the relative cost of different specialty services
would only change modestly.
Overall, let me say in conclusion, we believe that it
should be a principle of Medicare payment policy to pay for
each service appropriately and not to rely on overpayments for
some to offset inadequate payments for others. An efficiently
operated Medicare program needs payments that reflect market
prices so that it benefits from the discipline imposed by other
payers. It also needs to judiciously use the buying power
associated with its size to secure even greater efficiencies,
though that must be balanced with its responsibilities to
assure access for beneficiaries and to treat providers fairly.
Thank you very much, Mr. Chairman. I'll answer any
questions you have.
[The prepared statement of William J. Scanlon follows:]
Prepared Statement of William J. Scanlon, Director, Health Care Issues,
United States General Accounting Office
Messrs. Chairmen and Members of the Subcommittees: I am pleased to
be here as you discuss the pricing of Medicare's part B-covered
prescription drugs. The pricing of these drugs--largely drugs that
cannot be administered by patients themselves--has been under scrutiny
for several years. Most of the part B drugs with the highest Medicare
payments and billing volume fall into three categories: those that are
billed for by physicians and typically provided in a physician office
setting (such as chemotherapy drugs),<SUP>1</SUP> those that are billed
for by pharmacy suppliers and administered through a durable medical
equipment (DME) item (such as a respiratory drug given in conjunction
with a nebulizer <SUP>2</SUP>), and those that are also billed by
pharmacy suppliers but are patient-administered and covered explicitly
by statute.<SUP>3</SUP> Studies by the Department of Justice, the
Department of Health and Human Services' (HHS) Office of the Inspector
General (OIG), and the House Committee on Commerce show that Medicare's
payment for these drugs in some cases is significantly higher than the
actual costs to the physicians and other providers who bill Medicare
for these products.
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\1\ In the case of chemotherapy drugs, the common practice is for a
nurse to provide the services to administer the drug and for the
physician to bill Medicare accordingly.
\2\ A nebulizer is a device driven by a compressed air machine. It
allows the patient to take medicine in the form of a mist (wet
aerosol).
\3\ Medicare-covered drugs and biologicals that can be self-
administered include such drugs as blood clotting factors and some oral
drugs used in association with cancer treatment and immunosuppressive
therapy.
---------------------------------------------------------------------------
In September 2000, the Health Care Financing Administration
(HCFA)--now the Centers for Medicare and Medicaid Services (CMS)
<SUP>4</SUP>--took steps to reduce Medicare's payment for part B-
covered drugs by authorizing Medicare carriers, the contractors that
pay part B claims, to use prices obtained in the Justice Department
investigations of providers' drug acquisition costs. HCFA retracted
this authority in November 2000 following concerns raised by providers.
In December 2000, as part of recent Medicare legislation,<SUP>5</SUP>
the Congress asked us to study Medicare's payments for part B-covered
drugs and make recommendations for pricing methodology refinements. We
have reported our findings and made recommendations, as mandated,
today. <SUP>6</SUP>
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\4\ Our statement refers to HCFA when discussing actions it took
under that name.
\5\ The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (P.L. 106-554, Appendix F).
\6\ Medicare: Payments for Covered Outpatient Drugs Exceed
Providers' Costs (GAO-01-1118, Sept. 21, 2001.)
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My remarks today will focus on (1) Medicare payment policies to
cover part B-covered drug costs and costs of administering the drugs
and (2) key features of other payers' reimbursement policies that
suggest opportunities to improve the appropriateness of Medicare's
payments. My comments are based primarily on our study of Medicare
payments for part B-covered drugs and a forthcoming study of
physicians' practice expense payments under Medicare's fee schedule.
In summary, our study shows that Medicare's method for establishing
drug payments is flawed. Medicare pays 95 percent of the average
wholesale price (AWP), which, despite its name, may be neither an
average nor what wholesalers charge. It is a price that manufacturers
derive using their own criteria; there are no requirements or
conventions that AWP reflect the price of any actual sale of drugs by a
manufacturer. Manufacturers report AWPs to organizations that publish
them in drug price compendia, and Medicare carriers that pay claims for
part B drugs base providers' payments on the published AWPs.
We found that, in 2001, widely available prices at which providers
could purchase drugs were substantially below AWP, on which Medicare
payments are based. For both physician-billed drugs and pharmacy
supplier-billed drugs, Medicare payments often far exceeded widely
available prices. Despite concerns about what discounts may be
available to smaller-volume purchasers, physicians who billed Medicare
for low volumes of drugs reported receiving discounts from AWP, for
most drugs, that were similar to or greater than those afforded by the
widely available prices we documented.
Physicians and pharmacy suppliers contend that the excess payments
for covered drugs are necessary to offset what they claim to be
inappropriately low or no Medicare payments for services related to the
administration or delivery of these drugs. For administering physician-
billed drugs, Medicare makes explicit payments under the physician fee
schedule. Our forthcoming review of practice expense payments under the
fee schedule will make several points regarding oncologists' payments.
It will show that Medicare's payments to these specialists were 8
percent higher than they would have been if the program's prior payment
method had remained in place and will show that oncologists' payments
relative to their estimated practice expenses were close to the average
for all specialists. However, we will also show that HCFA made
questionable modifications to its basic method of setting practice
expense payments, which resulted in lowering the average fees paid for
the administration of drugs by physicians' staffs.
For delivering pharmacy supplier-billed drugs, Medicare's payment
policies are uneven. Pharmacy suppliers billing Medicare receive a
dispensing fee for one drug type--inhalation therapy drugs--but there
are no similar payments for other DME-administered or oral drugs.
However, Medicare pays DME suppliers for the rental or purchase of
equipment and supplies, and long-standing problems in the program's
payments for these items may result in overpayments that implicitly
compensate for some service delivery costs not covered.
Other payers and purchasers, such as health plans and the
Department of Veterans Affairs (VA), employ different approaches in
paying for or purchasing drugs that may be instructive for Medicare. In
general, they make use of the leverage from their volume and
competition to secure better prices. The federal purchasers,
furthermore, use that leverage to secure verifiable data on actual
market transactions to establish their price schedules. Private payers'
practices--such as negotiating prices that result in selecting certain
products or suppliers and arriving at terms without open competition--
would not be easily adaptable to Medicare, given the program's size and
need to ensure access for providers and beneficiaries. How other
federal agencies have exercised their leverage may offer more
applicable lessons.
background
The traditional Medicare program does not have a comprehensive
outpatient prescription drug benefit, but under part B (which covers
physician and other outpatient services), it covers roughly 450
pharmaceutical products and biologicals. <SUP>7</SUP> In 1999, spending
for Medicare part B-covered prescription drugs totaled almost $4
billion. <SUP>8</SUP>
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\7\ For the remainder of this statement, we will refer to ``drugs
and biologicals'' as ``drugs.''
\8\ Spending is defined as Medicare's total payment, of which
Medicare's share is 80 percent and the beneficiaries' share is 20
percent.
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Small Number of Products Accounts for Largest Shares of Program
Spending and Claims Volume
A small number of products accounts for the majority of Medicare
spending and billing volume for part B drugs. In 1999, 35 drugs
accounted for 82 percent of Medicare spending and 95 percent of the
claims volume for these products. <SUP>9</SUP> The 35 products
included, among others, injectible drugs to treat cancer, inhalation
therapy drugs, and oral immunosuppressive drugs (such as those used to
treat organ transplant patients).
---------------------------------------------------------------------------
\9\ Our analysis excluded some high-volume and high-expenditure
drugs because of inadequate pricing data. Volume for a drug is measured
in terms of the number of units provided. Analyses exclude data on
services supplied in Puerto Rico and the U.S. Virgin Islands and
exclude payments made on behalf of Railroad Retirement Board
beneficiaries.
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The physician-billed drugs accounted for the largest share of
program spending, while pharmacy supplier-billed drugs constituted the
largest share of the billing volume. Three specialties--hematology
oncology, medical oncology, and urology--submitted claims for 80
percent of total physician billings for part B drugs. Two inhalation
therapy drugs accounted for 88 percent of the Medicare billing volume
for pharmacy-supplied drugs administered in a patient's residence.
<SUP>10</SUP>
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\10\ These two drugs are ipratropium bromide and albuterol (unit
dose form).
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Medicare Payments for Drugs Are Based on Published AWPs
Medicare's payment for part B-covered drugs is based on the
product's AWP, which is a price assigned by the product's manufacturer
and may be neither ``average'' nor ``wholesale.'' Instead, the AWP is
often described as a ``list price,'' ``sticker price,'' or ``suggested
retail price.''
The term AWP is not defined in law or regulation, so the
manufacturer is free to set an AWP at any level, regardless of the
actual price paid by purchasers. Manufacturers periodically report AWPs
to publishers of drug pricing data, such as the Medical Economics
Company, Inc., which publishes the Red Book, and First Data Bank, which
compiles the National Drug Data File. In paying claims, Medicare
carriers use published AWPs to determine Medicare's payment amount,
which is 95 percent of AWP. <SUP>11</SUP> Thus, given the latitude
manufacturers have in setting AWP, these payments may be unrelated to
market prices that physicians and suppliers actually pay for the
products.
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\11\ Technically, the payment equals 95 percent of AWP for the
drugs grouped under each HCFA Common Procedure Coding System (HCPCS)
code. Individual drugs are identified by the National Drug Code (NDC).
NDCs are assigned by the Food and Drug Administration and are the
universal product identifiers for drugs for human use. Each NDC
specifies a chemical entity, manufacturer, dosage form, strength, and
package size. For example, a single drug--marketed by one manufacturer
in one form and strength but in three package sizes--would have three
NDCs. Because one HCPCS code may have multiple NDCs, the carriers
determine the Medicare payment by analyzing multiple NDCs' AWPs. For
multisource drugs, the payment allowance is 95 percent of the lower of
(1) the median AWP of all generic forms of the drug or (2) the lowest
brand name product's AWP.
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Drug Supply Chain Involves Multiple Parties and Arrangements That
Influence the Net Price to the End Purchaser
The actual price that providers pay for Medicare part B drugs is
often not transparent. Physicians and suppliers may belong to group
purchasing organizations (GPO) that pool the purchasing of multiple
entities to negotiate prices with wholesalers or manufacturers. GPOs
may negotiate different prices for different purchasers, such as
physicians, suppliers, or hospitals. In addition, providers can
purchase part B-covered drugs from general or specialty pharmaceutical
wholesalers or can have direct purchase agreements with manufacturers.
Certain practices involving these various entities can result in
prices paid at the time of sale that do not reflect the final net cost
to the purchaser. Manufacturers or wholesalers may offer purchasers
rebates based on the volume of products purchased not in a single sale
but over a period of time. Manufacturers may also establish
``chargeback'' arrangements for end purchasers, which result in
wholesalers' prices overstating what those purchasers pay. Under these
arrangements, the purchaser negotiates a price with the manufacturer
that is lower than the price the wholesaler charges for the product.
The wholesaler provides the product to the purchaser for the lower
negotiated price, and the manufacturer then pays the wholesaler the
difference between the wholesale price and the negotiated price.
medicare's payment for part b-covered drugs is significantly higher
than prices widely available to providers
For the part B-covered drugs accounting for the bulk of Medicare
spending and claims, Medicare payments in 2001 were almost always
considerably higher than wholesalers' prices that were widely available
to physicians and suppliers. This was true regardless of whether the
drugs had competing products or were available from a single
manufacturer. Physicians who billed Medicare for relatively small
quantities of these drugs also obtained similar prices.
Wide Disparities Exist Between Drug Acquisition Costs and Medicare
Payments
Our study shows that there can be wide disparities between a drug's
estimated acquisition cost and Medicare's payment for that drug.
Physician-billed drugs account for the bulk of Medicare spending on
part B drugs. Of those billed by physicians, drugs used to treat cancer
accounted for most of Medicare's expenditures. Specifically:
<bullet> Widely available discounts for 17 of the physician-billed
drugs we examined averaged between 13 percent and 34 percent
less than AWP.
<bullet> For two other physician-billed drugs, Dolasetron mesylate and
Leucovorin calcium, average discounts were considerably
larger--65 percent and 86 percent less than AWP.
The discounts on physician-billed drugs, based on wholesaler and
GPO catalogue prices, are notably lower than Medicare's payment, which
reflects a discount of 5 percent below AWP. The discounts indicate that
Medicare's payments for these drugs were at least $532 million higher
than providers' acquisition costs in 2000. Further, the discounts we
report may only be the starting point for additional discounts provided
to certain purchasers, as chargebacks, rebates, and other discounts may
drive down the final sale price.
Concerns have been expressed that small providers either could not
or do not obtain such favorable prices. Therefore, we surveyed a sample
of physicians who billed Medicare for low volumes of chemotherapy drugs
to see if they were able to obtain similar discounts. <SUP>12</SUP> All
of the low-volume purchasers who responded to our survey reported
obtaining similar or better discounts than the widely available prices
we had documented. More than one-third of these physicians reported
belonging to GPOs and obtained the GPOs' substantial discounts, while
others said they had contracts with manufacturers and wholesalers.
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\12\ We conducted a telephone survey of a sample of physicians who
billed Medicare for a low-volume of cancer treatment drugs in 1999. For
more detail, see GAO-01-1118.
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As with physician-billed drugs, Medicare's payments for pharmacy
supplier-billed drugs generally far exceeded the prices available to
these suppliers. For the drugs we examined, Medicare's payments were at
least $483 million more than what the suppliers paid in 2000. Further,
the discounts we report were largest for products that could be
obtained from more than one source. Inhalation therapy drugs
administered through DME and oral immunosuppressive drugs represent
most of the high-expenditure, high-volume drugs billed to Medicare by
suppliers. Specifically:
<bullet> Two drugs, albuterol and ipratropium bromide, used with DME
for respiratory conditions, account for most of the pharmacy-
supplied drugs paid for by Medicare. In 2001, they were
available to pharmacy suppliers at prices that averaged,
respectively, 85 percent and 78 percent less than AWP.
<bullet> Other high-volume DME-administered drugs had prices averaging
69 percent and 72 percent less than AWP. These findings are
consistent with prior studies of the prices of similar drugs.
<SUP>13</SUP>
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\13\ Medicare Reimbursement of Albuterol (HHS OIG, OEI-03-00-00311,
June 2000) and Medicare Reimbursement of Prescription Drugs (HHS OIG,
OEI-03-00-00310, Jan. 2001).
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<bullet> Two of the four high-volume oral immunosuppressives were
available from wholesalers with average discounts of 14 percent
and 77 percent. Wholesale price information on the other two
was not available, but retail prices from online pharmacies
were as much as 13 percent and 8 percent below AWP.
Policies to Pay for Related Delivery and Administration Services Vary
by Provider
Medicare payment policies for administering or delivering a drug
vary, depending on who provides the drug to the patient. Physicians are
compensated directly for drug administration through the physician fee
schedule. Pharmacy suppliers are compensated for dispensing inhalation
therapy drugs used with a nebulizer, which make up the majority of
their part B drug claims. No explicit payments are made to pharmacy
suppliers for dispensing other drugs, but they may receive payments for
equipment and supplies associated with DME-administered drugs. Both
physicians and pharmacy suppliers contend that the excess in Medicare's
payments for part B-covered drugs compensates for related service costs
inadequately reimbursed or not explicitly covered at all.
In prior work on the Medicare physician fee schedule, we concluded
that the agency's basic method of computing practice expense payments
to physicians was sound. <SUP>14</SUP> The implementation of this fee
schedule, however, has been controversial. The Congress required that
payments be budget neutral relative to prior spending. Medicare's
physician payments were, in the aggregate, seemingly adequate, as most
physicians were participating in Medicare and accepting the program's
fees as payment in full. Because of the budget neutrality requirement,
if one specialty's fees increased on average, some others would have to
decline. Such redistributions have occurred and some are significant.
---------------------------------------------------------------------------
\14\ Practice expenses constitute one of three components in
Medicare's physician fee schedule. The other two are work and
malpractice expenses. For the physician's average fee in 1999, practice
expenses accounted for about 42 percent; work, about 55 percent; and
malpractice, about 3 percent.
---------------------------------------------------------------------------
Oncologists, who represent the majority of physicians billing for
drugs, argue that Medicare's payments for administering chemotherapy
are inappropriately low and that the excess Medicare drug payments are
needed to offset their losses. Yet oncology is one of the specialties
to gain under the resource-based physician fee schedule. In our
separate study on physicians' practice expenses under Medicare's fee
schedule, we will show that payments to oncologists were 8 percent
higher than they would have been if the prior charge-based payment
method had been maintained; the study will also show that oncologists'
payments relative to their estimated practice expenses, which include
chemotherapy administration, were close to the average for all
specialties.
While oncologists do not appear disadvantaged overall under the fee
schedule, adjustments HCFA made to the basic method of computing
payments reduced fees for some oncologists' services. In those
adjustments, HCFA modified the basic method in computing payments for
services delivered without direct physician involvement, like much of
chemotherapy administration. The modifications were intended to correct
for perceived low payments for these services. While they increased
payments for some of these services, they lowered them for many others.
Moreover, they increased payments on average for services involving
physicians. Oncology payments were particularly affected, as services
without physician involvement constitute about one-third of
oncologists' Medicare-billed services, compared to about 5 percent of
all physician-billed services. Because of the modifications to the
basic method, oncology practice expense payments for nonphysician
chemotherapy administration were on average 15 percent lower, while
payments for physician-administered services were 1 percent higher,
than if HCFA had used the basic method. Across all services, the
modifications resulted in oncology practice expense payments that were
6 percent lower. <SUP>15</SUP> Using the basic method for all services
would eliminate these reductions and add about $31 million to oncology
payments. Our study will recommend that CMS revert to the use of the
basic methodology to determine practice expense payments for all
services.
---------------------------------------------------------------------------
\15\ The source for these figures is our analysis of 2001 practice
expense fees, based on 1999 Medicare utilization.
---------------------------------------------------------------------------
We will also recommend that CMS address a data adjustment it made
that affects oncology payments under the new fee schedule. The agency
reduced oncology's reported supply expenses to keep from paying twice
for drugs that are reimbursed separately by Medicare. Oncologists
acknowledge that the supply expense estimate needed to be reduced, but
argue that the reduction was too large. We have recommended that the
agency develop the appropriate data to more accurately estimate
oncology supply expenses. Substituting a supply expense estimate based
on a methodology developed by the American Society of Clinical Oncology
would raise practice expense payments an additional $20
million,<SUP>16</SUP> if done in conjunction with our recommendation to
use the basic method to calculate payments for all services.
---------------------------------------------------------------------------
\16\ The source for these figures is our analysis of 2001 practice
expense fees, based on 1999 Medicare utilization.
---------------------------------------------------------------------------
Oncologists have raised concerns about whether the data used to
estimate their practice expenses constituted a representative sample of
practices surveyed and whether these data reflect current practices in
delivering services. How improvements in the data to estimate practice
expenses may affect payment levels is uncertain. Payments are based on
the differences in expenses of services of one specialty compared to
those of others. Some of the data concerns raised by oncologists may
apply to other specialties as well, so that additional and more current
data may reveal that the relative cost of one service compared to
others may have changed only modestly. We are conducting a separate
study to determine how CMS can improve and update the information used
to estimate specialties' practice expenses.
Similar to the physicians who bill for part B drugs, pharmacy
suppliers and their representatives contend that the margin on the
Medicare drug payment is needed to compensate them for costs not
covered by Medicare--that is, the clinical, administrative, and other
labor costs associated with delivering the drug. These include costs
for billing and collection; facility and employee accreditation;
licensing and certifications; and providing printed patient education
materials. Medicare pays a dispensing fee of $5.00 for inhalation
therapy drugs used with a nebulizer, which are the vast majority of the
pharmacy-supplied drugs. This fee was instituted in 1994. It is higher
than dispensing fees paid by pharmacy benefit managers, which average
around $2.00, and is comparable to many state Medicaid programs, which
range from $2.00 to over $6.00. For other pharmacy-supplied drugs,
Medicare makes no explicit payment for dispensing the drug.
Besides the profits on the DME-related drugs, pharmacy suppliers
may receive additional compensation through the payment for DME and
related supplies. Our prior work suggests that, for two reasons,
Medicare DME and supply payments may exceed market prices.
<SUP>17</SUP> First, because of an imprecise coding system, Medicare
carriers cannot determine from the DME claims they process which
specific products the program is paying for. Medicare pays one fee for
all products classified under a single billing code, regardless of
whether their market prices are greatly below or above that fee.
<SUP>18</SUP> Second, DME fees are often out of line with current
market prices. Until recently, DME fees had generally been adjusted
only for inflation because the process required to change the fees was
lengthy and cumbersome. As a result, payment levels may not reflect
changes in technology and other factors that could significantly change
market prices.
---------------------------------------------------------------------------
\17\ See Medicare: Need to Overhaul Costly Payment System for
Medical Equipment and Supplies (GAO/HEHS-98-102, May 12, 1998).
\18\ The equipment and supply payment is determined from a DME fee
schedule, whose rates are based on a state-specific fee schedule and
subject to national minimum and maximum payment limits. Fees are based
on average historical supplier charges that are adjusted for inflation
over time.
---------------------------------------------------------------------------
other purchasers' practices are instructive for reforming medicare's
method of paying for part b-covered drugs
Private insurers and federal agencies, such as VA, employ different
approaches in paying for or purchasing drugs that may provide useful
lessons for Medicare. In general, these payers make use of the leverage
of their volume and competition to secure better prices. The federal
purchasers, furthermore, use that leverage to secure verifiable data on
actual market transactions to establish their price schedules. Private
payers can negotiate with some suppliers to the exclusion of others and
arrive at terms without clear criteria or a transparent process. This
practice would not be easily adaptable to Medicare, given the program's
size and need to ensure access for providers and beneficiaries. How
other federal agencies have exercised their leverage may be more
instructive and readily adaptable for Medicare.
VA and certain other government purchasers buy drugs based on
actual prices paid by private purchasers--specifically, on the prices
that drug manufacturers charge their ``most-favored'' private
customers. <SUP>19</SUP> In exchange for being able to sell their drugs
to state Medicaid programs, manufacturers agree to offer VA and other
government purchasers drugs at favorable prices, known as Federal
Supply Schedule (FSS) prices. So that VA can determine the most-favored
customer price, manufacturers provide information on price discounts
and rebates offered to domestic customers and the terms and conditions
involved, such as length of contract periods and ordering and delivery
practices. <SUP>20</SUP> (Manufacturers must also be willing to supply
similar information to CMS to support the data on the average
manufacturer's price, known as AMP, and best price they report for
computing any rebates required by the Medicaid program.)
---------------------------------------------------------------------------
\19\ Under federal procurement regulations, the government seeks to
obtain the price is intended to equal or better the price that the
manufacturer offers its most-favored nonfederal customer under
comparable terms and conditions.
\20\ Because the terms and conditions of commercial sales vary,
there may be legitimate reasons why the government does not always
obtain the most-favored customer price. Hence, under the regulations,
VA may accept a higher price if it determines that (1) the price
offered to the government is fair and reasonable and (2) awarding the
contract is otherwise in the best interest of the government.
---------------------------------------------------------------------------
VA has been successful in using competitive bidding to obtain even
more favorable prices for certain drugs. Through these competitive
bids, VA has obtained national contracts for selected drugs at prices
that are even lower than FSS prices. These contracts seek to
concentrate the agency's purchase on one drug within therapeutically
equivalent categories for the agency's national formulary. In 2000, VA
contract prices averaged 33 percent lower than corresponding FSS
prices.
Medicare's use of competition has been restricted to several
limited-scale demonstration projects authorized by the Balanced Budget
Act of 1997. In one of these demonstrations under way in San Antonio,
Texas, suppliers bid to provide nebulizer drugs, such as albuterol, to
Medicare beneficiaries. While Medicare normally allows any qualified
provider to participate in the program, under the demonstration only 11
bidders for nebulizer drugs were selected to participate. In exchange
for restricting their choice of providers to the 11 selected,
beneficiaries are not liable for any differences between what suppliers
charge and what Medicare allows. Preliminary CMS information on the San
Antonio competitive bidding demonstration suggests no reported problems
with access and a savings of about 26 percent realized for the
inhalation drugs.
concluding observations
Our study on Medicare payments for part B drugs shows that Medicare
pays providers much more for these drugs than necessary, given what the
providers likely paid to purchase these drugs from manufacturers,
wholesalers, or other suppliers. Unlike the market-based fees paid by
VA and other federal agencies, Medicare's fees are based on AWP, which
is a manufacturer-reported price that is not based on actual
transactions between seller and purchaser. Physicians contend that the
profits they receive from Medicare's payments for part B drugs are
needed to compensate for inappropriately low Medicare fees for most
drug administration services. Similarly, the case argued by some
pharmacy suppliers for Medicare's high drug payments is that not all of
their costs of providing the drugs are covered.
In our view, it should be a principle of Medicare payment policy to
pay for each service appropriately and not to rely on overpayments for
some services to offset inadequate payments for complementary services.
If Medicare were to follow this principle and lessons from other payers
in setting fees for part B drugs, it would use information on actual
market prices net of rebates and discounts--similar to information
currently available to VA and CMS--to establish Medicare payments. It
could also determine market-based fees, where appropriate, through a
competitive bidding process. Medicare would pay for administration and
delivery of these drugs separately, as it does currently for drugs
supplied by physicians and for inhalation therapy drugs. As the way
drugs are supplied and administered varies, different methods of
determining payments would be necessary. Paying for these services
explicitly would enable Medicare to eliminate implicit payments that
may have been made through excessive payments for DME and the drugs
associated with the DME payment. In our report, we make recommendations
reflecting these lessons to revise the program's payment methods.
Messrs. Chairmen, this concludes my statement. I would be happy to
answer any questions that you or Subcommittee Members may have.
contact and acknowledgments
For more information regarding this testimony, please contact me at
(202) 512-7114 or Laura Dummit at (202) 512-7119. Other contributors to
this statement include Carol Carter, Iola D'Souza, Hannah Fein, Kathryn
Linehan, and James Mathews.
Mr. Greenwood. Thank you, Mr. Scanlon, for your testimony.
And I recognize Mr. Grob, the Deputy Inspector General for
Health and Human Services, for your testimony, sir.
TESTIMONY OF GEORGE F. GROB
Mr. Grob. Thank you, Mr. Chairman, for the opportunity to
testify here today. Everyone said Medicare pays too much, and
listening to all the opening statements, I'm not sure that I
have a whole lot to add to the knowledge that has already been
presented.
Mr. Greenwood. I'm sure you have more credibility than we
do.
Mr. Grob. What I'll try to do, perhaps, is to add some
additional pieces of information that may help. First of all,
with regard to the amount that we pay too much, the number that
is being bandied around is about a billion dollars, and I think
that is a fair bottom line. Here is the reason. Our studies
have shown, using the catalogs available that we've been able
to find for 24 drugs, which represent about $3.7 out of the $5
billion in the year 2000 that Medicare authorized for the
payment of these drugs, that we saw a loss of about $880 some-
odd million. Of course, if we had looked at all the drugs, that
would have been higher and perhaps pressing a billion dollars.
So that is a fair benchmark for people to have in their minds.
But we have to remember that these are catalog prices.
These are the numbers that are sort of out there. So when the
drugs are actually paid for, it is very likely that the prices
are even lower than that. We ourselves did not obtain those
lower prices. Ours are the more conservative, just catalog
price.
Now, we've also looked at the Federal Supply Schedule which
is negotiated by the Veterans Administration, and there, of
course, we found a $1.9 billion difference in the spread. Now,
many people would say that that's unfair because of the special
position that the Veterans Administration is in; that you
really can't say, well, Medicare ought to be able to get drugs
at those prices. That may be true, but here are some things to
think about.
First of all, we assume that the drug companies are making
a profit on those drugs, so that that represents a price that
they are willing to offer to at least some large buyers. And
we're not at all certain, since we ourselves did not look at
the actual invoices, of what the spreads are that physicians
and others--large suppliers--are actually obtaining on their
drugs. Perhaps it's an outer limit, but I think it's fair to
say that the actual loss to Medicare is probably in the
vicinity of $1 to $2 billion, as best we can tell.
Another point that I would make is that we have reviewed
these drug prices intensely, starting in the mid-1980's
because, of the effects to Medicaid program as well, but we
have been looking particularly hard since 1997. And over the
last 4 years, we have never found it to be any way other than
what has been described at this hearing. Every study that we do
finds these same results. But near the end of my testimony, I'm
going to reflect that the gap is widening, and the loss is
increasing.
We've talked about the system being flawed, and I think
most people describe it well. And I do take to heart the
admonition not to get to the motives of people. But I just
would like to give two insights about this.
If you were to sit down in an office with an individual, a
representative of the drug company here and perhaps a physician
here, and say, ``Listen, I will sell you the drug for $100, but
I will tell Medicare that I sell it for $200, you will have
$100, and I will have $100. It's not a bad deal.'' Someone then
might comment that a kind of deal has been made, perhaps games
are being played to achieve a higher market share by that drug
company, presenting its drug in that way. But that would still
be true, even if the meeting doesn't occur in the room. This is
not too hard to understand. Simply posting of these numbers on
a public list is enough to achieve the same effect. So we have
to be wary of the effect even if in the studies that I have
done we have not reached the motives of the individuals.
There's also something here that I call ``upside-down
economics.'' If I were to ask an undergraduate economic student
the following question: ``Which company would likely achieve
the greatest market share? Is it the one with the highest
average wholesale price or the one with the lowest?'' And the
student were to say: ``It's the one with the highest.'' The
professors would say; ``That is incorrect. Obviously the
company whose wholesale price is the lowest would be the one
that would expect to sell more of their product.'' That is the
answer the professor would have to give, of course, unless
you're talking about Medicare's payment for prescription
drugs--in which the whole theory simply reverses.
The physician community has raised its concerns here, and
we certainly take that to heart. We fully support a fair
reimbursement under the Medicare program.
Perhaps another insight will help here. What I believe is
wrong with the current system is that it's behaving this way.
If an individual felt that his mortgage payments were too high,
he might want to go to the bank and say: ``Since you're
charging me so much there, could you reduce my automobile
payment?'' Well, that's not a good way to do banking, but it
might not be an unreasonable question.
The problem with the Medicare program is that in an
analogous situation, the automobile dealer and the automobile
purchaser are telling the bank how much they will pay for the
car payment as opposed to the Medicare program, the Secretary,
the Department and the Congress deciding what that amount is.
And I believe that that's fundamentally what's wrong, even if
we do have some compassionate concern for the dollars that the
medical profession needs to carry out what it does.
In any event, whatever system that we do use should not be
based on a number that is misnamed, misleading, and make
believe.
There are a lot of options to handle this problem, and
we've listed them extensively in the testimony that we've
provided. It's too detailed to discuss here in my short version
of my testimony, but we have made ourselves available and will
continue to answer as many technical questions as we possibly
can.
Let me end now by making one other remark. I think that we
have all felt strongly that we have a problem here that needs
to be fixed. What I would like to emphasize is that we fix it
now. The first really detailed study that we did of the current
phenomenon was in 1997 based on 1996 dollars, and here were the
facts then: Medicare's authorization for drugs was $2.3 billion
that year. We looked at $1.5 billion and found $447 million
that was probably wasteful. Four years later, looking at the
data from the year 2000, the amount that Medicare authorized
for drugs had more than doubled to $5 billion. We looked at
$3.7 billion, and even the conservative estimate, the catalog
estimate, we found was double what we found in terms of waste--
possible waste for the government was $900 million and possibly
as much as $1.9 billion. So every day, every month, every
period that we don't solve the problem, the problem gets
bigger, and the Medicare expenditures rise. Thank you.
[The prepared statement of George F. Grob follows:]
Prepared Statement of George F. Grob, Deputy Inspector General for
Evaluation and Inspections, Office of Inspector General, HHS
Good morning Mr. Chairman. I am George Grob, Deputy Inspector
General for Evaluation and Inspections, Department of Health and Human
Services. I am here today to discuss Medicare payments for prescription
drugs.
Medicare pays too much for prescription drugs--more than most other
payers. The method it uses to determine the amount to be paid is
flawed. In fact, it makes no sense at all. It allows the price to be
set arbitrarily by drug manufacturers, not the marketplace. Their
published wholesale prices for many drugs are far above what suppliers
and physicians actually pay for them. This allows physicians, for
example, to make substantial profits from the drugs they administer
during the course of treatment in their offices. For the year 2000 we
found that Medicare's authorized payments for 24 leading drugs were
$887 million more than actual wholesale prices available to physicians
and suppliers and $1.9 billion more than prices available through the
Federal Supply Schedule. Until the system is changed, Medicare and its
beneficiaries will continue to pay excessive amounts for prescription
drugs; and the amount of excessive payments will increase every year.
medicare coverage and payments for prescription drugs
Medicare's coverage of outpatient drugs is limited primarily to
drugs used in dialysis, organ transplantation, and cancer treatment.
Medicare also covers certain vaccines and drugs used with durable
medical equipment such as infusion pumps and nebulizers. However,
Medicare's total payments for prescription drugs have risen steadily
over the past decade. In 1992, Medicare paid about $700 million for
prescription drugs; by 2000, it paid $5 billion. Between 1999 and 2000
alone, payments increased by $1 billion. This rapid growth illustrates
the necessity of ensuring that Medicare pays reasonable prices for the
drugs it covers.
Physicians and suppliers purchase these drugs, administer or
provide them to Medicare beneficiaries, and then submit a bill to
Medicare for reimbursement. In general, Medicare reimburses physicians
and suppliers for 95 percent of the average wholesale price (AWP)
published by the drug manufacturers. Of this amount, Medicare
beneficiaries are responsible for a 20 percent coinsurance payment.
excessive payments
Over the past 4 years, the Office of Inspector General has produced
a number of reports, all of which have reached the conclusion that
Medicare and its beneficiaries pay too much for prescription drugs.
Although it might be sufficient for me to quote only from our most
recent studies, I would like to summarize all of our work here, because
it demonstrates the consistency of our findings and the relentless
growth of the problem.
A table summarizing the results of our reports is provided on the
next page, followed by a more detailed description.
Summary of OIG Medicare Prescription Drug Reports
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year of Report 1997 1998 2000 2000 2000 2001 2001
--------------------------------------------------------------------------------------------------------------------------------------------------------
Drugs Reviewed............................................... 22 drugs 34 drugs 5 ESRD Albuterol 24 drugs Albuterol 24 drugs
drugs
Year Reviewed................................................ 1996 1997 1998 1999 1999 2000 2000
Medicare Expenditures for Reviewed Drugs..................... $1.5 $2.1 $379 $246 $3.1 $296 $3.7
billion billion million million billion million billion
Excessive Payments Based On:
VA......................................................... $1 billion $162 $209 $1.6 $264 $1.9
million million billion million billion
Catalogs................................................... $447 $761 $245 $887
million million million million
Medicaid................................................... $42 million $120 $425
million million
Beneficiary Share of Excessive Payments...................... $89 million $200 $32 million $42 million $320 $53 million $380
million $8 million $24 million million $49 million million
$152 $177
million million
$85 million
--------------------------------------------------------------------------------------------------------------------------------------------------------
Drugs in general
In December 1997, we released a report which compared Medicare
payments for 22 drugs to actual wholesale prices available to the
physician and supplier communities. These 22 drugs accounted for $1.5
billion of the $2.3 billion in Medicare payments for prescription drugs
in 1996. The wholesale prices were computed using catalogs from drug
wholesalers and group purchasing organizations which sell drugs to
physicians and suppliers.
The report found that Medicare allowances for the 22 drugs exceeded
wholesale prices by $447 million in 1996. Medicare paid more than the
available wholesale price for all 22 drugs under review. For more than
one-third of the drugs, Medicare reimbursement amounts were more than
double the wholesale prices available to the physician and supplier
community.
We followed up this report in November of 1998 by comparing
Medicare allowances for prescription drugs to prices available to the
Department of Veterans Affairs (VA) and several other Federal agencies
through the Federal Supply Schedule (FSS). (The supply schedule
provides agencies lie the VA with a simple process for purchasing
commonly-used products in various quantities while still obtaining the
discounts associated with volume buying. Using competitive procedures,
contracts are awarded to companies to provide services and supplies at
the FSS prices over a given period of time.) This report included 34
drugs which accounted for $2.1 billion of the $2.8 billion in Medicare
spending for prescription drugs in 1997.
We found that Medicare and its beneficiaries would have saved $1
billion in 1998 if the allowed amounts for the 34 drugs were equal to
prices obtained through the FSS. The potential savings for just one
drug, leuprolide acetate, accounted for over $275 million. Medicare
paid more than double the VA for 14 of the drugs. Overall, it paid
between 15 percent and 1600 percent more than the VA for each of the 34
drugs. The biggest difference was for the drug leucovorin calcium, with
a VA price of $1.18 and a Medicare price over $20.
In January of this year, we released another report comparing
Medicare reimbursement to prices available to the physician/supplier
community, the Department of Veterans Affairs, and Medicaid. This time,
we studied the prices for 24 drugs which represented $3.1 billion of
the $3.9 billion in Medicare drug expenditures in 1999.
We found that Medicare and its beneficiaries would have saved $1.6
billion for these 24 drugs by paying the VA's Federal Supply Schedule
price. For half of the drugs, Medicare paid more than double the VA
price. The savings would have been $761 million a year by paying the
actual wholesale prices available to physicians and suppliers. For
every drug in our review, Medicare paid more than the wholesale price
available to physicians and suppliers and the VA Federal Supply
Schedule price. For example, Medicare reimburses $43 for 10 mg of the
drug doxorubicin, more than four times the wholesale price of $10. The
VA pays even less, with a Federal Supply Schedule price of $6.29. We
also found that Medicare would have saved over $425 million or almost
15 percent a year for the 24 drugs by obtaining rebates similar to the
Medicaid program.
We have recently updated the findings of this report with more
current drug pricing information. We found that Medicare would have
saved $1.9 billion of the $3.7 billion it spent for 24 drugs in 2000 if
the drugs were reimbursed at prices available to the VA. Over $380
million of this savings would directly impact Medicare beneficiaries in
the form of reduced coinsurance payments. In some cases, the VA price
for a drug was less than the amount a Medicare beneficiary would pay in
coinsurance. More conservatively, Medicare and its beneficiaries would
save $887 million a year by paying the actual wholesale prices
available to physicians and suppliers for these 24 drugs. Beneficiaries
would pay over $175 million less in coinsurance if Medicare paid for
these drugs based on catalog prices. The potential savings to both
Medicare and its beneficiaries is probably higher, assuming data for
all Medicare drugs is similar to that for the 24 we analyzed.
Nebulizer and End Stage Renal Disease (ESRD) Drugs
In addition to our reports summarizing a number of drugs, we have
also produced targeted reports on specific nebulizer and end stage
renal disease (ESRD) drugs that Medicare covers.
In June 2000, we released a report which looked at Medicare's
reimbursement of albuterol, a drug used with a nebulizer to treat
asthma, emphysema, and other respiratory problems. Albuterol is one of
the top drugs covered by Medicare, with more than $250 million per year
in Medicare allowances. This report updated the findings of several of
our prior albuterol studies, all of which noted that Medicare's
reimbursement amount exceeded prices available through other sources.
We found that Medicare paid nearly double the Medicaid payment
amount and almost seven times what the VA pays for one milligram of
albuterol. Furthermore, nearly every pharmacy we contacted sold generic
albuterol at prices less than Medicare paid for it. According to our
survey results, consumers could go to popular drug stores across the
country and buy a monthly supply of albuterol for around $95. For the
same monthly supply, Medicare and its beneficiaries would pay a total
of $118, with Medicare paying $94 and the beneficiary paying the
remaining $24. The VA's entire monthly payment of $17.50 for albuterol
is less than just the beneficiary's $24 coinsurance payment under
Medicare. We calculated that Medicare could save between $47 million
and $209 million per year by setting prices for albuterol equal to
those available through these other sources.
Once again, we have recently updated this report with new pricing
data. Preliminary findings show that VA prices for albuterol have
decreased since last year. The VA price for albuterol has fallen by
more than 50 percent over the last 3 years, from $0.11 per mg in 1998
to $0.05 per mg in 2001. During the same time period, Medicare's
reimbursement amount (based on reported average wholesale prices) has
remained constant at $0.47 per mg.
In 2000, published wholesale acquisition costs for albuterol ranged
from $0.09 to $0.18 per mg. These wholesale acquisition costs were
provided by manufacturers to drug compendiums such as Red Book. The
Medicare reimbursement rate of $0.47 per mg was anywhere from three to
five times the wholesale acquisition costs reported by manufacturers.
Recently, we have begun to look at who actually supplies albuterol
to Medicare beneficiaries. We found that Medicare reimbursed more than
6,500 pharmaceutical suppliers for albuterol claims in 2000. However,
less than 3 percent of these suppliers (184) accounted for
approximately 80 percent of albuterol reimbursement. Each of these
suppliers had over $150,000 in paid Medicare claims for albuterol last
year. Thirty-four of these suppliers were each responsible for more
than $1 million in Medicare reimbursement for albuterol in 2000, with
five having between $11 million and $35 million in reimbursement. Thus,
the vast majority of the albuterol supplied to Medicare beneficiaries
was provided by suppliers that purchase and bill for a large quantity
of the product. We believe that suppliers that purchase albuterol in
such large quantities are likely to receive volume discounts similar to
those provided to the VA and other large purchasers. Our work in this
area is continuing.
Also in June 2000, we released a report comparing Medicare payments
for ESRD drugs to those of the VA and Medicaid. We focused this
inspection on five drugs used by renal dialysis facilities to help
treat renal failure. These five drugs accounted for $379 million in
total charges to Medicare in 1998.
We found that Medicare paid between 37 percent and 56 percent more
than the VA for these drugs. Medicare would have saved up to $162
million in 1998 if they paid the same amount as the VA for the five
drugs. Furthermore, Medicare paid between 5 percent and 38 percent more
than Medicaid. Medicare would have saved as much as $42 million in 1998
by using Medicaid reimbursement amounts.
flawed payment method
Our reports have shown time after time that Medicare pays too much
for drugs. Why does Medicare pay so much? We believe that it is because
Medicare's payment methodology is fundamentally flawed. By statutory
requirement, Medicare's payment for a drug is equal to 95 percent of
the drug's average wholesale price (AWP). However, the AWPs which
Medicare uses are not really wholesale prices.
For the most part, AWPs are reported by manufacturers to companies
that compile drug pricing data, such as First DataBank and Medical
Economics which publishes the Red Book. As our reports have indicated,
the published AWPs that Medicare uses to establish drug prices bear
little or no resemblance to actual wholesale prices available to
physicians, suppliers, and large government purchasers.
Aside from the obvious problem of inflated AWPs resulting in
inappropriate Medicare payments, the use of AWP also has other
potential adverse side-effects. For instance, because physicians and
suppliers get to keep the difference between the actual price they pay
for the drug and 95 percent of its AWP, this ``spread'' can serve as an
inducement for suppliers or physicians to use one brand of drug product
over another. Thus, publishing an artificially high AWP can be used as
a marketing device to increase a drug company's market share. Such a
tactic would increase the profit of the suppliers or physicians who
purchase the drug because, while not paying the artificially inflated
AWP amount, they can bill Medicare for it and get paid at that inflated
amount. While the published AWP does not increase the amount the
manufacturer receives for each unit of the drug product, it may induce
an increase in market share because of the higher profits made by
physicians and suppliers. This in turn increases the profits of the
drug company. All of this occurs at the expense of the Medicare program
and its beneficiaries.
For the drug albuterol, the spread is so large and Medicare
reimbursement so lucrative that mail-order pharmacies have been tempted
to capitalize on the difference by making illegal kickback payments to
durable medical equipment suppliers for patient referrals. A civil
settlement totaling $10 million has been reached with one pharmacy that
succumbed to this temptation.
physicians' concerns
Some physician groups have raised concerns about Medicare's
attempts to lower reimbursement for prescription drugs. For example,
some oncologists have stated that Medicare does not adequately
reimburse physicians for the practice costs associated with providing
treatment to cancer patients. These physician groups say that
overpayments for prescription drugs simply make up for inadequate
payments for their practice costs.
We agree that physicians need to be properly reimbursed for patient
care. However, we do not believe that the payment of artificially
inflated drug prices is an appropriate mechanism to compensate them. We
do not think that the decision as to how much Medicare pays for
physicians' practice costs should be made by them or by drug
manufacturers. The Medicare program or the Congress should have
responsibility for this calculation. We certainly do not believe that
the basis for their compensation and medical practice expenses should
be artificially inflated, misleading, and mis-named average wholesale
prices.
The Medicare program already has a procedure for determining and
the amount of paying physicians for their practice costs. If the
current calculations are incorrect, they should be modified. Physicians
deserve fair reimbursement for their valuable services. There is no
reason to resort to a make-believe process to accomplish this.
options for reforming the payment system
There are a number of options for revising Medicare's drug
reimbursement methodology. We recognize that there may not be one
perfect solution to solving all of Medicare's drug pricing issues.
However, we believe these options provide reference points for
considering how to reform the Medicare drug payment system.
A few general remarks are in order before discussing specific
options. First, some of the options offer a way to calculate a base
amount for Medicare reimbursement. These include using the Federal
Supply Schedule, the average manufacturer's price, or the AWP, for
example. For each such option, additional sub-options are possible. One
would be to set Medicare prices at a fixed percentage above or below
the base. For example, Medicare currently has its payment rate set at
95 percent of AWP. That percentage could be dropped. Alternatively, if
the Federal Supply Schedule were used as a base, then Medicare's
payment could be set at, say, 105 or 110 percent of this number.
Second, the options are not necessarily exclusive of one another.
In the Medicaid program, most States set payment rates at a percentage
below AWP, but they also get rebates from manufacturers. The same could
be done for Medicare. Another example might be basing Medicare payment
rates on average manufacturer prices (AMP) (used for calculating
rebates in the Medicaid program), but making upward or downward
adjustments on the basis of surveys of amounts paid by of large
institutional health care providers such as hospitals or managed care
organizations.
Each option has its own advantages and disadvantages. Some things
to consider when comparing them are: the cost of gathering data to set
the base, the reliability of the data, the time needed to collect and
analyze it; how easily it can be gamed or misrepresented.
Logistical considerations are important too, such as: who will
collect and analyze data, who will propose the Medicare payment rate,
and how often this will be done; how will the underlying data be
verified, by whom, and how often; what method will be used to
periodically update the payment amounts, and how frequently will this
be done.
Finally, some broader principles and concerns need to be addressed,
such as: how proprietary data will be protected; the consequences of
drug manufacturers, suppliers, wholesalers, and medical care providers
not providing the needed data or misrepresenting it; ways to minimize
the burden of public reporting associated with data collection; the
need for, nature of, and length of a transitional phase in introducing
the new payment method; and whether any adjustment is needed in the
practice cost component of Medicare's physician payment rate.
Keeping these factors in mind, the following options may be
considered for reforming Medicare's drug payment method:
1. Authorize a commission to set payment rates. A commission could
be established similar to MEDPAC, which recommends rate increases for
Medicare hospital and physician payments and analyzes prices and
economic trends. Such a commission could recommend a periodic update of
Medicare prices based on a market basket of drugs, including any new
drugs. It would be granted authority to require manufacturers to
provide them with drug wholesale prices, but would not disclose any of
the proprietary data collected from manufacturers.
2. Calculate national estimated acquisition costs based upon the
average manufacturer prices (AMP) reported to the Medicaid program. The
Centers for Medicare & Medicaid Services (CMS) could calculate
reimbursement rates using AMP and send these rates out to the Medicare
carriers. Average manufacturer prices are currently reported to CMS
under the drug rebate program, and they more accurately reflect the
prices paid by drug wholesalers to manufacturers. If this option were
used, it would eliminate the need to go to the manufacturers for more
pricing information. This option would require legislation to allow
Medicare access to AMP data. Prior to this option being implemented, it
would be useful to clarify or refine certain definitions. We also
believe an initial, intensive effort should be made to audit AMP data
reported by manufacturers to validate its accuracy. We estimate that in
the year 2000 Medicare and its beneficiaries would have saved $1.4
billion of the $3.7 billion spent on just 24 drugs if reimbursement for
the drugs had been based on AMP.
3. Collect more accurate average wholesale prices from drug pricing
catalogs or other sources. This option would entail requiring
manufacturers or wholesalers to provide their pricing information or
catalogues to an appropriate commission or federal agency. Protection
of the confidentiality of proprietary data could be guaranteed in the
authorizing statute.
4. Increase the discounting of the published AWP. If this option
were used, a provision would be needed to prevent manufacturers from
just raising AWP by an amount greater than the newly discounted rate.
5. Base payment on physician/supplier acquisition costs. This
option would require obtaining invoices of actual payments made.
Payment could not be based solely on the listed invoice price as that
price often gets discounted by rebates and volume discounts. Net cost
would need to be obtained and this might be difficult because many of
the manufacturers rebates are not calculated until the end of the year.
Additionally, since Medicare would be reimbursing drugs based on cost
there would be little incentive to get the best price.
6. Establish manufacturers' rebates similar to those used in the
Medicaid program. A Medicare rebate program could be modeled on
Medicaid's program. However, if a Medicare rebate program were used in
conjunction with, instead of as a replacement for the current AWP
system, then the rebates should be based on AWP rather than the AMP
used by Medicaid. This would minimize manufacturers' incentives to
inflate AWP because rebates would increase as AWP increased.
7. Create a fee schedule for covered drugs based on the Federal
Supply Schedule negotiated by the Department of Veterans Affairs. The
payment amounts could be set at the Federal Supply Schedule price or
that price plus a certain percentage.
8. Use CMS's inherent reasonableness authority. This authority
allows CMS to reduce its payment rates if it can be shown that payment
amounts are excessive. A recent study by the General Accounting Office
(GAO), mandated by the Congress, found this authority to be
appropriate, and it supported some recent studies performed by CMS in
its proposed used of it. According to the law which mandate the GAO
study, the inherent reasonableness authority may be used as soon as CMS
promulgates regulations for it.
9. Use competitive bidding. The CMS currently has the authority to
demonstrate the efficacy of competitive bidding for medical supplies.
The demonstrations have already proven that inhalation drugs can be
obtained at prices lower than 95 percent of AWP. A statutory amendment
to make general use of this authority might be appropriate, at least
for some categories of drugs, particularly those which are provided by
a small number of suppliers or by mail-order firms.
conclusion
There can be no doubt that Medicare pays too much for prescription
drugs. This finding has been confirmed year after year. At the same
time, Medicare payments overall, including excessive amounts, are
increasing substantially. This adversely affects the Medicare trust
fund and Medicare's beneficiaries, who are responsible for 20 percent
of the bill. While no payment method will perfectly address all
conceivable technical problems, many options are available that are
superior to the current payment method, with its misleading
nomenclature and artificially inflated prices. Currently, Medicare
payments are being set not by the Medicare program but by drug
manufacturers and indirectly by health care providers. Until this
problem is corrected Medicare and its beneficiaries will unnecessarily
pay more and more each year.
I hope this testimony has been constructive in explaining the
problem and offering some ideas for its solution.
Mr. Greenwood. I thank the gentleman and would note that
even if we passed legislation that was signed into law
tomorrow, it's probably going to take 6 to 9 months to begin to
achieve the saving just because of the bureaucratic
necessities.
The Chair recognizes Mr. Zachary Bentley, President of Ven-
A-Care Inc., for your testimony, sir.
TESTIMONY OF ZACHARY T. BENTLEY
Mr. Bentley. Mr. Chairman, members of the subcommittee,
good morning. I am Zachary T. Bentley. For the last 13 years,
I've been an officer and a business manager of Ven-A-Care of
the Florida Keys, a small pharmacy located in Key West,
Florida. Early on, I was shocked to receive a payment from
Medicare for the infusion cancer drug Leucovorin that exceeded
our costs by approximately 1,000 percent.
Mr. Greenwood. Mr. Bentley, could you pull the microphone
just a little closer, please?
Mr. Bentley. The tenfold profit on this drug being paid for
by Medicare was so excessive that the beneficiary's 20 percent
copayment actually exceeded the cost of the drug to Ven-A-Care.
I attempted to return the payment, only to learn that the
Medicare carrier did not believe it had made a mistake. The
prices used by Medicare, Medicaid and many private health
insurers for setting drug reimbursements are the prices
reported to those entities by drug manufacturers. We have
discovered that some, not all, drug manufacturers report
falsely inflated prices so that their customers will reap
exorbitant windfall profits.
In 1991, Ven-A-Care was solicited to enter into a physician
joint venture designed to split the proceeds of such excessive
reimbursements with doctors in a position to prescribe
expensive infusion drugs to AIDS patients. The venture was
crafted by one of the country's largest health care companies,
National Medical Care, then a subsidiary of W.R. Grace. We were
promised by NMC that we would become wealthy if we cooperated.
We refused because we believed that this proposal was nothing
more than a kickback scheme, which would ultimately lead to
overutilization of drugs and possibly patient harm.
National Medical Care then proceeded with the physician
joint venture on its own and effectively ran Ven-A-Care out of
business. Later when Ven-A-Care attempted to rebuild its
business with a focus on oncology drug therapies, we
encountered demands that we enter into a similar kickback
arrangement with oncologists associated with yet another large
national health care company. Again, we declined to
participate. Instead, we redoubled our efforts to shine the
light of day on these shadowy schemes.
We have worked diligently to educate those who administer
Medicare and Medicaid programs about this serious problem,
including personally briefing the previous HCFA Administrator.
We have assisted the HHS Office of Inspector General, the
Department of Justice, and have prosecuted false claims actions
that resulted in the government's nearly $500 million recovery
against National Medical Care and the more recent $14 million
Medicaid settlement with Bayer Pharmaceuticals Corporation. We
also initiated the pending Texas Medicaid false claims action
against inhalation drug manufacturers Warrick, Roxane and Dey
Laboratories. Texas Attorney General John Cornyn has joined
with us in that case.
Last year we were subpoenaed by your committee to provide
our information relating to this drug pricing fraud. The
information we provided reveals some troubling things. A fraud
scheme costs the government billions of dollars each year and
encompasses not only chemotherapy drugs, but drugs used for
inhalation, biologicals, IV fluids, IV antibiotics, and now it
is in the community retail marketplace.
Medicare and Medicaid patients are harmed when health care
providers' decisions to prescribe and dispense drugs are based
on profit rather than the best interest of the patient. The
fraud adds to the spiralling Medicaid drug expenditures that
have forced some States to curtail other needed public health
services. Medicare patients are defrauded because their 20
percent copayment alone often exceeds 100 percent of the true
cost of the drug.
Americans are being deprived of newer and safer drugs when
manufacturers inflate price reports of newer drugs to encourage
physicians to keep prescribing the older drugs. Government
programs are deprived of the benefits of vigorous price
competition when expensive drugs become subject to competition
by generics, other patented drugs or other kinds of treatments.
Prices drop in the marketplace, but prices reported to the
government remain at the same level or in some instances
actually rise. Those drug manufacturers making false price
representations have effectively usurped the right and duty of
Congress to determine Medicare drug payments and the right and
duty of your State legislators and Congress to determine
Medicaid drug payments. Our existing Medicare drug
reimbursement system is broken only because some, not all, drug
companies have chosen to falsely report inflated prices.
And finally, no expanded Medicare drug benefit can
successfully be implemented unless drug companies are required
to tell the truth about their prices.
Thank you very much. I'll be happy to answer any questions.
[The prepared statement of Zachary T. Bentley follows:]
Prepared Statement of Zachary T. Bentley, President, Ven-A-Care of the
Florida Keys, Inc.
Mr. Chairman and Members of the Subcommittees: Good morning. I am
Zachary T. Bentley.
For the last thirteen years I have been an officer and the business
manager of Ven-A-Care of the Florida Keys, a small pharmacy located in
Key West, Florida. Early on, I was shocked to receive a payment from
Medicare for the infusion cancer drug, Leucovorin, that exceeded our
cost by approximately 1000%. The ten-fold profit on this drug, being
paid for by Medicare (80%) and the beneficiary (20%), was so excessive
that the beneficiary's co-payment actually exceeded the cost of the
drug to Ven-A-Care. I thought the Florida Medicare carrier had made a
mistake. I attempted to return the payment, only to learn that the
Medicare program in fact assumed that the cost of Leucovorin was many
times greater than the true price available to even a small company
such as Ven-A-Care.
We communicated pricing information about Leucovorin and other
drugs which we discovered had similar pricing and reimbursement
disparities, to the Health Care Financing Administration and other
federal and state agencies, in an effort to alert them to the problem.
We learned that the prices used by Medicare, Medicaid, and many private
health insurance programs for setting drug reimbursements were the
prices reported to those entities by the drug companies. When the
manufacturers report falsely inflated prices, providers reap exorbitant
windfall profits. Those windfall profits serve the drug manufacturers
as government-funded kickbacks to induce the providers to order their
drugs.
I must emphasize, however, that not all pharmaceutical
manufacturers engage in this nefarious scheme.
In 1991, Ven-A-Care was solicited to enter into a physician joint
venture designed to split the proceeds of such excessive reimbursements
with doctors in a position to prescribe expensive infusion drugs to
AIDS patients. The venture was crafted by one of the country's largest
healthcare companies, National Medical Care, then a subsidiary of WR
Grace. We were promised by NMC that we would become wealthy if we
shared drug revenues with the treating physicians, because they would
order large quantities of pharmaceuticals that cost far less than the
reported prices. We believed that this proposal was nothing more than a
kickback scheme, which ultimately would lead to over-utilization of
drugs and possibly to patient harm, and we elected to not participate.
National Medical Care then proceeded with the physician venture on its
own and effectively ran Ven-A-Care out of business.
Later, when Ven-A-Care attempted to rebuild its business with a
focus on oncology drug therapies, we encountered demands that we enter
into similar kickback arrangements with oncologists associated with yet
another large national healthcare company. Again, we declined to
participate. Instead, we redoubled our efforts to shine the light of
day on these shadowy schemes.
We learned that almost every third-party payer, including Medicare,
Medicaid, the Federal Employees Health Benefits Plan, and most private
insurers, relied on the drug companies' representations of drug prices
when setting the reimbursement amounts paid to providers. It became
apparent to us that many drug manufacturers reported truthful prices,
while others falsely inflated their price reports so that their
targeted customers--oncologists, urologists, home care companies, ESRD
providers, DME companies, and others--would be induced by the resulting
windfall profits to order their drugs.
We have worked diligently to educate those who administer the
Medicare and Medicaid programs about this serious problem, including
personally briefing the previous HCFA Administrator. Ven-A-Care also
has taken direct action to stop this major hemorrhage of tax dollars.
We have assisted the HHS Office of Inspector General and the Department
of Justice and have prosecuted False Claims actions that resulted in
the government's nearly $500,000,000 recovery against National Medical
Care/Fresenius and the more recent $14,000,000 Medicaid settlement with
Bayer Pharmaceutical Corporation.
We also initiated the pending Texas Medicaid false claims action
against Schering Plough's Warrick drug division, Boehringer Ingelheim's
Roxane drug division, and Dey Laboratories. Each of those companies
manufacture inhalation drugs used to treat severe respiratory ailments.
Texas Attorney General John Cornyn has adopted our claims, and we are
currently assisting him in that litigation. The Texas Medicaid Program
has led the Nation in its efforts to secure accurate price reports from
drug companies by requiring written certification of a range of prices.
Last year, pursuant to subpoena, we provided to the House Committee
on Energy and Commerce our documents and other evidence relating to the
inflation of price reports by certain drug companies. In preparing for
my testimony today, I have again reviewed the information now in the
Committee's possession. The Committee's commendable oversight and
investigative efforts have alerted the Congress and the public to the
following issues:
1.) The evidence reveals that the fraud scheme encompasses a wide range
of drugs including chemotherapy, inhalants, biologicals, IV
fluids, and, IV antibiotics. More recent reports reveal that
the fraud is also directed at oral drugs reimbursed by Medicaid
and which will be the focus of an expanded Medicare drug
benefit.
2.) Falsely inflated drug price representations enrich certain health
care businesses, including some drug companies, home care
pharmacies, oncologists, and inhalation providers, while
cheating Medicare beneficiaries of their current drug benefits.
This shameful fraud levies a cruel tax on Medicare
beneficiaries, whose 20% co-payment alone often exceeds 100% of
the true, reasonable cost of the drug to health care providers.
3.) This fraud compromises the health and safety of Medicare and
Medicaid patients. The excessive reimbursements are used as
inducements to physicians and other health care providers in a
position to cause the companies' drugs to be ordered.
Oncologists and other providers are thus financially induced by
certain drug manufacturers to prescribe such vital drugs as
chemotherapies, not on the basis of what is best for the
patient, but based on what is most profitable for the medical
provider. Such kickback schemes impair independent medical
judgment and interfere with the physician/patient relationship.
A case in point involves the prostate cancer drug Lupron,
manufactured by TAP Pharmaceuticals, a joint venture between
Japan's Takeda Pharmaceutical Company and Abbott Labs. Recently
announced criminal indictments of several urologists
illustrates the seriousness of the problem.
4.) The price fraud costs Medicare and Medicaid billions of dollars
each year in the form of excessive reimbursements and over-
prescribing of medications.
5.) False, inflated drug price representations effectively deprive
Medicare and Medicaid patients of access to medical care
because:
a.) Seniors are overcharged in their co-payments and thus have less
money available to purchase other needed drugs not covered
by Medicare.
b.) Scarce health care program dollars are diverted to fund these
overpayments and kickbacks that benefit practice
specialties in a position to increase drug company sales.
The Wall Street Journal reported last February 7 that
``states say the drug-cost component of Medicaid is rising
more than 20% annually,'' forcing states to cut funding for
other services. Missouri budget director Brian Long told
the Journal that Medicaid costs are responsible in part for
his state's inability to fund increased costs for school
transportation and special education. An Ohio budget
official said ``The rest of state government is
dramatically impacted'' by rising Medicaid drug costs.
Similarly, scarce Medicare dollars are diverted and thus
not available, therefore, to increase reimbursements to
other practice specialties such as cardiology, surgery, and
gynecology.
6.) Certain drug manufacturers and health care provider groups have
actively misled Congress and the Medicare and Medicaid programs
in an effort to conceal and perpetuate this fraud. Examples
include
a.) Seeking to deflect scrutiny by contending that Congress and the
Executive Branch have created a flawed reimbursement
system. This argument is specious, because the system works
well as long as drug companies tell government insurance
programs the truth about their prices. If a flaw exists, it
is the fault of the drug companies who choose to give the
government false prices.
b.) Contending that the inflated reimbursements are needed to
defray other provider costs not adequately covered. Some
health care providers may be justified in requesting higher
reimbursements. The recent GAO study, however, will confirm
that the drug companies in question (and I reiterate that
not all drug companies are guilty of this practice) have
generated exorbitant reimbursement schedules for certain
drugs. The scheme benefits only the companies and their
provider customers, to the detriment of government health
insurance programs and patients. These inflated
reimbursements are created only when a drug company desires
to fend off competition; they are not calculated to cover
administration costs, and they far exceed any reasonable
level of reimbursement.
c.) Some health care professionals have stooped to extortion
tactics by threatening that they cannot continue to care
for cancer patients if their gravy train is derailed. The
false premise for this threat is revealed by the fact that
those same health care professionals were making the drugs
available to patients before manufacturers contrived to
create such lucrative ``spreads'' to stave off competition
by other manufacturers.
I find it offensive that the drug companies that are engaging in
these practices have tried to conceal their actions while
at the same time piously holding themselves out as stewards
of the public good. In fact, the sub-committees' subpoenaed
records reveal that one major drug manufacturer inflated
price reports for a broad range of cancer drugs while
touting itself as America's ``most admired'' pharmaceutical
company.
7.) The federal government and many states have taken action to improve
reimbursement systems by requesting additional price data. For
example, California often bases payments on manufacturers'
reports of direct prices and submission of manufacturer
invoices; Texas requires written certification of different
kinds of prices and costs; many States rely on reports of
Wholesaler Acquisition Cost rather than AWP; HHS regulations
were modified to provide for a federal Medicaid Upper Limit;
and Congress enacted the Medicaid rebate law. Each of these
efforts, however, has been circumvented and frustrated by
certain drug companies that falsely inflate any form of price
or cost data the government attempts to use to set
reimbursements.
8.) The fraud scheme deprives government programs of the benefits of
vigorous price competition that occurs when expensive drugs
become subject to competition by generics, other patented
drugs, or other kinds of treatments. Prices drop in the
marketplace, but prices reported to the government remain at
the same level, or rise. As a result, Medicare, Medicaid and
the public are misled to believe that the drugs remain highly
expensive when in fact they sell for a fraction of their pre-
competition prices. The current example of the cancer drug
Taxol is illustrative. When Taxol's patent protection expired
recently and a competing generic drug entered the market, the
prices of both drugs began to fall. Nevertheless, the reported
prices remained at the pre-competition level, creating a
``spread'' that is used to market both drugs, and government
health insurance programs have not benefitted from the reduced
(but unreported) prices set by the marketplace. It is ironic
that there was no ``spread'' before Taxol had a generic
competitor, but now a ``spread'' exists and is used to market
both drugs.
9.) Those drug manufacturers making false price representations have
effectively usurped the right and the duty of Congress to
determine Medicare drug payments, and the right and duty of
state legislatures and Congress to determine Medicaid drug
payments. Increased oversight by the Congress and enforcement
by the Executive Branch, have resulted in at least two drug
manufacturers reporting markedly lower prices to the Medicaid
Programs, however, even those companies continue to report
inflated prices for Medicare purposes.
After concluding the first stage of its investigation last year,
Congress enacted legislation requiring the General Accounting Office to
investigate and report on the true costs of the drugs in question and
the expenses incurred by health care providers in administering them.
The legislation also requires the recently renamed Center for Medicare
and Medicaid Services (CMS), formerly known as the Health Care
Financing Administration (HCFA), to review the GAO report when issued
and take appropriate action with respect to Medicare drug
reimbursements. State Medicaid programs already have taken actions
based on the results of investigations by the Department of Justice and
the National Association of Medicaid Fraud Control Units, and many of
those programs have already reported saving tens of millions of dollars
as a result. I am hopeful, that after considering the GAO report, CMS
Administrator Thomas Scully will take similar action to stop these
excessive payments that are costing the Nation's health care systems
billions of dollars each year.
In conclusion, the evidence amassed by the sub-committees
demonstrates without doubt: No drug reimbursement system will succeed
unless drug companies tell the truth about their prices. Our existing
Medicare Drug Reimbursement System is broken because certain drug
companies lack honesty and integrity. Any expanded drug benefit will be
doomed to fail if those same companies continue to lie about their
prices.
Thank you for the opportunity to bring to the sub-committees'
attention this widespread, institutionalized fleecing of Medicare,
Medicaid and other health care programs funded by the American
taxpayer.
I will be happy to answer any questions the sub-committees may
have.
Mr. Greenwood. Thank you for your testimony.
The Chair recognizes himself for 5 minutes for questions,
and would refer to document N1 and ask the staff to have that
projected. That's the document that was projected earlier.
N1. Staff, N1. There we go.
Let me start with you, Mr. Bentley, and let us look on that
chart at Mitomycin. Mitomycin is what kind of drug, Mr.
Bentley?
Mr. Bentley. It's a chemotherapy agent.
Mr. Greenwood. It's a chemotherapy agent.
Let me understand--let me make sure that I understand and
we all understand this chart. Your company, Ven-A-Care, the one
to purchase that drug, at catalog price from the manufacturer
would pay $180. Is that correct?
Mr. Bentley. Yes, sir.
Mr. Greenwood. Okay. And the Red Book, the document that
Medicare uses in order to determine the reimbursement to the
physician, then is posted by the manufacturer at $869.33. Is
that correct, sir?
Mr. Bentley. That is the Medicare allowable, which would be
95 percent of the AWP that is posted in the Red Book.
Mr. Greenwood. So Medicare pays $869 to the physician for a
product that he paid $180 for--95 percent of that?
Mr. Bentley. Correct.
Mr. Greenwood. So the overpayment is in the vicinity of 680
some dollars Medicare is overpaying for that drug?
Mr. Bentley. Yes, sir.
Mr. Greenwood. Now, let us look at the impact of that
particular chemotherapy drug on the patient. The patient's
requirement under Medicare is to pay 20 percent, 20 percent
copay. If, in fact, the copay was based on the--what was
actually paid for the product, I would assume that that would
be a $36 cost. Is that correct?
Mr. Bentley. Yes, sir.
Mr. Greenwood. Okay. Instead, the copayment is $173.86,
which I would calculate is $137 more than the patient should
pay in copayment. So the patient gets ripped off for $137. And
whether or not we believe that the oncologists--and I do
believe that the oncologist needs to recover more than we're
paying him now. I'm looking at the patient here. What if the
patient doesn't have the $173.86? What if the patient could
afford $36 for the treatment, but doesn't have the $173. What
happens?
Mr. Bentley. That's correct.
Mr. Greenwood. The patient could conceivably do without
treatment.
Mr. Bentley. That's correct. Or other family members may
have to help pay the successive copayment amount, which only
puts a burden on other family members when a loved one has
cancer. And I would also say that Mitomycin is also paid to
pharmacies by the DMERC's under Medicare, not just oncologists.
Mr. Greenwood. Let me pose this question to Mr. Scanlon.
Mr. Scanlon, the crux of this whole--there is no question that
AWP system is broken. I've talked to every pharmaceutical
company that I could find. They all agree. I've visited my own
oncology doctors in my county. They agree that the system
doesn't--that the system doesn't make sense as it's
constituted. There is this question of whether the oncologists
in particular and other providers are undercompensated and what
we need to spend to pay them fairly.
Is it your testimony that--what was the figure in your
report for the overpayment to oncologists for these drugs? What
was that number?
Mr. Scanlon. It's approximately $530 million.
Mr. Greenwood. $530 million----
Mr. Scanlon. Based on the conservative estimate of----
Mr. Greenwood. $530 million per year, half a billion
dollars a year just for oncological products.
And, sir, what does your study reveal as to what it would
cost to bring oncologists up to the rest of the medical
profession in terms of the way they're compensated by Medicare?
Mr. Scanlon. There are a number of elements in that. I
mean, to put the oncologist on par with other physician
specialties, first of all, there's the issue of the adjustment
of their fees for chemotherapy administration and the
substitution of an alternative method for the basic method.
Restoring the basic method would add about $31 million to their
payments.
Oncologists have also raised issues about an adjustment
that HCFA made in terms of their supplies, and they've
indicated that they believe that HCFA has reduced their supply
estimates too much in terms of taking the drug costs out of
what was reported in the survey data used to set up the fee
schedule. We don't have a firm estimate of what supply expenses
should be. The oncology profession has indicated that it should
be about double of what HCFA uses, which would add another $20
million to oncology payments.
Other issues that they raise, we cannot make an estimate
now as to what impact that might have on their fees, and as I
indicated, they might not have a big impact at all because
other specialties might have the same types of issues, in terms
of practice expense, keeping pace with changes in practice.
Mr. Greenwood. My time has expired. The Chair recognizes
the gentleman from Florida Mr. Deutsch for 5 minutes.
Mr. Deutsch. Thank you, Mr. Chairman.
Mr. Scanlon, if I can follow up on that, because I think
one of the interesting things in your very, you know,
insightful testimony was really this whole issue of the
alternative approach. I mean, there's a clear consensus it's
broken. How do we fix it? I mean, specifically, if you can
elaborate. You were starting to elaborate in terms of the
physicians themselves, the reimbursement, the AWP
reimbursement. I mean, can you offer some specific suggestions
to us?
Mr. Scanlon. Well, in terms of the physician payments for
chemotherapy administration and other services that don't
involve a physician directly, to restore the basic method, what
it means is that you use differences in the resources--the
types of inputs--that are needed to provide a different service
as the basis for determining Medicare fees. The alternative
method that was used by HCFA involved the substitution of
historical charges, what physicians actually charge, and which
oncologists have said were based on the past and do not reflect
current experience or practices in the delivery of these kinds
of services. So we believe in substituting information about
actual resources that are required, that HCFA has developed
through expert panels and may need to update through additional
expert panels to keep current, but that kind of information is
key to put the physician fees on par with----
Mr. Deutsch. If I can follow up on that, your study points
out almost a 10-to-1 differential between hat government--what
we would save or what Medicare would save if we changed up AWP
versus switching the physician payment. The oncologist group--
and I don't know if they are going to testify to this later,
but I'm aware of at least a study that they did, not as
extensive as yours, which was saying it was almost a 1-to-1
tradeoff. Have you looked at their study, and how do you
respond?
Mr. Scanlon. We have looked at their study. We have not
been able to replicate their study, but at the same time we
have concerns about the method of the study. I mean----
Mr. Deutsch. That is obviously a pretty big differential.
Mr. Scanlon. There is no question about it. There's a
number of differences in terms of what we've done and what they
have done. We have built this estimate based upon all the
services physicians provide, which we think is key to
understanding this problem. The physician fee schedule is a
relative value fee schedule. It sets fees for one service based
on the comparison of the resources required for it versus other
services, and it distributes an amount of money that we found
to be adequate in order to get physician participation in
Medicare. So that's the criteria for setting physician fees.
To build an estimate of expenses from looking at individual
procedures is not nearly the same, because what it ignores is
the fact that the fees that become paid to a physician includes
three components. One is the practice expense component. The
second one is the physician work component, for which there is
no comparable sort of accounting cost, and that accounts for
over half the fee. And the third thing is the malpractice
expense component. So in some respects it becomes--when you
start to look at this as a piece, you have the potential of
being misled, and it's much more important to look at this in
the aggregate.
Mr. Deutsch. If I can sort of open this up to each of you
individually, and let me also welcome Mr. Bentley as a
constituent. I'm glad you made your way up to Florida. It's not
as easy--from Florida. It's not as easy as it used to be.
Hopefully that will change.
But in my opening statement I mentioned what I think in
some ways is as big, if not the biggest, concern is the
substitution based on market forces, and we all can, you know,
come up with theories that it's going on. Do we have empirical
or even anecdotal evidence that, in fact, there has been
substitution based upon the increased spread of particular
drugs? I mean, do we have either anecdotal or empirical
evidence, besides theoretical evidence, which clearly we do
have? If you don't know, that's fine.
Mr. Bentley. I believe there is evidence that----
Mr. Deutsch. Can you point to anything specific that you're
aware of?
If you can pull the mike closer as well. It gives--I mean,
we can all see that it should be occurring, or it could be
occurring. Obviously we hope it's not occurring.
Mr. Bentley. This was part of a drug I was referring to in
my opening statement, which is a new version of an older drug
called Vepesid, which is----
Mr. Greenwood. Mr. Bentley, why don't you lift your
microphone up. I know everyone wants to hear you. And make it--
speak as directly into the microphone as you can. Point it
toward your----
Mr. Bentley. Okay. This is an internal Bristol-Myers Squibb
document that shows Etopophos, which is a second-generation
etoposide that was developed, and they say that it's clearly
superior to that of etoposide and for various reasons. And then
they go on to the next document, where it says, the Etopophos
product profile is significantly superior to that of etoposide.
Now, what they were concerned about was there was a big spread
already in etoposide, so how were they going to market and sell
the better, in their own words, clinically superior, second-
generation drug?
Now, they admit right here, currently physician practices
can take advantage of the growing disparity between Vepesid--
that's etoposide--list price and subsequently the average
wholesale price, AWP, and the actual acquisition cost when
obtaining reimbursement for etoposide purchases. If the
acquisition price of Etopophos is close to the list price, the
physicians' financial incentive for selecting the brand is
largely diminished.
And they go through some different scenarios. And I can
tell you right now that the spread differential on etoposide,
as was pointed out earlier, Medicare is reimbursing
approximately $135 for the old version of etoposide, and it
costs less than $10. And literally we have a, quote, clinically
superior drug that Bristol-Myers Squibb has been unable to
market because of the spread on the older version of the drug.
Mr. Greenwood. Your time is----
Mr. Deutsch. Can I just ask a very short follow-up
question?
Mr. Bentley. Sure.
Mr. Deutsch. And I know my time is expired. I guess I have
a copy of this, and it's up there. I'm just curious. You were
able to ascertain this information through your whistleblower
lawsuit. How were you able to----
Mr. Bentley. This--I obtained this from the Justice
Department, cooperating with them. They obtained this by an OIG
subpoena issued to Bristol-Myers Squibb.
Mr. Greenwood. The time of the gentleman has expired.
The Chair recognizes for 10 minutes the gentleman from
Florida, the chairman of the Health Subcommittee, Mr.
Bilirakis.
Mr. Bilirakis. Thanks, Mr. Chairman.
Mr. Bentley, the Mitomycin that's on that chart, 40
milligram, and the dollar figures attached thereto, how many
doses is that? Is that one dose?
Mr. Bentley. Well, that's one vial. Depending on how it is
administered, that could take two or three vials to equate to a
dose.
Mr. Bilirakis. All right. So if it took 2 or 3 vials for
one dose----
Mr. Bentley. You multiply all of those figures times 2 or
3. And if I can interject to shine some light on some previous
remarks that were made, the Mitomycin, that AWP, that was
established by the drug manufacturers, and that is what
Medicare is relying on to determine the reimbursement. And I
can tell you I have examined tens of thousands of internal drug
company documents, and there is not one scintilla of evidence
that shows that the drug companies established an inflated
price for Mitomycin in order to offset practice expense for
oncologists or to give the pharmacists any more money. It
just--that is not the focus.
Mr. Bilirakis. So who created the AWP, then? Is it created
by HCFA, by HHS, by----
Mr. Bentley. It's been around, sir, for the better part,
that I'm aware of, about 40 years. And for a great number of
those years, it's always worked, and there are still a great
number of companies, Merck, Lilly, Johnson & Johnson, DuPont,
who do not engage in this type of gaming the system. When they
make a representation about the price of the drug, you may not
like it because it may be high, but that's the price they sell
it for.
Mr. Bilirakis. Let me ask you, about the $180 figure which
is the Ven-A-Care cost. Is HCFA, in your opinion, aware that
that's really all that it cost?
Mr. Bentley. I think they are now, sir.
Mr. Bilirakis. Mr. Scanlon, are they aware of it?
Mr. Scanlon. Yes, Mr. Chairman.
Mr. Bilirakis. Have they been aware of it?
Mr. Scanlon. They have been aware of it, and last year they
did take steps to try and change this, but then because of
concerns raised by providers, they backed off and----
Mr. Bilirakis. Concerns raised by providers to HCFA?
Mr. Scanlon. About the imbalance between the drug prices
and the drug administration compensation.
Mr. Bilirakis. Concern was raised by providers, being----
Mr. Scanlon. Yes, sir.
Mr. Bilirakis. [continuing] let us say in that case the
oncologists?
Mr. Scanlon. Yes, sir.
Mr. Bilirakis. Mr. Grob, do you agree with that?
Mr. Grob. That's correct.
Mr. Bilirakis. Because concerns were raised by providers,
it just remained status quo?
Mr. Grob. The status quo has remained. In fact, the
Congress required that it remain that way.
Mr. Bilirakis. That's what I want to get to. The Congress
did what?
Mr. Grob. The Health Care Financing Administration had
advocated making available more realistic drug prices to the
carriers, but because of the concerns that were raised, the
Congress placed a moratorium on any reductions in those prices,
and it commissioned the study of the General Accounting Office.
Mr. Bilirakis. And that's what we have today. I'm almost
speechless.
Is there a substitute or an equivalent drug that will do
the same job Mitomycin will do? Mr. Bentley?
Mr. Bentley. I'm not a pharmacist. I'm not--I don't know.
Really my expertise is on pharmaceutical pricing and the
economics.
Mr. Bilirakis. Do any of you know?
Mr. Grob. I don't know, Mr. Chairman.
Mr. Scanlon. Nor do I.
Mr. Bilirakis. Mr. Grob, do you know, can HCFA, the
administration, HHS, et cetera, et cetera, can they fix this in
a way that it should be fixed? You know, and I'm not--I realize
this is more complex. It's certainly not a simple situation,
but can they fix this? Do they have the power to fix this, or
does it have to be Congress?
Mr. Grob. Theoretically, CMS does have the power through an
authority called their ``inherent reasonableness'' power, which
allows them to conduct studies to determine what the true
prices are, and if there is a price that is, as the phrase
says, inherently unreasonable, they can reduce it. However,
that's a very lengthy process to conduct the studies. The
studies are almost----
Mr. Bilirakis. Yeah. But then we get the figures up there,
the 7 cents for the one and 94 cents for the $1.20. What kind
of studies are we talking about?
Mr. Grob. Well, they would be studies to determine what the
market prices are, what comparable prices are.
Mr. Bilirakis. But those are the prices, aren't they?
Mr. Grob. We believed for some time that there's good,
strong evidence for reducing those prices, and CMS would have
that authority. And, in fact, CMS had the means even just by
making the prices available to the carriers to do it, but there
has always been resistance to this.
CMS to its credit in the past had advocated other ways to
deal with the high prices e.g., to increase the discount on the
AWP, but these proposals----
Mr. Bilirakis. I guess my time did expire. I'm sorry, Mr.
Chairman. I didn't notice that.
Mr. Greenwood. Thank you.
We are going to collect a dollar for the firefighters of
New York for everyone who says HCFA for the remainder of this
hearing.
Is the gentleman Mr. Brown available for questioning now?
In that case, the gentleman from New Jersey Mr. Pallone.
He's recognized for 5 minutes.
Mr. Pallone. Thank you, Mr. Chairman, and, Mr. Bentley, I
just want to continue with some of these documents in an effort
basically to show that, you know, companies consider doing
what's right, but then they choose to do what's wrong, so to
speak. And if I could ask that we successfully look at, I
guess, B-1, B-2 and B-3, and we'll start out with B-1, which is
an internal Glaxo document. And I just wanted to--you know, Mr.
Bentley, if you just wanted to comment on that first document
in this regard.
Mr. Bentley. Sure. This is very interesting. Glaxo was the
first company to market the antiemetic Zofran that's used to
control nausea and vomiting in chemotherapy patients. And they
had a natural monopoly for a number of years, because they had
the only drug that was FDA-approved for this indication. And in
approximately 1995, SmithKline came out with a competing drug,
not a generic, but a drug that was effectively controlling
nausea and vomiting. And Glaxo noticed that their market share
declined dramatically right from the onset of the introduction
of Kytril. Now, they expected obviously they were going to lose
some market share, because there was competition in the
marketplace. They didn't expect to lose the amount that they
had lost so rapidly. And the marketing department told Glaxo,
well, it was an easy answer. Physicians were actually being
courted by SmithKline representatives to switch from Zofran to
Kytril based on the opportunity to make money from Medicare and
Medicaid.
So they came up on some proposals on how they were going to
level the field and this was an internal memorandum. Obviously
somebody with some conscience in Glaxo was concerned about the
ramifications of what Glaxo was proposing to do and that was to
raise the net wholesale price in AWP, which would effectively
increase the amount paid by Medicare and Medicaid while
simultaneously lowering the price to physicians and to
specialized pharmacies like Ven-A-Care in order to create a
spread to compete with SmithKline's competing product, and that
spread that they were going to compete with was not their own
money. It was the government funds being used to fund a
kickback essentially for their marketing efforts to compete
with SmithKline, and they were obviously very concerned about
what Congress was going to look at.
Mr. Pallone. This was the second document, right, B-2? Oh,
we are still in B-1, okay.
Mr. Bentley. The next document shows what Ven-A-Care
received in the mail from Florida Infusion announcing this
great revolution, and that was Glaxo had raised the AWP but
lowered the price, effectively creating a spread to induce Ven-
A-Care and physicians to go back to Zofran for those that were
using the competing Kytril.
Mr. Pallone. Then let us go to B-3. This is the Smith Kline
document where, I guess what is it called, Health IQ, where
they talk about possibly turning Glaxo into Medicare and that
that might be a reasonable approach but then they worry about
the whole industry going down. Do you want to comment on that?
Mr. Bentley. Yes. This is interesting because there was
actually a series of letters written by Health IQ under the
letterhead Physician Home Care Associates, and they were
written to every medical director of the Medicare Part B
carriers and to the Medicaid medical directors and they were
ostensibly representing themselves as this great group that
represented home care doctors and pharmacies. However, it was
nothing more than a lobbying group that was being paid for by
SmithKline, and if you look at bullet point No. 4 it says from
the communication received to date the letters received by
Physician Home Care Associates, ostensibly written on behalf of
physicians and other health care providers, appear to be
greatly appreciated by the medical director. That is the
Medicare Part B directors. A follow-up letter apprising
Medicare of an increasing in Glaxo's AWP and a proffered
discount to purchasers which would seem to benefit providers
might appear peculiar and prompt questions as to the true
identity of Physician Home Care Associates.'' And then they go
on that they----
Mr. Pallone. Read that next section.
Mr. Bentley. Sure. ``As a result of these issues raised
above, Health IQ's concern that highlighting the difference
between the actual acquisition cost and the published AWP may
not only increase attention to Glaxo's pricing practices but
may provide the impetus for HCFA to implement a system that
could impact not only reimbursement of antiinfectives but all
pharmaceutical and biological products. The ramifications could
extend well past Medicare to include Medicaid programs also
administered by HCFA as well as private payers who tend to
mimic policies and procedures implemented by public payers.''
Mr. Pallone. Obviously that was the point that they were
concerned that the whole industry was going to go down.
Mr. Bentley. Absolutely.
Mr. Pallone. Thank you. Thank you, Mr. Chairman.
Mr. Greenwood. Thank you. I recognize for purposes of
inquiry the chairman of the full committee, Mr. Tauzin.
Chairman Tauzin. Thank you, Mr. Chairman. First let me
respond to concerns that we have somehow questioned the motives
of any physicians involved in this payment system. First of
all, the concerns expressed by oncologists as we have reviewed
this matter was to the effect that if we did not simultaneously
repair the deficiencies in practice reimbursements under the
Medicare system while we are curing the unfairness of the
system that reimburses way beyond the cost of the medicines
that are provided to Medicare patients that we would be
disrupting the provision of health care services to patients in
America. That is a real concern of this committee, and so let
me turn quickly to the--I guess to the first question for the
GAO. The numbers you have submitted to us is that practice
reimbursements are about $51 or so million dollars short; is
that correct.
Mr. Scanlon. The adjustments that we think should be made
would approximate that.
Chairman Tauzin. I understand Mr. Scully is going to put a
figure of about $48 million or so. It seems the two of you are
close, but even if you multiply the numbers you have given us
by three, if you provided reimbursements to the physicians
three times what you estimate is a shortfall at $150 million,
we are still talking about overpayments of a billion dollars.
So if we correct the overpayment problem in the system because
of this artificially high AWP wholesale price posting, there is
ample room, then, to correct the deficiencies that you and Mr.
Scully have found in the payment to physicians for services; is
that correct?
Mr. Scanlon. That is correct.
Chairman Tauzin. So that in correcting this problem, if we
handle it properly, if we make adjustments for physicians'
practices three times as much as you estimate is a shortfall,
we could still save the system $850 million or more each year
in the overpayments for these drugs; is that correct?
Mr. Scanlon. That is correct, but I would also note, Mr.
Chairman, the changes that we have talked about in terms of
implementing the fee schedule as you have specified do not
involve an additional expenditure because the fee schedule has
been budget neutral. If you decide to increase----
Chairman Tauzin. The problem there is it would come out of
other physicians' reimbursements. So if we added to that pool,
three times what you recommended as the deficiencies paid to
these physicians so that it could be spread out more equitably
without denying other physicians their reimbursements, we would
still save $850 million to the Treasury in the----
Mr. Scanlon. You could still save considerable money.
Chairman Tauzin. Let me turn to the other issue that
disturbed me so much, and I want to tell my friends Mr. Ganske
and Mr. Norwood that I didn't make these comments lightly and I
stand by them. I am looking at the IG report now that is number
Q-1. It contains some rather chilling language. It says in that
report a review of 22 skilled nursing facilities, that at these
facilities $4.8 million out of the $9 million in claims, 53
percent were not medically necessary. They went on to say that
in addition financial effects we noted about overutilization
and overpricing were potentially harmful to the patients.
``Medical reviewers who were part of our audit''--this is a
quote. ``Medical reviewers who were part of our audit concluded
that patients receiving unnecessary infusion services were
placed at undue risk for complications,'' and it went on to
say, ``Furthermore, infusion services are invasive procedures
that are painful and when unnecessary reduce the quality of
life.''
That IG study, did it not, also went on to say that maybe
one of the inducements for this overutilization was this crazy
system where overreimbursements were provided for some of these
infusion drugs?
Mr. Grob. Again, we didn't tie analytically the two
together, but the thing that concerns me is that it is in the
air. I think where we want to be--I think we would all feel
better if it just wasn't that big of a possibility.
Chairman Tauzin. That is the point. Let me try to say it
maybe a little more accurately, as you have tried to say it,
Mr. Grob. The fact that these overpayments are there next to
the fact that there is evidence not only in that study but in
one reported by the New York Times on May 13, 2001 indicating
how much overuse of chemotherapy seems to occur in some cases
in the last stages of some cancer patients' lives when there is
strong medical evidence that the chemotherapy had no effect at
all upon the quality of life or the treatment of the cancer,
that these studies standing out there with this overpayment
system also present, if nothing else, creates the image that
something is wrong and that is bad and the notion that anyone
in this country would be given infusion drug therapies that
would harm them or could possibly harm them or make life less
pleasant for them in those last days with a system that
overcompensates for doing that is a juxtaposition that we ought
not to permit. Isn't that a point in your study?
Mr. Grob. It is. We feel that we all wish you would not
have to ask me that question.
Chairman Tauzin. Exactly, and I am going to quote you.
Abusive billing arrangements between the skilled nursing
facilities and infusion suppliers resulted in tremendous
profits, and here is your quote, ``which encouraged the
overutilization of infusing services when no treatment was
necessary.'' You did tie it together.
Mr. Grob. Yes.
Chairman Tauzin. Even if you hadn't, the juxtaposition of
those two elements, overutilization where it could be harmful
to patients and make their lives miserable in the last days and
overpricing that could possibly encourage it is a situation we
should not tolerate; is that correct, sir?
Mr. Grob. That is right .
I think the reason we could say that was in that case we
found representatives, nurses from the infusion company, that
were screening the nursing home patients as they came into the
nursing home. So there was actually a presence there. So it
went beyond mere speculation----
Chairman Tauzin. Again, my apologies to any physician who
thinks I may have slammed them. My mother is a three-time
cancer survivor. I pray at the altar of this medicine that has
saved my mother's life. So don't get me wrong. I love any
doctor that I know takes his oath seriously and practices it. I
defend my own profession, the legal profession, against slams
whenever they come unfairly, but I don't defend unscrupulous
lawyers, and I will not defend an unscrupulous system that puts
people into this position or creates this image when it should
not exist. So I hope that clarifies it a bit. The bottom line
is we ought not create a system that even creates an image that
anyone is providing infusion medical services to a patient in
those kinds of conditions with any kind of connection to the
fact that there is this availability of huge profits involved
for doing it rather than the needs of that patient and the
wonderful care and concern that almost every doctor I know
provides to those patients, and I am talking about the fact
that in every profession there could be a few bad apples and we
ought not encourage them.
Thank you, sir.
Mr. Greenwood. I thank the gentleman, and the Chair
recognizes for 5 minutes the gentlelady from California, Mrs.
Capps.
Mrs. Capps. I have to acknowledge I am struggling a bit to
figure out how to pose it. I have two different things I would
like to talk about, but I am curious, Mr. Bentley, you gave
kind of an autobiography in a way, if you will, of your company
in the beginning with the treatments that you provided and then
blowing the whistle, if you will, or noticing the discrepancies
that you did, and I am curious to know--you were squeezed out
of--you opted out of certain partnerships or relationships that
were offered to you. What is the status of Ven-A-Care now?
Mr. Bentley. Right now we spend most of our time trying to
educate and shine the light on what we feel that are abusive
practices and abusive reimbursements so that we can hopefully
have a level playing field some day and go back and do what we
have always done.
Mrs. Capps. So you are actually in this business of doing
these studies or looking into these discrepancies pretty much
full time now.
Mr. Bentley. Pretty much full time, yes, ma'am.
Mrs. Capps. If I could turn to Mr. Scanlon and/or Mr. Grob,
I am sort of anticipating the testimony of the next panel
because you have been doing a number of studies that point out
what we are all sort of flabbergasted to hear today, to have
discovered. To me, and I know all too personally that it isn't
coincidental that this is the field of oncology where we have
regulating agencies' reimbursement standards that are being set
for a field where, because of the investments that the Congress
has made in the National Institutes of Health and other
research arenas, cancer treatments that were clinical trials 5
years ago are standard today or even 2 years ago. That makes a
challenge for a regulating agency to come up with pricing and
all of the scheduling, and I would mention also that there have
been some discussions about--that oncologists don't have any
allowance within their offices for administering for the
nursing care that goes into this as well and so some of the
incentives for part of our problem come out of what I call the
inability of our Medicare and Medicaid organizations to keep up
with the changes, and I would like to have your comment on
that.
Mr. Scanlon. There is no issue that it is a real challenge
to keep something as complicated as a physician fee schedule up
to date because we all know that medicine is changing for the
better and we would not want to have any kind of system
discouraged. At the same time I think the changes are sometimes
not as dramatic as they are portrayed and it is more of an
evolution than a revolution, and we can keep data more current
and keep our systems more in line.
Now, in this regard, in terms of the physician fee
schedule, the Congress stipulated that specialties could
provide information, current information, to allow CMS and
previously HCFA to update the fee schedule, and some
specialties have. The oncologists have not. There are standards
for the submission of this information in that the information
has to be representative of the profession, it has to be
information that is collected from a large enough sample to
provide a reasonable basis to proceed forward. That is part of
this and I mentioned we were doing another study to see how
information can be updated.
Another piece is the issue of how has the delivery of a
service changed in terms of the nursing time, other staff time,
supplies and other resources? That part needs to be
continuously updated as well. There are some mechanisms in
place. We will be looking at those to see how adequate they
are.
But let me go back to another issue you raised, which is
that certain costs are not being recognized within the system.
All costs in the data that are available to CMS were
recognized. There was the one adjustment in terms of supply
expenses but all nursing costs that were in the data that were
available were recognized. It is a system that does compensate
for some weaknesses by recognizing these costs and then trying
to allocate all of these costs across the different procedures.
So we have some faith in the system. We have some concerns
about how one keeps the data to operate the system as timely as
one needs, and that is what we are studying at this point.
Mrs. Capps. Just one follow up if I have another minute.
You are saying that the discipline of oncology, that those
associations of doctors have not been forthcoming with data
that you asked for?
Mr. Scanlon. In terms of information that we have asked
for, they have provided some of that. In terms of information
they could have provided to CMS to allow their fees to be
recalculated, they have not done so.
Mr. Bentley. May I add to that question?
Mrs. Capps. Please.
Mr. Bentley. There is a drug that came off of patent,
Taxol. It is a very important cancer drug. It has been on
patent for approximately 5 years, originally derived from a
California tree. So it is now being challenged by generic
competition. So you would think the government would start
saving some money because there is price competition, and this
came across our fax, where this came across May 9, the first
generic Taxol is introduced in the market, and they are already
touting the spread, and the manufacturer came in with an AWP
that was only slightly under Bristol-Myers Squibb's AWP; so the
government is not benefiting nor are the patients nor Medicare
or Medicaid from the fact that there is price competition
occurring. And I question the fact that for 10 years Taxol was
on patent and I don't think any oncologist was refusing to give
Taxol to patients because there was no spread for those 10
years. When Bristol-Myers Squibb made a representation about
the price, that is what they sold it for. How did Bristol
respond to the generic competition?
Here is the next, where you see that Bristol-Myers' Taxol,
they lowered their real price in order to meet the competition
but they didn't report a lower price to the reporting services,
and yet again yesterday I got another fax that now then there
is a second generic that has come onto the marketplace and the
prices have dropped about another 20 percent in the last 48
hours but yet they put an AWP on their generic, exactly the
same AWP that IVAX put on the first generic. So again Medicare
and Medicaid and all the private insurers are not going to reap
any benefit. And Taxol, the government currently spends, just
Medicare, about $250 million a year on Taxol.
Mrs. Capps. It is now standard treatment for breast cancer.
Mr. Bentley. Correct.
Mr. Greenwood. The Chair thanks the gentlelady and
recognize the gentleman from Iowa, Mr. Ganske, for 5 minutes
for inquiry.
Mr. Ganske. Thank you, Mr. Chairman. The area of oncology
is kind of a special one as it relates to drug expenses because
what one person may say is medically necessary, another person
may say isn't. Let me give you a real life example. You have a
patient with lung cancer, it spreads to his chest, lymph nodes
and to his neck, not a very good prognosis. The oncologist
tells that patient, you know, we could put you on chemotherapy,
you have a 30 percent chance of responding, and if you do, it
may extend your life 2 or 3 months. Now, is that medically
necessary or not? And in addition you may not feel very good
for some of that time. You know, one person may say I don't
think that is--I don't want to do that and another person may
say those 2 or 3 extra months with my family may mean a great
deal to me that I think is necessary. That is how difficult it
is to make some of these determinations.
That said, I think I want to thank this panel for being
here; Mr. Bentley, you in particular for some of the data that
you provided to us because I agree. I mean I agree with you,
Mr. Grob, when you say the average wholesale price is a number
that is misnamed. It is clear that we are not getting real
numbers and so when you look at--I think this committee should
look at the recommendations that you make. We co-authorize a
commission to set payment rates. We could calculate a real
rate. We could collect the invoices and do a real number if
that is what we want to do. But I think there is a bigger
question that this committee should look at, and that is do we
want to continue in this way and what are the options? What are
the options if the Federal Government is going to pay for these
drugs? Well, we co-pay at cost. We could just pay what the
invoice says. I mean does anyone want to do that? What are the
controls on that? Then you can get any type of cost you want.
Okay. We could pay at any true average. That is where you
have had it in terms of your recommendations. Well, what do you
do about then a large purchaser who is able to get a discount
off that true average vis-a-vis a smaller purchaser who doesn't
have that kind of leverage?
And finally, you know, we could just set the prices and,
quite frankly, I think if you chose the first option of paying
at cost, that is exactly what the Federal Government would do
because that is what it has done on every other aspect of
Medicare. So I think that whenever we are looking at simply
paying at cost or coming to a true average, we need to think
about this big picture here as well. My personal preference at
this time is we need to reform this, we need to get the actual
numbers and then somehow take into account the fact that you
can't ask certain smaller purchasers to actually take a loss if
they cannot achieve the average, and I am not sure exactly how
we do that.
Mr. Bentley, do you have any comments?
Mr. Bentley. Well, I would like to say that the prices that
we have provided to the committee we think represent those that
are available to an extremely small provider. Ven-A-Care
virtually has no buying power, and yet there are much better
prices for large purchasers and so what we are showing you is
just the disparity that is occurring between the reimbursement
prices and what a very small provider is very able to acquire
these drugs for.
Mr. Ganske. So do we throw out the AWP or actually make it
into a real AWP?
Mr. Bentley. There are a lot of drug companies that think
AWP really means something and when they make a representation
about their average wholesale price that is effectively what it
is.
Mr. Ganske. So for those who are playing the game honestly,
it shouldn't affect them that much?
Mr. Bentley. That is correct. And in fact I don't think you
have physicians that are saying we are not going to prescribe
or dispense Lilly drugs or Merck drugs because there is no
financial incentive or inducement for us to provide those
drugs. I am not aware of any evidence of that.
Mr. Ganske. Mr. Scanlon, have you looked over the IG's
recommendations? Do you have any preference in terms of this
list of ways we could go?
Mr. Scanlon. I think taking into account market prices,
which is to recognize the average price being sold, is
important. Whether it needs to be at the average or somewhat
above, to recognize that there may be small purchasers who
cannot obtain the average is the key. And we think that the
data that CMS has available would allow us to look at that. We
did look at small physician purchasers in terms of prices they
could get and we did a survey of them and among the ones that
responded and gave us prices, they all could get prices that
were as good as the discounts that were reported, which are
catalogue prices, and these catalogues are something that any
physician can buy from.
We talked about it as a starting point and the Inspector
General has talked about it. If you are willing to use the
catalogue and pay that price, you will get it. If you
negotiate, if you can deliver some volume, you may get a much
better price. I don't think we are in a position where we want
to begrudge the providers that get better prices and say we
have to find a way to get it down to the absolute minimum. We
are more concerned about the system that is out of control at
the other end--the price that is being paid by Medicare--which
is so far and above the price that is actually being paid by
even the provider getting it at the highest price.
Mr. Ganske. Thank you, and thank you, Mr. Chairman.
Mr. Greenwood. I thank the gentleman and recognize Mr. Burr
for inquiry.
Mr. Burr. Mr. Scanlon, is this something that we have just
realized for the first time that Medicare pays too much for
prescription drugs?
Mr. Scanlon. As Mr. Grob indicated, the Inspector General
has been looking at this for a long time and the conclusion has
been the same.
Mr. Burr. Why haven't we fixed it?
Mr. Grob. We started it in the mid-eighties but we
intensified our work a few years ago, in 1997, and we have
issued updated studies every year since then.
Mr. Burr. Why haven't we fixed it?
Mr. Grob. I can't hear your question. I am sorry.
Mr. Burr. Why have we not fixed it?
Mr. Grob. There have been impediments, including a
legislative impediment.
Mr. Burr. It would actually require a legislative fix?
Mr. Grob. I believe that would be better----
Mr. Burr. Could HCFA have made changes in the past?
Mr. Grob. CMS could have used its inherent reasonableness
authority to do so. It could have obtained better data and made
it available. It has tried to do that.
Mr. Burr. Have you ever looked at any other area of
Medicare reimbursements and found that people game the system?
Mr. Grob. Yes.
Mr. Burr. All areas? Some areas?
Mr. Grob. Very many areas.
Mr. Burr. As a matter of fact, we reacted to a number of
them when we did BBA 1997----
Mr. Grob. Exactly.
Mr. Burr. Did we get them all right?
Mr. Grob. We made a lot of them better.
Mr. Burr. But we got some wrong?
Mr. Grob. I don't know which ones you have in mind.
Mr. Burr. Because in essence we try, like HCFA did, to
calculate what a proper reimbursement is based upon the
delivery of a product and that delivery can change based upon
geographically where you are in the country, what the rental
rate is. There are a lot of factors that come into play?
Mr. Grob. Exactly.
Mr. Burr. You from the standpoint of the Inspector
General's office have come up with nine suggestions as to how
we fix it. I will attempt to refocus everybody here on the
solution because I think that everybody here is in agreement
that we have a problem.
Mr. Grob. Yes.
Mr. Burr. That the average wholesale price is flawed, that
we have lived with it for way too long, that we have not shown
the backbone within the agencies that have jurisdiction over it
that could have done it or within the halls of Congress where
we could have legislatively fixed it. For whatever reason let
us put that behind us and all agree it is wrong. You have come
up with nine suggestions. Are there any of those that you would
highlight more than the others?
Mr. Grob. Yes. I like the idea of the commission, and that
is why I put it first. Another one I think would be good would
be to use the manufacturer's price that is used in connection
with the Medicaid rebates as a source of data. I think it might
be more helpful if I could give a few general principles that--
--
Mr. Burr. Go right ahead.
Mr. Grob. I would agree that I don't think we need to have
the bottom amount. I think, as several have mentioned, there is
room for some play here. I don't think we should base it on
cost. What we have done basically with Medicare is move
completely away from that. Hospital payments were based on cost
and we had double digit inflation. And then there was Medicare
physician payments, and we had very high inflation; so we went
to a fee schedule. We have just gone to a fee schedule in the
form of prospective payments for nursing homes, home health,
and other types of facilities such as outpatient hospital
costs. We have learned our lesson. If you go on cost, the
actual cost an individual has occurred, you immediately come
across two problems. One is looking over everyone's shoulder as
they write every check wondering exactly what it is. And you
can never keep up with it. And then if you actually could
succeed, then no one would care what their costs were because
they would get reimbursed for them, and that would drive the
prices up.
So cost based reimbursement has been the bane of Medicare
since its existence and we have gradually corrected it in
almost every area. So I wouldn't base it on the actual cost the
person has incurred. I would substitute some kind of a Medicare
payment rate which I think has to take into account primarily
what the market is. We have to have some sense of what is going
on out there in the market. That could be obtained from
something like the actual manufacturer's price that, the data
that is submitted for the Medicaid program.
Those dollars are available. They can be audited. They need
a little definition. You could do some market surveys, and I
think that periodically, once a year or so, maybe more
frequently, there can be a price set, and then that is the
price. I would agree with what you are saying here. I don't
think we look over a doctor's office and say you can never make
a penny on every piece of gauze in your office. We know there
is some give and take. I think people just don't want it to be
very big or be a source of gaming and incentivizing.
Those are some general principles. And out of that you
could choose one or more of those options, none of which would
be perfect, but they all would be better than what we have.
Mr. Burr. Let me mention--Mr. Scanlon can comment on it and
also Mr. Bentley--these highlighted solutions to fix an AWP.
Mr. Scanlon. I concur with Mr. Grob, relying on the market.
This is one of the few instances where Medicare may be able to
rely on the market and what other purchasers are doing.
Normally Medicare is such a dominant purchaser that to say we
are going to pay what other purchasers pay would distort the
market. But in the case of prescription drugs right now
Medicare is paying for a very small share of them and they are
easily defined commodities. So you are able to specify what you
are getting and you are able to look to other purchasers and
what their experience is. CMS has access to the information it
needs. It doesn't just need an average price. It needs to know
the circumstances under which buyers are getting different
prices to be able to set a fee that is going to be adequate so
that purchasers in different circumstances are able to buy
drugs and supply them to Medicare patients.
So using that information, which is market driven and
therefore I think a reflection of the efficiencies of what a
market can produce, is key here to setting market prices on a
more rational basis.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes----
Mr. Bentley. Could I just comment briefly?
Mr. Greenwood. Yes, sir.
Mr. Bentley. I would like to add that the hallmark of any
change in reimbursement system has got to be some truth and
honesty from the drug manufacturers because without that any
system you go to is going to be doomed to fail, and I point to
a number of Medicaid programs who do not use representations of
AWP to formulate reimbursement decisions. They use wholesaler
acquisition costs. California for 12 companies uses
manufacturers' direct prices. There is also cases where in some
States they are actually using invoices that are submitted by
providers. So if you have manufacturers who are willing to make
false statements about the wholesaler acquisition cost, about
the direct prices they are selling it to, trumping up invoices
so that provider submits an invoice for a thousand dollars when
in 30 days they receive $500 worth of free goods and so they
really paid $500, any system is doomed.
Mr. Burr. Clearly I think the panel would agree, and I
appreciate the Chair's indulgence, that we have the tools
available to us to fix the average wholesale price. The
question is do we have the willingness to fix the average
wholesale price? No matter what we choose, whether it is option
one or nine, we will still be susceptible to people who find a
way to game the system; correct?
Mr. Bentley. Absolutely.
Mr. Burr. We will still need an Inspector General to help
us on that.
Mr. Bentley. There has to be consequences for those who
choose to break the law.
Mr. Burr. We can do better than what we have. I thank the
Chair.
Mr. Greenwood. The Chair thanks and recognizes Mr. Stearns.
Mr. Stearns. Thank you, Mr. Chairman. I want to lead off
with the comment that Mr. Burr mentioned that there has to be
consequences. I wonder if the staff could put up on the screen
document number F-2, which is dealing with Bayer Pharmaceutical
Division. Let me say while we are trying to find it that this
is an internal company e-mail that states--in talking about
their competition, it is a an e-mail that says, ``Chris, if
Baxter has increased their AWP, then we must do the same. Many
of the whole care companies are paid based upon a discount from
AWP. If we are lower than Baxter, then the return will be lower
to the HHC. It is a very simple process to increase our AWP and
can be done overnight. Let us talk about this at our meeting at
Old Saybrook.''
So there we have it pretty clear that Bayer Pharmaceutical
Division in this case is working to increase the AWP not based
upon scientific evidence but based simply upon trying to work
out that they get paid more, they give the medical providers
incentives, and of course it works out that the wholesaler gets
paid more too. So everybody makes it and this continues to go
forward.
Let me ask the staff to put document number 7. This is a
document from Baxter. I just read one from Bayer and now I
would like to read one from Baxter, where they are talking
about the AWP and they are saying ``This price is being
promoted by certain manufacturers' sales forces as a financial
incentive to use their product.''
So here again we have Baxter Pharmaceutical as saying we
have got to get on board here because people are using this as
a financial incentive to use their product. They go on to say,
``The deliberate manipulation of AWP or WAC prices is a problem
that we need to address. The spread between acquisition costs
and AWP/WAC is a direct profit for customers and is being used
to increase product positioning in the market by certain
manufacturers.''
So I thank the staff for these documents and I obviously
thank the staff for what they are doing here and you, Mr.
Chairman, and the chairman from Florida, Mr. Bilirakis. But on
a larger note, Mr. Burr touched upon the idea of what can be
done. One of the things that can be done is to have the Justice
Department enforce under the antitrust rules what has been
accomplished simply in this memo.
Now, this was not a big, big problem at Medicare until the
nineties, but this has been going on for almost a decade. So in
a larger sense Medicare, HCFA, has been a little bit asleep at
the wheel because they don't necessarily--I mean I don't think
you can blame Congress totally here because they could have
done something like Medicaid is doing. Medicaid did something
on their own to establish a new AWP system where the rebates
will be based upon a more accurate model.
So I think, you know, when you come to these hearings, and
I have been to a lot of them and it is almost numbing to see
these things, there is a lot of blame to go around, but I don't
think Congress is totally at fault. I think HCFA should have
done something about this in the early nineties, and obviously
I think the Justice Department should have taken examples where
Baxter and these other pharmaceutical companies were in
collusion in trying to raise AWP without any reason other than
to increase the spread for their medical providers to give them
incentives.
So I am always a little bit nonplused to sit here and we
talk and talk and I say where is there someone that is going to
take some action on this.
Another question I have for you, Mr. Grob, you mentioned
that we could save as much as a billion dollars a year if we
stopped this.
Mr. Grob. I believe at least a billion.
Mr. Stearns. That goes to a larger question that President
Bush has mentioned that he wants to reform Medicare to give
pharmaceutical help to those who are poor who need this. So
here the government is squandering a billion dollars a year and
this could be going to beneficiaries who can't afford
pharmaceutical drugs. So this is an area where this whole
package of reform is what President Bush has talked about in
the campaign and in the presidency. With a simple quick
decision by HCFA to move to the Medicaid position on this,
wouldn't that solve it immediately?
Mr. Grob. The Medicaid program is complicated and has two
features to it.
Mr. Stearns. One of your recommendations--but instead of
Congress sitting here and debating this thing, we go through
the subcommittee and the full committee and the House, what can
HCFA do tomorrow to make this so that we stop this?
Mr. Grob. CMS would have its options limited to obtaining
the most accurate market data it can find and making it
available to the carriers in setting their prices and reducing
them.
Mr. Stearns. Well, couldn't they say every pharmaceutical
has to give us your wholesale price, certify it, and if it is
incorrect, you will go to jail? Is that----
Mr. Grob. We basically have almost the equivalent of that
in the Medicaid program, which is why I brought that up.
Because of the rebate program the manufacturers are in fact
required to submit that data, the manufacturing price we will
call it, to the government, and that data is available. Now, if
there were legislative authority to use it, that would probably
be the quickest fix.
Mr. Stearns. Okay. Mr. Scanlon, anything you would suggest?
Mr. Scanlon. We believe very strongly that using the data
that is available through the Medicaid rebate program would be
the quickest vehicle in terms of trying to improve this pricing
because it is data that details what manufacturers are selling
drugs for under different circumstances. There are statutory
requirements here and Medicare under the Balanced Budget Act
must pay 95 percent of average wholesale prices. Whether that
has to be this fictional price in terms of what is reported in
the Red Book for some manufacturers or whether it can be actual
average wholesale prices is another issue, and that is where I
think reasonableness authority would be something that the
agency could do.
Mr. Stearns. I want to conclude my statement, if I can have
additional 30 seconds in my conclusion here, Mr. Chairman.
Mr. Greenwood. Without objection.
Mr. Stearns. Mr. Bentley sent to Dr. Bruce Vladek a memo on
June 12, 1997, in which he outlined all of this, and I would
say, Mr. Bentley, there has got to be a place for you in the
pearly gates up there and if you have any trouble after this
hearing call us because we are with you 100 percent and
appreciate what you have done. But I would say to the former
Administrator what we have here from Bentley's memo here, which
is part of the records I believe, shows that we have a scandal
like we had with the $400 toilet seats in the military, we have
the equivalent of that here in HCFA, and I think Mr. Bentley
actually showed this photograph to the head of HCFA back in
1997, saying, look, your legacy is going to be the $400 toilet
seat, that this is going to apply to this whole problem dealing
with AWP.
Thank you, Mr. Chairman.
Mr. Greenwood. Thank you, Mr. Stearns. Each of the members
has had an opportunity to ask--except for Mr. Green from Texas,
who joins us now and is recognized for 5 minutes to inquire.
Mr. Green. Thank you, Mr. Chairman, and I appreciate the
appearance of our witnesses simply because those of us who are
moving in and out and representing Intercontinental Airport in
Houston with Continental Airlines, obviously we have a much
bigger issue, but I am glad this postponed hearing is taking
place, and the issue I think is so important because of the
criteria that, Mr. Grob, you talked about in your testimony,
and in your testimony you referenced the considerable savings
that the Medicare program can recognize if they utilize Federal
Supply Schedule as the basis for prescription drug benefits or
reimbursements. A number of us in Congress have been advocating
this approach for years, not only for the few prescription
drugs we provide for under Medicare but for prescription drugs
for seniors as a whole.
Now I know in this issue seniors may pay more for their 20
percent co-pay based on this pricing aberration, but generally
overall would you say that the high cost by using the Federal
Supply Schedule would benefit not only the issue we are here
today about but also seniors in general who may not have a
prescription plan as part of Medicare?
Mr. Grob. On the surface it would certainly seem to provide
a lower cost for the beneficiaries. But I would really have to
say that that really is beyond the scope of other studies that
were done because there would be other ramifications concerning
the market, and so I would say on the surface it would have
that effect, but what the other effects are we haven't studied.
Mr. Green. I understand. I was looking at your statement.
Again I think we have made that issue here in the committee a
number of times and just by using the Federal Supply Schedule
we cannot only save the Federal Government maybe a billion
dollars under Medicare but how many billions do you think we
can save the average senior citizen who----
Mr. Grob. If you were to use the Federal Supply Schedule
amounts for the drugs that we looked at, you would save almost
$400 million a year for the beneficiaries.
Mr. Green. That is just on the oncology----
Mr. Grob. No. We looked at 24 drugs and I think it was
about $350 million or more of savings for the co-payment for
Medicare beneficiaries for the 24 top selling drugs in
Medicare, top drugs. That included inhalation drugs.
Mr. Green. That is for the co-payment for those 24 drugs?
Mr. Grob. Exactly.
Mr. Green. I know neither of us can extrapolate too well
but if we would provide that to the gamut of pharmaceuticals
that seniors have to pay that is not subject to a co-pay, they
just--if they are under regular Medicare, they go down and buy
their prescription from their doctor, and the Federal Supply
Schedule is much less than what I may go down to buy at my
pharmacist or my sister or mother or father may do.
Mr. Grob. Exactly.
Mr. Green. Mr. Scanlon, you admit in your testimony that
the oncologists are often underpaid by as much as 15 percent,
and you stated that if we modified the practice expense
payments on college practices it could increase their
reimbursement by 8 percent, or $31 million. You also reference
a modification of the formula used to calculate supply
expenses, which would increase oncology practice expenses by
about $20 million. I understand that the Medicare statute
requires that any changes to the practice expenses for one
specialty be budget neutral, therefore if we increase oncology
payments we would have to cut payments from another specialty,
and I guess that is--I know I followed my chairman a little
bit. If we are going to save maybe upwards to a billion dollars
in Medicare and we should reimburse oncologists 15 percent, can
that come out of savings or are we going to have to take it
from cardiologists or other reimbursements?
Mr. Scanlon. It is your decision whether or not you want to
add to the pool of dollars that are being paid physicians and
whether it is going to come out of the savings. One of the
important things to remember here is that the budget neutrality
principle was applied at the very beginning, so therefore when
the oncology fees were calculated, and they are $51 million
less than what they would have been if a different method would
have been used, and that $51 million was then spent on other
specialty services. And some of that $51 million was also
earned by oncologists because some of their physician services
had higher fees associated with it, and the $51 million in
terms of the overall physician fee schedule is about two-tenths
of 1 percent. So we are talking about a redistribution of a
very small amount of money.
Mr. Green. But your testimony is we wouldn't necessarily by
increasing oncology have to decrease other specialties?
Mr. Scanlon. No.
Mr. Green. Thank you, Mr. Chairman.
Mr. Greenwood. Each of the members has had a round of
questioning. There are a couple more points that need to be
made. So we are going to go through a second round for those
who want to. It is not mandatory.
The Chair recognizes himself for 5 minutes and would ask
the staff to bring up chart P-1. I want to go to the question
of utilization because we have talked about the way in which
savings could rendered to the Medicare program and overpayments
were made just based on normal levels of utilization, but I
want to look at ways in which the spread and the false AWP
payments can affect utilization, and let us look at this
product here, which is ipatropium bromide, which I believe is a
therapy for emphysema, and similar pulmonary diseases.
In 1995, when there was no spread on the drug, Medicare
paid a little more than $14 million in that year. As you can
see, as each year passes and the spread becomes larger,
utilization skyrockets. Today, 6 years later, Medicare pays
more than $347 million, over a third of a billion dollars, for
this drug alone.
Mr. Bentley, I am going to ask you if you could further
illuminate this issue.
Mr. Bentley. Yes, sir. This is an interesting drug because
prior to 1995 it was a patented drug with no generic
competition and here again, like the Taxol example, once
generics came into the marketplace the prices started dropping
precipitously; that is, the prices to the providers. However,
the government, both Medicare and Medicaid, has not achieved
any savings due to price competition and in all likelihood it
is kind of a double whammy because we believe a lot of this
utilization is directly attributable to the spread.
A case in point, recently Texas, their Medicaid program,
based on some information Ven-A-Care provided for another
inhalation drug, albuterol sulphate, where there was a rather
large spread----
Mr. Greenwood. Perhaps the staff can bring up document P-2.
Mr. Bentley. [continuing] cut its Medicaid reimbursement in
Texas. Now, they were cutting their reimbursement, so that
would affect access to care. I can tell you this. They reduced
the prices dramatically that they reimburse under the Texas
Medicaid program to the real prices in the marketplace. They
have not experienced any access to care issues, and I heard
yesterday from an Assistant Attorney General in Texas that not
only are they achieving the savings by the reduction in the
prices, they have also started achieving about a 20 percent
reduction in the utilization.
Mr. Greenwood. Mr. Scanlon and Mr. Grob, do you care to
offer any comments in this regard?
Mr. Grob. We have done additional work on nebulizer drugs,
looking at the utilization of those, and based on 1994 data we
found about $30 million of the nebulizer drugs that were used
were drugs that should never be used in combination. We also
found instances of amounts that differed from prescriptions. We
also had amounts that varied from the Medicare guidelines for
these drugs. So we did find improper utilization and
inappropriate utilization of these nebulizer drugs when we
looked at them. This is primarily albuterol.
Mr. Scanlon. Mr. Chairman, we haven't studied this beyond
the issue of pricing, and the pricing gap is the same that we
observed, and I would note this is the kind of disturbing
pattern that we have been talking about, increased utilization
as the spread increases, and I would also note that there is
some very aggressive advertising of these inhalation drugs.
Mr. Greenwood. Your study, the GAO study that showed
roughly built-in savings that we could achieve only assumed the
same utilization and it did not, as I understand it,
acknowledge savings from more of a dynamic scoring, if you
will, that would occur if the spread was not in fact driving
utilization. So when given these two charts where we have seen
how change in the spread dramatically affects utilization,
would it be fair to assume that a billion dollars is a
conservative number because without the incentives driven by
the spread we would probably see a change in utilization? Is
that a fair statement?
Mr. Scanlon. I believe that is a fair statement. We hope it
would be a change in utilization driven by overutilization
declining as opposed to genuine access changes as well.
Mr. Greenwood. The Chair yields back the back his time and
yields 5 minutes to the gentleman from Florida, Mr. Deutsch.
Mr. Deutsch. You have a very insightful panel in so many
ways, and hopefully it is our commitment to follow up on this.
I want to focus on something we have talked about a little bit,
and that is what can HCFA do and Medicare do without
legislative action? The GAO issue today was in response to a
Congressional mandate to do a comprehensive report on drug
pricing before the Centers of Medicare and Medicaid Services be
allowed to change the payment structure for Medicaid drugs. Now
that the study has been done and we have shown that the average
wholesale price is flawed, it would seem as if the CMS should
be able to go forward and use the catalogue pricing data
obtained by the Justice Department as the basis for drug
disbursement. Would you agree with that? Is that possible at
this point in time?
Mr. Scanlon. I think it's preferable to use the information
that's available through the Medicaid rebate program, in
combination with the wholesale catalog discount----
Mr. Deutsch. Right. I guess the question, though,
specifically is, can they do it now without legislative action?
Mr. Scanlon. They can do it without legislative action. As
Mr. Grob indicated earlier, they would do it through the
inherent reasonableness process, which is more cumbersome and
over the years has resulted in very few changes in prices.
Now, you did give them expedited authority in the Balanced
Budget Act to make modest reductions on an annual basis of 15
percent in prices. So that would be immediately accessible.
But we're talking about bigger changes here for a number of
drugs, and that would take the more elaborate process.
Obviously, if you provide them further statutory authority,
it's going to expedite things even more.
Mr. Deutsch. Right. I guess I would just follow up, though.
I mean, knowing the legislative process as well as you do,
it's--you know, one of the reasons we delegate issues like this
is administratively it's just a lot easier, especially, you
know, in hearings like this when we're clear of what the
situation is in the world.
Mr. Grob, did you want to respond?
Mr. Grob. I would hope that you would consider legislative
action. Our experience has been that for the use of the
inherent reasonableness approach that, actually, that has not
been a lot easier than the legislative process. For some of the
reductions that have been made, for example, for Oxygen, an
initial attempt was made to use the inherent reasonableness,
but it ended up getting made by the Congress, and that was done
pretty effectively and fairly timely. Your point is that every
means should be used and to the extent that there are
administrative means those should be used right away. But I
think the system is so flawed that we need a brand new system.
Mr. Deutsch. Well, let me throw it back. As far as you're
aware in either HCFA or in HHS directly, I mean, is this
something that the policymaker level--has this been presented
to policymakers as an option for them to implement these
changes administratively?
Mr. Grob. Okay. Sir----
Mr. Deutsch. What is the official, you know, sort of
response to that?
Mr. Grob. Well, you'll have to follow up with Mr. Scully on
this administration, but certainly our reports have been public
and have always been written to the administrator of HCFA, now
CMS. So they've always been in the mill, and there have, in
fact, been, as I've said, some legislative proposals from the
prior administration. So I think it's been on the table.
I think the value of this hearing is the dramatizing and
the clarification. I think the subject takes intense study, and
the work that went into this hearing has provided that, so that
the insights are a lot clearer to more people now.
Mr. Bentley. If I could add, I believe the problem could be
remedied tomorrow if the drug companies that are the culprits
who are reporting these false prices contacted first Data bank
and Red Book and submitted new prices, honest prices. And I
point to the fact that approximately 90 days ago Abbott
laboratories did that for Medicaid purposes, and there were a
number of very important drugs where they made
representations--I'll point to Vancomycin, one gram as an
example--where they were representing the average wholesale
price of being around $56 per gram. They were really selling it
for less than $10.
Now, then, for Medicaid purposes, they initiated a new
pricing to, First Databank where they repriced some 200 or 300
drugs with fairly honest representations. The State Medicaid
programs across the United States started generating the
savings immediately from Abbott's representations and from
their actions.
So all we need is for these companies--maybe the hearing
will be the impetus for them to have a change of heart and
report new prices. CMS doesn't have to do anything. Congress
doesn't have to do anything.
Mr. Deutsch. Let me follow up. Mr. Grob, what about that as
a solution administratively? Could you or through--actually
through--could HCFA change the definition of the average
wholesale price and then just define it in a different way to--
in such a way that would basically be the average wholesale
price, for that matter?
Mr. Grob. I think the law says ``average wholesale price,''
and I don't even believe that that phrase uses capital letters.
I think the people who voted for that law, everyone who cast a
vote for that law, probably thought it meant the ``average
wholesale price.'' So certainly CMS would have it in its
authority to define that ``average wholesale price'' to mean
what the English phrase means. And I think then if they could
get the data to back that up, use data that's available, then
in fact it could be done. And I do agree with what's been said
here by Mr. Bentley about the publication of the data.
Now, these companies have had that option for many years.
So I hope they do--I hope they do do it very soon.
Mr. Greenwood. The Chair thanks the gentleman from Florida.
Mr. Tauzin.
Chairman Tauzin. Thank you very much, Mr. Chairman.
Let me mention a solution that didn't work, so we don't do
that one again, the Balanced Budget Act. We said we'd reimburse
the average wholesale price minus 5 percent, and we all went,
we'll be danged; we saved a lot of money. And the average
wholesale price jumped 10 percent the next year. We didn't only
not save money; we lost money. That was a non-solution.
A number of members have talked about the effect of this
system on the Medicaid programs of America. In the Medicare
program, we're talking about drugs generally that are used in
three areas, right, and chemotherapy oncology-type drugs,
inhalants and some other specialties like urology. In the
Medicaid system, it's wide open, isn't it?
Mr. Grob. Yes.
Chairman Tauzin. We're talking about all drugs.
Mr. Grob. That's correct.
Chairman Tauzin. In fact, Mr. Bentley, you brought a chart
for a number of my colleague a few months ago. It's document S-
2. I'd like to put it up. It's involving the drug Cefadroxil.
And I want to look at the Louisiana Medicaid effect. This
Cefadroxil--the chart indicates what the spread looks like on
this drug in Louisiana, Pennsylvania, Florida, Michigan, Texas
and Ohio. Texas and Ohio have apparently done a lot of work,
yet the spread is down. They've got the spread, the difference
that the State Medicaid program is paying out as opposed to the
real price of the drug.
Mr. Bentley. Yes, sir.
Chairman Tauzin. They've got it down to $16 and $35. But in
Louisiana the spread on this drug, which costs Medicare $82,
because of a Medicaid reimbursement of $274.50, is $191. The
spread, the extra money made by the system to the provider, is
more than twice as high as the--the spread, the additional
profit, is more than twice as high as the cost to Ven-A-Care.
Is that correct?
Mr. Bentley. Yes, sir.
Chairman Tauzin. Let me turn to--anybody have any idea what
this system is costing the Medicaid systems of America?
Mr. Grob. Yes. They spend about $16 billion a year, and the
last time we studied it recently looking at the brand name
drugs, we calculated a loss of about a billion dollars for the
brand names. Now, we're working on the generic drugs right now,
hoping to have a report----
Chairman Tauzin. So we're talking not just about the
billion in savings to Medicare. We're talking about billions in
cost to the Medicaid systems of America----
Mr. Grob. Exactly.
Chairman Tauzin [continuing]. Which is trying to provide
medicine for the poorest of our Nation.
Mr. Grob. Exactly.
Mr. Greenwood. Would the gentleman yield for a second?
Chairman Tauzin. Yes, I'll be glad to yield.
Mr. Greenwood. So, on average, since the Federal Government
pays 50 percent of the cost of Medicaid drugs, would you argue
that, if we changed the system, that there's a potential to
save minimally now a billion and a half dollars to the Federal
Government. Is that a fair statement?
Mr. Grob. I'm sorry. I didn't quite follow.
Mr. Greenwood. Given that the Federal Government is
paying--reimbursing the State Medicaid programs for, on
average, 50 percent of the price, if they're squandering at
least a billion dollars additional----
Chairman Tauzin. The chairman is making the point that any
dollars we save to the Medicaid system, 50 percent is a Federal
saving. Right?
Mr. Grob. I'm not sure whether the billion is the total of
Federal and State or only the Federal part.
Chairman Tauzin. And it may be much more than a billion.
Mr. Grob. As I said, we've only done the brand names----
Chairman Tauzin. Let us look at examples of excessive
reimbursements with pharmaceuticals by the Louisiana Medicaid
Pharmacy Program, one I'm very interested in. If we can put--
that chart is up now. And we can look at one drug--Elkins-
Sinn's drug called Leucovorin again. The lowest price according
to this report, Mr. Bentley, that you've seen in the
marketplace, the real price, is $2.39.
Mr. Bentley. We actually prepared this chart a couple of
years ago, and that is why there is the discrepancy between the
Leucovorin here of $2.30 and I believe our other chart where it
was $1.25. Leucovorin has actually gone down in price, yes,
sir.
Chairman Tauzin. But the average Medicare price is $21.70.
The Louisiana Medicaid reimbursement is $50.34.
Mr. Bentley. Twice what Medicare was----
Chairman Tauzin. Twice what Medicare is reimbursing. And,
what, 30 times the price of the drug in the marketplace today
or more? That's amazing.
And you go down the list. I mean, you see another one that
stands out again, Vancomycin, a price then of 3.45. I don't
know what it is today. Medicare was reimbursing it at $9.44.
Louisiana reimburses at $30.43. How on earth are we going to
keep our Medicare programs alive if they're being drained at
that kind of rate?
Mr. Bentley. That's correct.
Chairman Tauzin. In fact, I've got a quote from the Wall
Street Journal about the program in Missouri where they're
saying they've got the biggest core cuts in their Medicaid
program in history, and it's going to affect the amount they
can spend on education and other vital State needs because it's
driving the cost of the Medicaid system into near bankruptcy.
Mr. Ganske. Would the gentleman yield?
Chairman Tauzin. I'll be glad to yield to my friend.
Mr. Ganske. Well, Mr. Chairman, we've all in the past been
rather amazed at how cagey those Cajuns down there in Louisiana
are on the Medicaid program, but I wondered if we could----
Chairman Tauzin. Well, I don't believe I want to yield to
the gentleman if he's going to insult my Cajun but----
Mr. Ganske. I want to tie this, though, to the point that
Mr. Grob made in No. 2, in how, Mr. Grob, you suggested that
maybe we ought to look at--in fixing AWP, we ought to look at
what Medicaid has done.
Chairman Tauzin. That's part of my point. That's the last
place we ought to go for advice is what I'm trying to point
out.
Mr. Ganske. Well, maybe that's not the case, because maybe
Louisiana is an exception over what has gone on with AWP.
Mr. Grob. Can I make an important distinction?
Chairman Tauzin. Yes, please do.
Mr. Grob. The Medicaid program achieves savings in two
different ways. One of them is that they get discounts off of
AWP the same way Medicare does, except they generally get more
generous discounts. Now, that's not what I was talking about.
There's another part about Medicaid, which is the rebate
program, where the manufacturers must return money to the
Medicaid in light of the expenditures made, and that is the
part I was talking about.
Chairman Tauzin. That can be instructive. I agree with
that. But the point I'm making is that the Medicaid
reimbursement is still worse than the Medicare. That's the last
place you want to go for advice on how to set an average
wholesale price for the Medicare program.
And I want to point out something else, too, and that is
that if we're going to correct this the obvious place to look
for the real numbers is in the real marketplace with the
numbers, Mr. Bentley, you provide for us--you've been providing
for us as to what Ven-A-Care can really buy these drugs for. I
mean, we're talking about reimbursing two categories of
services: one, the service, the practice; and the other, the
drugs that are used. In both cases we ought to look at the real
marketplace, what is the private sector costing these two
systems. And the government ought to reimburse close to those
numbers.
If we don't--if we are reimbursing $50 for a drug that
costs a dollar and a quarter, you were telling me, Mr. Bentley,
what are we, just insane? And are we going to drive these
programs to the point where they can't provide the services
they were intended to provide for citizens of this country? We
entitle this effort. I want you all to know it.
I think Mr. Burr came up with the title to this whole
effort we're trying to undertake in reforming Medicare and this
whole pricing system and getting more drug coverage for more
Americans. We called it Patients First. Patients are last in
this program. They're getting killed.
Mr. Scanlon. Mr. Chairman, I just wanted to note that what
we are talking about here is trying to use private sector
transactions and information to try and set Medicare prices on
a more rational basis. The Medicaid program at the Federal
level has the requirement that manufacturers turn over to CMS
information on private transactions with genuine net prices,
not the types of catalog prices that we've been talking about--
--
Chairman Tauzin. Well, tell me about Texas. Texas has been
trying to do that, hasn't it? Mr. Bentley, aren't you involved
in that? Aren't you involved somehow, and isn't Texas going
through hellacious problems? And they're probably leading the
country in trying to get this straightened out.
Mr. Bentley. That's correct. Texas does not rely on prices
that are submitted to either of the publication services, Red
Book or First Data bank. They actually go to a certification
form, and that's sent directly to the manufacturer.
Chairman Tauzin. They're ahead of the rest of the States,
and they're having a heck of time, aren't they?
Mr. Bentley. That's correct. And also, unfortunately, when
a manufacturer makes false representations about their prices,
the Federal rebate program is not making the States whole for
the difference. So they are not--the Congressional intent, as I
have read it, of OBRA 1990, which was the State Medicaid rebate
program, was to give the State Medicaid programs the benefit of
the manufacturers' best prices. But if you start out with false
prices, even though they're giving a rebate back to the States,
the States are not anywhere close to being at the
manufacturers----
Chairman Tauzin. They're taking a lot more than they're
giving back. Is that right?
Mr. Bentley. That's correct. Yes, sir.
Mr. Grob. One last clarification. What I was referring to
in using the Medicaid program is that there is a very rich
source of data that the manufacturers must submit to CMS, not
to the States, which is their actual manufacturers' prices,
taking into account the discounts that have been offered that
are maintained confidentially by CMS but that are used by them.
That source of data, which is auditable, is already available.
It's submitted every year, and it reflects the actual prices
that the manufacturers are charging for the retail sale of
drugs. All I was saying is that that data could be used as a
basis----
Chairman Tauzin. I agree with you. I'm not arguing that. I
think you're correct. I think there's a good wealth of data
there.
My time is up. I just want to make the point again,
everything we do to correct this problem--and I love the way
Mr. Burr focused on that, on the different solutions you come
up with, because that's really what we've got to get to. In
every way we correct that problem, we're not only going to save
the Medicare program this billion dollars; we're going to save
the Medicaid programs of the States possibly their life, their
function, their capacity to do their job. And 50 percent of
those savings will be inured back to the Federal Government,
because we have a 50 percent responsibility in those State
programs. I mean, this is very well worth doing, and you're
helping us, I think, see our way to it.
Thank you very much.
Mr. Greenwood. The time of gentleman has expired.
Does the gentleman from New Jersey, Mr. Pallone, seek
recognition? The gentleman is recognized for 5 minutes.
Mr. Pallone. Thank you, Mr. Chairman.
I wanted to ask Mr. Bentley to comment on some documents. I
have a series of documents that were obtained by the committee
from Glaxo that detail at least part of their marketing
strategy around the Zofran market. And we have those. Okay. I'd
like to read, Mr. Bentley, parts of several documents and ask
for your comments and ask, Mr. Chairman, that the documents in
their entirety be placed into the record if they haven't been
already.
Mr. Greenwood. I believe they have been, but without
objection, they certainly will be.
Mr. Pallone. Thank you.
The first is a memo dated January 31, 1994 in which this--
do we have it up there, or should I wait a minute? Oh, it isn't
part of that. Okay. All right then. I'm going to have to read
this, Mr. Chairman.
The first is a memo dated January 31, 1994, in which this
bullet point appears: Telemarketers who could sell the
reimbursement issues with Zofran: Example, because of the
contract price on Zofran, there is almost a 20 percent spread
between doctors' acquisition costs and AWP. With the price of
Zofran being most likely higher than Kytril, it will be to the
physicians' best interest to continue to use Zofran.
As you can see, Zofran will mean more profit for the
physician. Oncologists seem to be more business-oriented than
most physicians. This will be an excellent selling point.
Did you want to comment on that?
Mr. Bentley. That's correct. Unfortunately, a lot of
manufacturers' representatives are going out and marketing
their respective drugs not based on the efficacy of the drug
but what in fact will put the most money in either the
physician's pocket or the pharmacy's pocket, and so you have a
case where there's marketing actually going on to encourage the
utilization of one drug over a competing drug by using
government funds that fund the kickback as a marketing
mechanism.
Mr. Pallone. And how common is this kind of telemarketing?
Mr. Bentley. It is very common.
Mr. Pallone. Okay. Well, the second----
Mr. Bentley. Especially with the drugs that are at the
focus of this committee's interest. I guarantee you that their
sales representatives are out pounding their beats every time
they've raised an AWP or they've lowered a price. Just like
those Taxol examples, they get faxes out immediately, followed
by telephone calls that, hey, our price has gone down in the
market. Buy my drug over my competitor's drug.
Mr. Pallone. Okay. Thank you.
And then, Mr. Bentley, another of these documents dated
October 15, 1997, was developed in anticipation that a third
drug, Anzemet, will enter this market. And if I could read a
section there for you to comment on.
It says, the package insert includes a warning concerning
cardiovascular side effects and describes one episode of
complete heart block and one death. A bolded precaution
supports the warning.
Now, you're familiar with the actual competition in the
marketplace between these three drugs that I've mentioned.
Would you say that side effects such as the apparent FDA
concern about Anzemet play a prominent role in physician choice
of drugs?
Mr. Bentley. I would think that that would be a
consideration, absolutely.
Mr. Pallone. But, you know, they're still competing with
regard to price.
Mr. Bentley. That's right.
Mr. Pallone. I just--you know, it's amazing to me when I
see, you know, some of the things that the committee has
uncovered. And, again, I want to thank you for all that you've
done. I appreciate it. Thanks.
Mr. Greenwood. The gentleman yields back the balance of his
time.
Does the gentleman from Texas seek recognition?
Mr. Green. Thank you, Mr. Chairman. I have just another
series of questions for Mr. Bentley.
Mr. Bentley, you provided us with such an unprecedented
view of the world of drug pricing, and it's not obviously a
pretty one to those of us--who do you blame for this scheme,
the drug companies or the providers or maybe those of us who
passed the Balanced Budget Act in 1997 or 1996?
Mr. Bentley. I think there's enough blame that can go
around for everyone. Certainly, you know, right now, as I've
said, the manufacturers that are causing these inflated prices,
they have it within their power to make the price changes
immediately so that the programs can start achieving these
savings that are very much needed. I don't know, other than
their motives for profits, why they're not doing that.
Mr. Green. That's why people rob banks, too, their motive
for profit. But later this morning we're going to hear from the
American Association for Home Care, which is what your company
did. You're a home health care company?
Mr. Bentley. Yes, sir.
Mr. Green. This witness will say that the infusion
companies cannot make money if they don't get the inflated AWP.
Is that true of your company?
Mr. Bentley. Well, I can't say that was absolutely true,
because our company was merely a pharmacy. We worked in
conjunction with home health and nursing agencies who actually
went out and administered the drugs. And I will tell you this,
that in Florida nursing agencies are paid separately for those
services. So if there is an issue that a company is not able to
hear, again like the oncologists get enough money on the
professional side, I think that is a totally different issue
than whether there are false prices being reported on
pharmaceuticals.
Mr. Green. Did any of the groups, whether infusion
companies or doctor/providers--did any of these groups go to
the drug companies? Have you had any evidence that they asked
for increases in the AWP so that they could survive or that--
something that was already readily available?
Mr. Bentley. Absolutely. There's evidence in the
committee's possession. There's a Baxter internal memorandum
where they admit that raising their AWPs was a large part of
their negotiations with two large national home health care
companies. We're looking for it now.
Mr. Green. Okay. And that was already--that's in the
documents?
Mr. Bentley. Yes, sir.
Mr. Green. Thank you, Mr. Chairman.
Mr. Bentley. Here it is here. Increasing AWPs was a large
part of our negotiation with the large home care companies.
And, in fact, there's other documents in the committee's
possession where there are providers and GPOs that actually go
to the manufacturers and say, we're going to buy your drugs,
our members will buy your drugs, and the basis is going to be
on the greatest spread, and so we're telling you up front that
is going to be the prerequisite as to whether we're going to
buy your company's drugs or not. If you have the biggest
spread, we'll buy yours over your competitor's.
Mr. Green. Mr. Chairman, do we have a copy of that memo
that was just up? Is that available?
Mr. Bentley. Here it is here. H, low price and best
spreads. Contract pricing will be evaluated on lowest price
and/or best spread between AWP and the contract price for
multisource products.
This was a GPO document. However, it was in the possession
of a drug manufacturer who turned it over pursuant to the OIG
subpoena.
Mr. Green. I'd like to see the whole document. I guess that
is my concern, because I see quoted, and you said it was from
Baxter?
Mr. Bentley. No, sir. This particular document was from
Gerimed, which is a large group purchasing organization. But it
was presented--or it was produced under an OIG subpoena, so I'm
not sure which pharmaceutical company, one of the
pharmaceutical companies.
Mr. Green. So your testimony is that----
Mr. Greenwood. Mr. Green, would you yield for a moment?
Mr. Green. Sure.
Mr. Greenwood. Would you identify the document in your
hand?
Mr. Green. I was just looking for something that was
reflective of this.
Mr. Greenwood. Did you give us the document number?
Mr. Green. Mr. Bentley must have that.
Mr. Bentley. It's probably in this book. I just don't have
the tab.
Mr. Lockwood. It's under O. Either 5 or 6.
Mr. Bentley. It's 05. It was produced by Dey Laboratories.
Mr. Green. So this information is that some of the
providers obviously also worked with the manufacturers to game
the system?
Mr. Bentley. I believe that Dey had this in their
possession, because Gerimed had told Dey Laboratories that in
order for Gerimed to consider whether their members would
purchase Dey's products, they wanted Dey to know right up front
that one of the requisites was going to be who was going to
provide the biggest spread on their drugs.
Mr. Green. Thank you, Mr. Chairman.
Mr. Greenwood. The time of the gentleman has expired.
Does the gentleman from Iowa, Mr. Ganske, seek recognition?
Mr. Ganske. Thank you, Mr. Chairman.
Mr. Greenwood. The gentleman is recognized for 5 minutes.
Mr. Ganske. Mr. Grob, I want to go over your
recommendations in a little bit more detail. No. 1 says that we
could look at authorizing a commission similar to MedPAC to set
payment rates. Quote, it would then be granted authority to
require manufacturers to provide them with drug wholesale
prices.
Then on No. 2, you say we could calculate the national
estimated acquisition costs based on average manufacturer
prices, AMP, which you already testified some on, but you go on
to say, we believe an initial intensive effort should be made
to audit AMP data reported by manufacturers to validate its
accuracy.
Mr. Grob. Yes.
Mr. Ganske. No. 4 says, or we could increase discounting of
the published AWP.
The point that I'm getting at is that--or even on No. 6, we
could establish manufacturers' rebates similar to those used in
the Medicaid. It would minimize manufacturers' incentives to
inflate AWP.
But, anyway, the point I want to get at is we have to have
accurate data.
Mr. Grob. Exactly.
Mr. Ganske. Now, you mentioned a little while ago that CMS
has data. How accurate do you think that is?
Mr. Grob. They don't have very much. They have some data
that has resulted from some work with the Justice Department on
a number of drugs that they were able to make available to the
carriers earlier. That data is available--some efforts have
been made, I think, as Mr. Bentley mentioned, to get some of
the drug companies to produce more accurate prices in their
public documents, but systematically the best source of data
today is that average manufacturers' price, the actual
manufacturers' price, which is submitted to CMS every year to
be used in conjunction with the Medicaid program. That is the
best data that is generally available and is updated, you
know----
Mr. Ganske. Well, how do you know that that's accurate?
Mr. Grob. We know that it's not completely accurate. That's
why we said that would have to be audited. I don't know what
data we could trust right now, except that with that data there
already is a statutory requirement for it to be submitted to
the Department. So there is an obligation for it to be done
right.
If the manufacturers don't tell the truth there, then they
have submitted false data. And the data then--it does come in
regularly. So it is much more susceptible to definitions and
audits than any other source, which comes from a variety of
different sources and doesn't come so regularly. It's the best
set that you could work with right now.
Mr. Ganske. It seems to me that, you know--if you use that
set or whatever, you're going to have to use actual--you're
going to have to use actual invoices at some point to cross-
check.
Mr. Grob. I think that that idea of the commission sort of
encompasses that kind of thinking, that basically you would--I
think you need a baseline of data, and then, if you want to,
you can use sampling or other means in order to make sure it
sounds realistic and that it really does reflect things.
What I was talking about earlier--and I wasn't meaning to
respond specifically to another comment that you made--I don't
think you'd want to do that for each and every payment that
each and every physician makes each and every time. I think
that would be overwhelming. But I do think that your point is a
good one that trying to get some real live market data, at
least on a sampling basis, in order to see if what you have is
real I think is a good idea.
Mr. Ganske. I'm very interested in this. Because as
Congress looks at providing increased prescription drug
coverage for Medicare, one of my ideas has been that we utilize
the State Medicaid drug programs and extend that benefit to the
qualified low-income Medicare beneficiaries, CLMBs, SLMBs and
others. It's clear we need to make sure that, you know, that
program is utilizing accurate data as well.
Mr. Grob. That, by the way, is an excellent point I think,
for efficiency. Because again--laying aside the other part of
the Medicaid, their use of AWP and this kind of thing, which
has the same problems if not worse than Medicare in some
cases--going back to the single data source, I think the point
is excellent, because then you would have one set of data,
which the manufacturers are saying is correct, submitting it to
the government under a statutory requirement, subject to audit
and review. It forms a good base case for anything else you
want to do.
Now, you could then take that base case, you could, say,
make our percentage higher than that, or something lower. You
could then test it with some samples. But it gives you a nice
centralized piece. When we tried to come up with these ideas,
we know that none of them will work perfectly, but we were
looking for some practical ideas, something that is within the
means to actually do it. That one kept emerging as one of the
good starting points, if you will, for data.
Mr. Ganske. I thank you. Thank you, Mr. Chairman.
Mr. Greenwood. The Chair thanks the gentleman.
The Chair thanks the witnesses for their 3\1/2\ hours of
endurance. Your testimony has been extremely valuable to us,
and the interest has been high. We appreciate your
contributions. Thank you, and you are excused.
Mr. Greenwood. Now we call forth Mr. Thomas Scully, the
Administrator for the Centers for Medicare and Medicaid
Services; and we thank you in advance for your forbearance. As
has been your habit, you have been here for the entire hearing,
and probably only adding to the agony of waiting is watching
the membership dwindle from 25 to three. But we look forward to
your testimony.
Mr. Scully. Thank you, Mr. Chairman, Chairman Tauzin, Mr.
Brown----
Mr. Greenwood. Before you begin your testimony, you're
aware, Mr. Scully, that this is a joint hearing between the
Oversight and Investigations Subcommittee and the Health
Subcommittee, and it is our practice--the practice of the
Oversight and Investigations Subcommittee to take our testimony
under oath. Do you have any objections to testifying under
oath?
Also consistent with the rules of the House and the
committee, you have the right to be represented by an attorney.
Do you wish to be represented by an attorney?
Mr. Scully. I used to be a bad attorney.
Mr. Greenwood. So saying, I'll administer the oath.
[Witness sworn.]
Mr. Greenwood. You're now under oath, and you're recognized
for your testimony.
TESTIMONY OF THOMAS A. SCULLY, ADMINISTRATOR, CENTERS FOR
MEDICARE AND MEDICAID SERVICES
Mr. Scully. Thank you, Mr. Chairman, for having me.
I will quickly get to AWP. I'm not sure how much I have
left to add after that, but a few ideas I hope.
If I could, just quickly, before I get to that, I just
wanted to thank a lot of the--you talked about New York
earlier, and I'd just like to thank the New York hospitals who
we spent a lot of time working with the last few weeks. I wish
we had more people in the hospitals. But a lot of you also
don't realize that outside the hospitals in the bottom part of
Manhattan there are also a lot of disabled people that weren't
getting home health. And since I have a chance to publicly, I'd
like to thank the home health agencies. The Visiting Nurse
Association of New York was particularly terrific in the last 2
weeks. But I think a lot of the health care problems that
weren't directly related to the World Trade Centers in the
southern Manhattan have been dealt with incredibly well by the
City, the State and hopefully with a little bit of help from
CMS but with a lot of help from some incredibly selfless
providers in lower New York.
Second, if I could just before I get into the AWP issue,
one issue that I've become extremely focused on the last 2
weeks since I've now been at the CMS about 3\1/2\ months has
been a problem you're probably going to get to, if not this
year certainly next year, which is HIPAA compliance. And I've
recently been extremely focused in the last week on the fact
that, like it or not, in a year we have to have a completely
new coding system put in place for all providers--Medicare,
Medicaid, everyone else.
I don't think I've talked about it enough since I've been
on the job. I've only recently begun to understand what a
gigantic mission that is, and I think it's obviously like
Nancy-Ann's mission to focus the industry on Y2K; and my
predecessor, I think it's our mission in the next year to focus
people on HIPAA. And whether Congress changes or delays the law
or not, we could have a debate about that, I'm sure, at a
future time. We have a big, big mission in front of us with
HIPAA in the next year, and I intend to--in every speech I give
and every time I testify or talk about it, if nothing else,
raise the awareness of providers that we have a major, major
change in the health financing system that we have to deal with
outside this.
Anyway, switching back to HIPAA, the one thing I can say to
start with--and I'll try not to go through every issue again--
is we agree. And my frustration with the hearing, if anything,
is that I hope most of the members that were here didn't leave
with the idea that CMS all the way back to Bruce Lanakin before
has not been focused on this. And the press also may have
already left.
I was involved in this in 1991 in the first Bush
administration. We tried to fix it, and there's a long track
record from 1991 to 1992.
I was very involved, by the way, in Andrews Air Force Base
in creating Medicaid drug rebates with Chris Jennings who was
on the Hill, President Clinton's most recent--so I have a long
history in Medicaid drug rebates.
This whole issue, people have been trying to fix this for
years. And back to Secretary Shalala and Nancy-Ann DeParle last
year, they tried to fix it. Got an outpouring of screaming from
every affected party, appropriate or inappropriate, and then
were hit with a Congressional prohibition for a year not to
look at it.
So where we are currently at CMS is we're prohibited, until
the GAO report that came out today and until the Secretary
reads it, is what the law says, we cannot respond to it.
Certainly it will take us a while to put out a rule. But also
we're required by law to pay 95 percent of AWP.
Now, could I creatively go back and change it? I'm sure we
probably could, and we'd be willing to look at that, but I also
have no doubt we'd be sued and it's not the easiest way to fix
it.
So I'm here to talk about a number of issues today, but one
thing I would ask for is I think this cries out for a
legislative solution. We're very anxious to work with you on a
legislative solution. I hope we can do it this year before you
leave, and we'll give all our staff resources and everything we
can to help you fix it. It's an issue that's been around for a
long time, and I'm excited that Chairman Tauzin, you, Mr.
Brown, Mr. Deutsch and everyone else seem to be in agreement
that we need to fix it; and whatever help you need from CMS on
a technical basis to fix it, we are very, very anxious to do
so.
We have been paying more than any other purchaser for
Medicare drugs on an outpatient basis for a long time, and
we're determined to get the price down to a reasonable level.
What that is, I'll try to give you a few ideas.
In the meantime, I do think, however, the concern--it is a
legitimate concern for the providers--is that if you're going
to lower--do we always fix the right price in Medicare, which
is what we do for providers? Probably not. Do we have the right
price for oncologists and their practice expenses? Probably
not.
I think at the same time we reduce the prices for the drugs
we need to go back and look at oncologists. I think we probably
need to look at the ESRD clinics, dialysis centers that also
use these drugs quite a bit. Hemophiliac agencies also rely on
this to a large degree. DME providers probably have some
argument.
I'm not saying they should all have their rates increased,
but there is a substantial amount of money to be saved here.
And I think at the same time we do that I think we should also
go back and look at the base payment rates and make sure
there's a balance. I have very little doubt it's not dollar for
dollar, as you're aware and we've talked about, but I do think
it's appropriate to make sure that, to the extent we can set
prices right for drugs, then for practice expenses, then for
practice patterns, we should set them right. And I think
there's very little doubt they're not right right now.
But in fairness to Nancy-Ann DePerle, my predecessor in the
agency, I think this is something the agency has been trying to
do for years, and every time it's put its head up, it's got
creamed. So we're anxious and excited that many Members of
Congress are now aware of it and are interested in fixing it as
well.
Let me just talk quickly and give you a couple of
suggestions. One is, Mr. Deutsch and Chairman Tauzin both
mentioned that this is not just a problem with the Medicare
program, it's a huge problem for beneficiaries. And I totally
agree. The fact that the beneficiaries pay the 20 percent
copayments is a gigantic problem. There are a lot of things
wrong with the Medicare problem. There are very few places
where beneficiaries feel the inequities of the program as much
as they do here. So I think it's important that the chairman
focused on that, and I think that we need to focus on that in
the fix. Seniors are paying a big chunk of the inequities in
the drug payments that we have here.
Second point, 20 drugs account for 75 percent of the
spending in this area. So do we have the tools to look at it?
We do, and we can talk a little bit about Medicaid and what we
have available in Medicaid. The numbers are big, but the number
of drugs you're dealing with are relatively small. Single
source drugs account for 60 percent of all the Medicare drug
spending. So it's relatively narrow. The numbers are big, but
the numbers of drugs we're talking about are relatively narrow.
So I think if we focus on this problem, hopefully
legislatively, it is very fixable.
A fourth point I'd make is that I think we need to be
sensitive. Physicians do in fact--back as far as I believe it
was 1997--actually it was 1991 was the first time I believe
that then HCFA proposed to have 85 percent of AWP. Then
physicians came back and said we can't get it for 85 percent of
AWP. And that may be the case. I think it's important when we
look at new reimbursement systems that we understand it's not
like the Federal supply schedule where the VA sets prices.
Doctors actually have to go out and buy this on the market. And
while the prices may be outrageous, they actually have to go
get it.
So our real issue is to focus on the manufacturers and how
we get the money back at the end of the game from the--to the
manufacturers--hopefully no game at the end of the day from
manufacturers. And it is a legitimate problem that physicians
out there around the country can't always get it for less than
a certain amount of AWP.
So I think we need to look at the bottom line of what the
program is paying without squeezing providers to the point
where physicians out there in the real world can't get ahold of
it. And I think in our legislative--hopefully legislative fix,
we need to look at that.
There are a number of different approaches that you have
talked about, and I'll just try to run through a couple of them
that I think are possible.
The Federal supply schedule has been mentioned. I think
that when you look at the VA and when you look at the agencies,
Coast Guard and others in the Federal supply schedule, it's
really not an apples to apples comparison. I think that
probably wouldn't work. Those are really Federal agencies
buying the drugs for direct use in Federal agencies.
Average manufacturers' price, which is the bottom line
number that was used in the Medicaid program, and we do in fact
have those numbers and they are audited and I think they're
pretty solid, but again, by statute they're confidential and
we're not allowed to use them. In fact, our Medicare staff
doesn't have access to them. Only the Medicaid staff does. So
is that a more legitimate number? Absolutely.
I think there may be some problems there, but average
manufacturers' price, which GAO seemed to suggest is a very
auditable and very reasonable number, I think if you went to
average manufacturers' price, you might run the risk of
squeezing access to physicians out there in the market trying
to buy them. So I think there's a possibility.
I think the Medicaid program has some flaws, but there's a
model there, and I'll suggest that in a second.
You've talked about wholesale acquisition costs which I
think is a better price than AWP. But, again, AWP is largely
air, and I think wholesale acquisition costs may be a little
better, but it's still potentially air, and you can raise it
and lower it as you like, and I think it's a very--the
potential for manipulation of that is relatively high as well.
As a short-term fix it might work, but I think there are
probably better ones.
People have proposed that we do a survey of market prices,
which also might work. I talked to my staff about trying to do
a survey of what nursing homes pay, for instance, because
nursing home chains usually have--they're not as big as the
Federal supply schedule, but large nursing homes, Manor Care,
somebody like that frequently buys--you know, has a similar
group of patients buying in large bulk volume.
The problem in doing that--and I think that's a
possibility--is that you're looking back a year. And obviously,
as you can see from the earlier testimony, the prices change by
the day, and looking back and doing a snapshot looking back a
year at anybody, for us to do a survey of 2000 prices to set
2001 prices is never going to be quite right. So I think that
has its flaws as well.
There is a concept similar to average manufacturers' price
called average sales price that you could possibly use, but I
think a combination of these we certainly could work on
legislatively, and I think the bottom line is that the
manufacturers know at the end of the day how many units they're
selling to Medicare. They know how many we're paying for.
If we can, in fact, require them, as we do in Medicaid, to
tell us what the price is and calculate at the end of the year
how many they sold to Medicare and what the price is and
recover that price and there is a mechanism to do that, I think
to find that balance that we end up getting the right price
charged us by the manufacturer, while not limiting and denying
access to the physicians that are actually out there in the
market, potentially in a small town trying to get it, is the
mix that we need to find, and I think it's very doable.
Can we do this administratively? I think we probably won't
in the near term, because we probably would get sued. We'd
certainly prefer to do it legislatively. I think we could. And
if Congress doesn't act, it would probably take us a year to a
year and a half to do it. It would take a long rulemaking
process. I have zero doubt that we'd be sued, because of what
the law says on 95 percent of AWP.
So I would strongly, strongly, strongly prefer to work with
Congress hopefully in the next month to find a legislative
solution that works, that is fair to the oncologists, that is
fair to the dialysis clinics, that is fair to the other patient
groups involved and that gets our payment back on the right
track. Because it's clearly a very messy system we're in right
now.
So I know you've had a long hearing already. That's about
as fast as I can talk, and I skipped over a whole bunch of
other things I was going to say, but I hope--it may be more
valuable just to answer questions. But there is zero doubt that
the administration, while we don't have the set solution, is
extremely interested in working to fix this problem.
[The prepared statement of Thomas A. Scully follows:]
Prepared Statement of Thomas A. Scully, Administrator, Centers for
Medicare & Medicaid Services
Chairman Greenwood, Chairman Bilirakis, Congressman Deutsch,
Congressman Brown, distinguished Subcommittee members, thank you for
inviting me to discuss Medicare payment for outpatient prescription
drugs. As you know, prescription drugs are becoming an increasingly
important component of modern health care, particularly for Medicare
beneficiaries. We are working with Congress to modernize Medicare to
cover prescription drugs and provide relief to seniors from high drug
costs. In addition, it is clear that the payment system for selected
outpatient drugs that are now covered by Medicare is a mess. Medicare
now pays more than many other purchasers for the drugs we cover due to
the way that drug manufacturers report their prices and Medicare's
payment policies. Medicare should pay appropriately for all Medicare
benefits, including the drugs we currently cover, and it is
unacceptable that the current system results in Medicare paying
excessive prices. We also need to pay appropriately for the services
required to furnish these drugs. I appreciate your dedication and
leadership on this issue, and I look forward to working with you and
your colleagues to ensure that Medicare beneficiaries have access to
the drugs they need and that Medicare pays competitive prices for these
prescription drugs.
By law, Medicare does not pay for most outpatient prescription
drugs. However, there are some specific exceptions where Medicare
covers pharmaceuticals, such as drugs furnished incident to a
physician's covered services, and in these cases, the law mandates that
we pay physicians and other providers based on the lower of the billed
charge or 95 percent of the drugs' average wholesale price (AWP).
Numerous studies have indicated that the industry's reported wholesale
prices, the data on which Medicare payments are based, are vastly
higher than the amounts that drug manufacturers and wholesalers
actually charge providers. That means Medicare beneficiaries, through
their premiums and cost sharing, and U.S. taxpayers are spending far
more than the ``average'' price that we believe the law intended them
to pay. Some affected physicians and providers have suggested that they
need these Medicare ``drug profits'' to cross subsidize what they
believe are inadequate Medicare payments for services related to
furnishing the drugs, such as the administration of chemotherapy for
cancer. I believe we need to pay appropriately for both the drugs and
the services related to furnishing the drugs.
Clearly, Medicare drug pricing is a complex issue. Over the years,
numerous legislative efforts have failed to develop an effective
alternative to AWP and ensure that Medicare and its beneficiaries do
not pay more than they should for the limited number of prescription
drugs that Medicare covers. We are committed to working with Congress
on a bipartisan basis to ensure that Medicare pays accurately for all
of its benefits. As we look to the future, particularly in the context
of developing a Medicare drug benefit that does not make the same
mistakes, I think it might be important to review previous efforts to
reform the AWP payments so that together we can develop a workable
solution.
medicare's limited drug benefit
The Centers for Medicare & Medicaid Services (CMS) pays most of the
health care expenses of almost 40 million Medicare beneficiaries. If we
were creating the Medicare program today, a prescription drug benefit
certainly would be included. However, in 1965, prescription drugs
played a less prominent role in health care, and the emphasis then was
on ensuring access to inpatient hospital care in Medicare Part A and
providing access to physicians in Medicare Part B. Today, Medicare
beneficiaries rely on prescription drugs as an integral part of their
health care. Although by law, Medicare does not generally cover over-
the-counter or outpatient prescription drugs, currently Medicare does
cover some drugs, including:
<bullet> Drugs that are not self-administered and furnished ``incident
to'' a physician's service, such as prostate cancer drugs;
<bullet> Certain self-administered oral cancer and anti-nausea drugs;
<bullet> Certain drugs used as part of durable medical equipment or
infusion devices, (e.g., the albuterol that is put into
nebulizers, which are devices used by asthma patients);
<bullet> Immunosuppressive drugs, which are used following organ
transplants;
<bullet> Erythropoietin (EPO), far and away the drug Medicare spends
the most money on, is used primarily to treat anemia in end
stage renal disease patients and in cancer patients; and
<bullet> Osteoporosis drugs furnished to certain beneficiaries by home
health agencies.
These drugs are typically provided in the hospital outpatient
setting, dialysis centers, or in the doctor's office, and are purchased
directly by the physician or provider. Additionally, vaccines for
diseases like influenza, pneumonia, and hepatitis are considered drugs,
and are covered by Medicare.
By law, we generally pay for these drugs based on the actual charge
or 95 percent of the AWP, whichever is lower. This adds up to more than
$5 billion a year for currently covered drugs, approximately 80 percent
of which is paid for by the Medicare program. In general, Medicare
beneficiaries must also share in the cost of purchasing these drugs
through their Part B premiums, and except for the flu and pneumonia
vaccines, the $100 Part B annual deductible, and a 20 percent
coinsurance.
medicare payment for currently covered drugs
The AWP is intended to represent the average price at which
wholesalers sell drugs to their customers, which include physicians and
pharmacies. Traditionally, AWP has been based on prices reported by
drug manufacturers and published in compendia such as the Red Book,
which is published by Medical Economics Company, Inc. However,
manufacturers and wholesalers increasingly give physicians and
providers discounts that reduce the actual amount that the physician or
provider actually pays for the drugs. These discounts are not reflected
in the published price and reduce the amount providers actually pay to
levels far below those prices published in the Red Book. Furthermore,
use of the AWP, as reported by manufacturers to companies which compile
such prices creates a situation where a manufacturer can, for certain
drugs, increase the reported AWP and, in turn, offer physicians a
deeper discount.
This Committee, CMS, the Department's Office of the Inspector
General (IG), and others have long recognized the shortcomings of AWP
as a way for Medicare to reimburse for drugs. The IG has published
numerous reports showing that true market prices for the top drugs
billed to the Medicare program by physicians, independent dialysis
facilities, and durable medical equipment suppliers were actually
significantly less than the AWP reported in the Red Book and like
publications. As competitive discounts have become widespread, the AWP
mechanism has resulted in increasing payment distortions. However,
Medicare has continued to pay for these drugs based on the reported AWP
amount. By offering physicians and providers deep discounts compared to
the price they could bill Medicare, the drug manufacturers are able to
use profit margins to manipulate physicians and providers to use their
products for Medicare beneficiaries. It is simply unacceptable for
Medicare to continue paying for drugs in a way that costs beneficiaries
and the program far more than it should.
In the past, the Agency has attempted to remedy disparities between
Medicare payments based on AWP and the amount actually paid
competitively by physicians and providers. However, these efforts have
not been successful. For example, in CMS/HCFA's June 1991 proposed
physician fee schedule, the Agency proposed that payment be based on 85
percent of AWP. We also proposed that certain very high volume drugs be
reimbursed at levels equal to the lesser of 85 percent of AWP or the
physician's or provider's estimated acquisition cost. We received many
comments, primarily from oncologists, indicating that this 85 percent
standard was inappropriate. Most comments indicated that while many
drugs could be purchased for less than 85 percent of AWP, other drugs
were not discounted. Others suggested that while pharmacies and perhaps
large practices could receive substantial discounts on their drug
prices, individual physicians could not. As an alternative, beginning
with 1992, a policy was established for Medicare to pay the AWP or the
estimated acquisition cost, whichever was less.
Since the Estimated Acquisition Cost approach proved to be
unworkable, subsequent legislation was proposed that would have
required Medicare to pay physicians their actual acquisition cost for
drugs. Under this proposal, physicians would tell Medicare what they
paid for the drugs and be reimbursed that amount, rather than the
Agency developing an estimate of acquisition costs and paying
physicians based on that estimate. After considering this proposal,
Congress adopted an alternative approach in the Balanced Budget Act of
1997 (BBA), setting Medicare's payment for drugs at the lesser of the
billed charge or 95 percent of AWP. While this brought Medicare
payments closer to the prices that physicians and providers pay for
drugs, Medicare payments were still significantly greater than the
competitive discounts obtained by physicians and the system still tied
Medicare payments to the artificially inflated industry-reported list
prices. In fact, in a December 1997 report, the IG found payments based
on AWP to be substantially greater than the prices available to the
physician community. As an alternative to actual acquisition costs,
Congress considered proposals to pay all Medicare drugs at 83 percent
of AWP, a compromise between 95 percent of the AWP and the average
discount found by the IG.
In May 2000, the DOJ and the National Association of Medicaid Fraud
Control Units made accurate market wholesale prices for 49 drugs
covered by Medicaid available to State Medicaid programs and to First
Data Bank, a drug price compendia owned by the Hearst Corporation.
These wholesale prices, culled from wholesale catalogs circulated among
the provider community, reflected the actual Average Wholesale Prices
for these drugs far more accurately than the drug manufacturers' AWP.
Last year, HCFA sent this new information to Medicare carriers and
instructed them to consider these alternative wholesale prices as
another source of AWP data in determining their January 1, 2001
quarterly update for many of these drugs. However, due to concerns
about Medicare payments related to the administration of the
chemotherapy and clotting factor drugs, the Administration instructed
our carriers not to use the data for those drugs at that time.
In December 2000, Congress enacted the Medicare, Medicaid, and
SCHIP Benefits Improvement and Protection Act (BIPA), which established
a moratorium on decreases in Medicare drug payments while the General
Accounting Office (GAO) conducted a study of Medicare drug pricing and
related payment issues. HCFA postponed Medicare carriers' use of the
DOJ data until we could review the GAO report. We look forward to
reviewing the GAO's findings and working with you to revise Medicare's
drug payment policy. We must ensure that beneficiaries and Medicare pay
appropriately for both the drugs that we cover and the services related
to furnishing the drugs.
conclusion
Medicare beneficiaries rely on prescription drugs, and the
coinsurance they pay for covered drugs is tied directly to the prices
that Medicare pays. We must find a competitive way to ensure that
Medicare beneficiaries and taxpayers are no longer paying excessive
prices for drugs that are far above the competitive discounts that are
widely available today. We need to pay appropriately for all Medicare
benefits, including the prescription drugs we cover and the services
required to furnish those drugs. We look forward to reviewing the GAO
report, and working with you Mr. Chairman, this Subcommittee, and the
Congress to revise Medicare's payment policy for currently covered
drugs. Thank you for the opportunity to discuss this important issue
with you today, and I am happy to answer your questions.
Mr. Greenwood. Thank you, Mr. Scully. We appreciate your
testimony and your presence and again your endurance in staying
with us all this time.
Let me, first of all, comment on why the 85 percent of AWP
obviously won't work. Because, as we've seen, some AWPs are
actually straight; and particularly when there's no competition
there's no incentive for the drug companies to falsify the AWP.
So to reimburse 85 percent wouldn't be fair for those who are
paying a hundred percent of the AWP, because the physicians
would lose money every time. So clearly that won't work.
We do have five principles that my staff and I have worked
out in terms of what we think the direction of the legislation
that we hope to enact into law in the next month is, and I'd
just like to tick these off for you and see if we have general
conceptual agreement on how to proceed.
No. 1 is that any new drug reimbursement should not
adversely impact Medicare patient access to quality health
care. Would you like me to repeat that?
Mr. Scully. I'm sorry. I was trying to find your----
Mr. Greenwood. The question is, would you agree in concept
with these five principles for legislation: Any new drug
reimbursement should not adversely impact Medicare patient
access to quality health care?
Mr. Scully. Sure. Absolutely.
Mr. Greenwood. That is a no-brainer.
Mr. Scully. That was an easy one. Thank you.
Mr. Greenwood. Medicare's reimbursement for coverage drugs
should be closely linked to the prices that providers actually
pay for the drugs.
Mr. Scully. I think that is the bottom line goal, yes.
Mr. Greenwood. Three, Medicare services and administration
should be reimbursed according to their costs, exclusive of any
reference to drug reimbursements?
Mr. Scully. The only caveat I'll put into that is, having
been in the hospital business for years, costs--but, yeah,
actual, real expenses, yes, because cost is what we paid for
for years, and that is real life.
Mr. Greenwood. Understood.
Fourth, the impact of Medicare's drug reimbursement
policies have--upon the making of clinical decisions should be
eliminated or reduced to the greatest extent possible.
Mr. Scully. Yes. I think absolutely.
Mr. Greenwood. Okay. And, fifth, Medicare's reimbursement
for treatments in related settings should be equalized to
discourage migration between settings based upon relative
levels of profit available to providers.
Mr. Scully. Yes.
Mr. Greenwood. Bottom line there is we don't want to drive
these patients certainly back to a hospital setting which costs
Medicare more and is sometimes a less pleasant experience for
the patient.
Let me ask you this. These principles are not rocket
science. This is a very manageable issue, as far as I'm
concerned, based on my research here. The GAO report today
gives us the foundation in terms of the expenses or costs for
the oncologists. I hope we'll erase what has been an obstacle
before, which is the legitimate concern raised by Members of
Congress, frankly, because we do not have the data to forestall
anything that might have some of these adverse effects on
patients or providers.
If in fact we can put a legislative solution into some kind
of an omnibus package that we sign into law--have signed into
law, let us say sometime in October, do you have a sense from
talking with your staff yet how long it might take CMS? How
much time do you need to enact this so that we get a good
system that works well, meets all of these objectives and
begins to save the beneficiaries and Medicare the billions of
dollars that we've talked about?
Mr. Scully. Well, clearly you can start paying different
drug prices in AWP pretty quickly. The real issue is making--I
think there is some legitimate argument that oncologists, as I
mentioned, dialysis clinics--there are a variety of practice
groups, at least an argument I've heard, on DME providers. The
issue is that we put out our rates on January 1. Most of those
rates are already in place. The systems are hard to change. The
issue is from an equity point of view, and if there are
providers that rely on inappropriately high AWP payments----
Mr. Greenwood. If I may, I should have included--
incorporated that in my question. But if we give you the
objective of coordinating in time this two-step process, move
from AWP to a more cost-related--price-related reimbursement
rate and reset the practice expense and the reimbursements for
these specialties who are--specialists who will in fact lose
revenue as a result of this change, how long would that take?
Mr. Scully. The quickest way we could rationally do it--
again, I can tell you what my--all the people that have to do
the actual work, which a lot of people forget. There's actually
lots of people in Baltimore here that have to actually do this.
The quickest way you really do it is fiscal year 2003, for the
fee schedules that come out in January of 2003, because that is
really only the time you go back and recalibrate up the
practice expenses and everything else.
It's possible--nobody is happy with this answer in CMS, I
can tell you, but it's possible that if you directed us and you
put money into the second half of 2002, that for the last two
quarters of 2002, we could possibly--and I'm not even certain
of this now--recalibrate some of the payments up.
We certainly can pay less on AWP, but if you're trying to
find the balance, what I've heard from oncologists and others
is, if you're going to cut the AWP, which we rely on, you need
to fix the practice expense at the same time and in the same
bill. I imagine they wouldn't be very happy to have the drug
reimbursement cut at the same time the practice expenses don't
go up. So pushing the envelope as much as it possibly can be--
and I can tell you this is an extremely unpopular opinion with
the staff at CMS--the fastest we could possibly do it is
probably next July, and under normal circumstances, the fastest
we could do it is January of 2003.
Mr. Greenwood. That is very helpful. I appreciate that.
My time has expired. The Chair recognizes the gentleman
from Ohio, Mr. Brown, for 5 minutes.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Scully, nice to have you in front of the subcommittee.
You have the authority now to use an inherent
reasonableness standard to reduce reimbursements for Medicare
drugs which basically bear no resemblance to actual costs or
actual cost plus. Do you have that story?
Mr. Scully. I think we do. I think the issue here is, as I
mentioned, the agencies have a hard time getting around that.
We actually sent out guidance of what we thought was an AWP--
not me, but, as you know, Nancy-Ann DePerle and Secretary
Shalala--about a year and a half ago to have our carriers
interpret what was a low AWP, and there was quite an uproar
about that, and the result of it was a legislative prohibition
about changing it. So it's very debatable from a legal point of
view as to whether we do have the authority. So if Congress
doesn't act, we'll certainly look into it, but it would be far
preferable to have legislative guidance.
Mr. Brown. Wasn't there a GAO review and they said it was
adequate? GAO did a review and said it was adequate?
Mr. Scully. A review of the practice expenses or the----
Mr. Brown. Of the inherit reasonableness.
Mr. Scully. I think I read the report last night, and I
think that--their view was we have an inherent reasonableness
authority to interpret what the AWP is, and I believe he said
in his testimony that it says average wholesale price in the
statute. But as a former pretty bad lawyer, somebody who has
had--been sued numerous times this fall, I would say that with
the track record of having the government use the AWP for 30
years, I would have very little doubt that our authority to do
that would be challenged. We certainly are willing to do it if
it comes to that, but it would be much sounder I think if we
get legislative guidance.
Mr. Brown. Would it be appropriate first, Mr. Chairman, or
Mr. Scanlon to address that, that the GAO did in fact find
that. Correct?
Mr. Scanlon. We reported on the expedited inherent
reasonableness authority that you gave to the agency in the
Balanced Budget Act which allows for up to a 15 percent
reduction, again, in an expedited fashion. Whether we have the
ability to redefine AWP and define it any way we'd like is a
somewhat dicey legal issue. We're happy to--believe me, we're
very anxious as you are to fix this. I would say it would be
certainly much more likely to succeed if we had additional
legislative guidance.
Mr. Brown. Could you submit a legal opinion for the record
on that?
Mr. Scanlon. Sure.
Mr. Brown. Let me shift gears for a second. Before that, I
just--if in fact you can do that, using an inherent
reasonableness standard to reduce reimbursements, I would hope
that CMS could be more aggressive. I guess you have a pilot
project in Texas and look to do more of that for competitive
pricing in the months ahead.
All the talk about the solutions that have been bandied
about in the prior panel and from opening statements and
others, if Medicare changes the way that Congress pays for
prescription drugs, obviously then changing the reimbursement
rate for oncologists and saying that the practice expense
payment system needs to be adjusted, what does that do--my
understanding is the entire pool of practice expense payment
needs to be budget neutral. Does that mean any increase in
practice expenses for oncologists would then cause a reduction
in practice expenses for other specialties?
Mr. Scully. Well, under current law it would or wouldn't
change, and I personally would not recommend us doing that,
because I don't think we should be taking funds from other
practice expenses to fund oncology. I think the discussion
that's been had in some quarters about legislation is that if
you're going to change the AWP legislatively you will get
significant baseline savings, and some of that could go back
into just adding in a nonbudget neutral fashion back into the
practice expense pot, which you can do legislatively to
increase, where appropriate, some practice expenses in some
areas without taking it from others.
But, clearly, without legislation, any practice expense
change has to be budget neutral.
Mr. Brown. So if we were to do that, do you have any
suggestions on the amounts of--you, first of all, say we in a
sense legislatively break the budget neutral concept of
practice expense, at least for this particular case. What kind
of money do you talk about in terms of the oncologists then
versus what we've done?
Mr. Scully. Chairman Greenwood and I talked about this a
little bit, and he--apparently in the GAO reports read last
night, they suggested $51 million. It's not always easy to get
a quick back-of-the-envelope read from my staff, but I think
that number is in the ballpark. It's close, somewhere in the
40--I mentioned to him that our back-of-the-envelope number was
pretty close to that, in the $45 to $55 million range.
Mr. Brown. What are you hearing from other physicians,
other specialties about the practice expense issue?
Mr. Scully. You know, in fairness, I was one of the
drafters of my first job and the first--one of my first jobs in
the first Bush administration was passing RVRS in 1989, since I
was primarily responsible for the administration's position
back then.
One of the reasons I like it----
Mr. Brown. A lot of complaints should be directed to you
then.
Mr. Scully. Yeah. It's all my fault. They didn't like it
much back then, but, in fairness, I think the system has worked
reasonably well. If you look at all the other reimbursements
over the last 15 years, nursing homes, hospitals, everything
else has been an up-and-down roller coaster. Physician
reimbursement has been relatively--as I'm sure the physicians
on the committee might not agree, but I think generally even
the AMA would tell you that, relative to other reimbursements
in Medicare, it's been more predictable and more stable and the
system has worked reasonably well.
The thing about practice expense is that basically we rely
98 percent of the time on the--what's called the RUC, which is
essentially the committee through the physician groups to
recommend what the practice expenses should be. So if the
oncologists think they're underpaid, they have to come argue
why it should come out of the oncologists versus the surgeons,
versus the gastroenterologists, and they sit around a table
every year and make recommendations, the vast majority of which
we take. But it's a finite pot, and I think it works reasonably
well.
So the issue here is--it's the physicians all sitting
around the table with CMS saying who is underpaid and who is
overpaid, and they're all arguing over a finite pot that you've
authorized. And I think it works actually reasonably well. I
mean, everybody is unhappy, but once everybody is unhappy that
usually means it's working right.
Mr. Brown. Thank you, Mr. Chairman.
Chairman Tauzin. I thank my friend. The Chair recognized
him so briefly for a round of questions.
Thanks for coming, Mr. Scully. Of course we appreciate you
being here.
Let me ask you in regard to that finite pot. If we are
going to work out a solution that establishes a responsible
AWP, something more akin to the real cost of the drug, and it
reduces the income to the oncologists significantly and the
oncologist does have a claim that he is under-reimbursed for
practice expenses, which you and I think GAO both have conceded
is true, at least to some extent--you've identified it around
$50 million. If we simply say that we're going to permit the
oncologist to have a larger share of that finite pool, does
that ipso facto mean that other physicians, other service
providers will lose reimbursement as a result?
Mr. Scully. If we were directed to do that administratively
without new money in the pot, it would, but my hope would be
that in the same--what I've heard from responsible oncologists,
of which there are many, is that they agree that many of the
things in the system are broken and in fact if we fixed in the
same bill simultaneously AWP and adjusted their practice
expenses, they don't think that is necessarily unfair. Now some
may disagree with that.
Chairman Tauzin. Provided we increased the pool to
accommodate to whatever few reimbursements we ought to provide
for those physicians. Is that correct?
Mr. Scully. Once again, in fairness, Mr. Chairman, I
think--and I'd like to work with your staff on--I do think it's
not oncologists who've made the most noise on this. I do think
dialysis providers of a number of drugs and I think hemophilia
agencies do. And, to a lesser degree, we ought to look at other
providers and make sure they also are made whole.
Chairman Tauzin. We've got to look at every single provider
that may be losing income as a result of a change in AWP and
examine whether or not in fact their practice is being properly
reimbursed under the current system. Is that correct?
Mr. Scully. Yes.
Chairman Tauzin. And we need to come up with a number that
we need to add to the pool to make it fair, and there is a
disagreement on that number, right? I mean, you and GAO have a
number around 50----
Mr. Scully. Pretty close. I think we're pretty close.
Chairman Tauzin. I've heard some extraordinary numbers
coming from some of the care providers. So we're going to have
to somehow provide some rationale for a proper number. Is that
correct?
Mr. Scully. Yes, sir.
Chairman Tauzin. Second, why don't you now use the average
manufacturers' price and best price under the Medicaid rebate
program in establishing an average wholesale--or average
wholesale price? I think I know the answer why you don't, but
tell me.
Mr. Scully. I believe it's statutory. That's another thing
that I hate to say that I helped create at Andrews Air Force
Base in----
Chairman Tauzin. So if you're going to use it, we have to
change the law?
Mr. Scully. If you wanted--the way it works is we do use
average manufacturers' price, I believe, and my staff might
correct me if I'm wrong, but the rebate--it comes up that the
difference between the AWP that's charged and the average
manufacturers' price is just a small piece of it. So you could,
in fact, correct Medicaid law as well and arguably make it more
appropriate.
Now, the two sides--just to give the other side, you
probably hear from private insurance companies is there's no
doubt what we're paying in Medicare in a big way and arguably
in Medicaid in a smaller way, but when you put those two
programs together and you squeeze the pot that's going to
bounce back on the private insurers. So--to some degree.
Now, there's no question to some it's excessive margin. But
if you take Medicare and Medicaid which are--at least in the
hospital outpatient setting, 40 percent of that is usually
Medicare. Maybe 12, 14 percent is Medicaid. Then you squeeze
down on their reimbursement there, which we certainly need to
do, you're going to have the insurers and others on the private
payer side come back and say our drug prices just went up.
Now, again, I would very much doubt that is a wash. I think
the margins on the Medicare side are extreme, to say the least.
Chairman Tauzin. And you both tend to say that. We have at
least some evidence coming in from the other side claiming that
it's a wash. We're going to have to again get some sort of
arbitration on that number to find out what it is.
Mr. Scully. I think generally the insurance plans are--you
know, they have the flexibility to negotiate prices, and they
generally can fend for themselves pretty well, but you will
hear a push back from the other side.
Chairman Tauzin. Let me ask you a very simple question that
I think I know the answer to, but you might give us some
insight on it. Why on earth do we have a system that requires a
Medicare beneficiary to pay 20 percent as a copay of an
artificial price? It can exceed the real cost of the drug to
the physician. What would happen if the law would change or
some provision were made, either administratively or by change
of law, to require that the 20 percent copay would be 20
percent of the real price paid by the care provider for the
drug? What is wrong with that?
Mr. Scully. Other than the budget spending, it sounds like
a great idea, and I think----
Chairman Tauzin. It would save American patients $177
million that they're spending on excessive copays, because
copays are based on fictitious numbers. I mean, when a patient
has to pay 500 percent for this one drug I cited of the amount
the doctor is having to pay for that drug as a copay, I mean,
citizens look at that and say, you know, that's Alice in
Wonderland. It's just crazy. Shouldn't the copay be based upon
the real cost of the drug to the doctor, and what would it take
to do that?
Mr. Scully. Well, that may be--that gets into the delicate
difference, as I said. But we can probably figure out exactly
what we should be paying the manufacturers and recoup it, much
the way Medicaid does through a reconciliation.
The issue is, if you're trying not to squeeze, the
physician is trying to buy it out in the market at the
beginning of the year. Finding out what--the right number to
charge the 20 percent copay against is one the tougher things
to figure out.
Chairman Tauzin. It is not hard to figure out. You simply
have a provision that says you can't charge the doctor or
physician as a co-pay more than 20 percent of the drug----
Mr. Brown. Will you be able to do that administratively,
the chairman's suggestion, simply so that the patient would pay
the 20 percent of what the actual charge, what the doctor's
actually charging for the drug? Could you do that?
Mr. Scully. Well, the closest thing we have right now, the
ability to actually determine what the actual price paid is, is
the average manufacturer's price which we have for the purposes
of Medicaid the worst----
Chairman Tauzin. Let me say it again. If the law said that
the doctor can't charge the patient more than 20 percent of the
actual cost, it is the health care provider's obligation then
not to send a bill that is represented on 20 percent of some
fictitious price, he's got to look at what he has actually paid
and send a bill based on 20 percent of what he really paid for
the drug. Otherwise he is in violation. That is pretty stiff,
but what is wrong logically with that if at the same time we
are making the proper adjustments for practice reimbursement to
the physician?
Mr. Scully. Nothing. It seems logical, and I think the
question from Mr. Brown was can we do it now administratively
and I don't think we can.
Chairman Tauzin. Also doing it administratively without
correcting the reimbursement on the fund is disjointed. I
understand that. There is a $177 million hit for health care
providers. But the fairness of asking a Medicare patient to pay
20 percent of a price that is totally fictitious, way in excess
of what the physician actually bought that drug for, seems to
me to be absolutely insane. It contradicts what we did in the
Medicare program, which was literally to provide a co-pay
requirement on the patient that was supposed to be one-fifth of
the actual cost and, because of this crazy system of average
wholesale pricing, can run as high as 500 percent of the cost.
And I mean not only is it unfair basically to think about that
but think about it in terms of if you happen to be the wrong
patient, you happen to need that drug that is 500 percent as
opposed to another patient that is paying closer to the real 20
percent. There is an inequity in the requirements under the
Medicare system depending upon how unlucky you are, what
disease you have got, what drug you need to help you.
I would think that we should all look at expediting a cure
for that particular problem. Perhaps we can do that sooner than
later.
Mr. Scully. We would love it. We are totally with you. I
think the best thing about this hearing was for the health care
policy wonks in the world, many on your committee, this issue
has been around about 10 years and I never heard this thorough
a discussion on it, and usually what happens is somebody tries
to cut a rate and somebody screams that patients are going to
be hurt, which is frequently not the case, and we are
legislatively prohibited from fixing it.
Chairman Tauzin. You said the right thing, legislatively
prohibited from fixing it, and that can't stand any longer. It
is our obligation right here to fix it. We have allowed this to
exist too long, as we thoroughly understand it, as we
understand its pernicious effects upon the health care system,
and particularly upon the very people it is designed to help,
we have got to fix it, and if there are legislative impediments
to your fixing it, we need to take them out of the way.
Thank you very much. I will recognize Mr. Ganske for 5
minutes.
Mr. Ganske. Thank you, Mr. Chairman. I want to follow up on
your line of questioning. It seems to me that the problem with
instituting a limit on the co-pay to the actual cost without
doing the rest is just what we have been talking about multiple
times this morning; that is, that you are not taking into
account the overhead involved with the administration, with the
storage, with the ordering, with the time involved for
personnel and things like that, and so I think that that issue
of the co-pay is corrected when you actually have the
inaccurate index of the cost, I mean of the drug, whether it's
an AVP, or whatever letters you want to use.
Mr. Scully, I want to go to this issue of the AMP data.
This is a quote from the IG report. ``This option would require
legislation to allow Medicare access to AMP data. Prior to this
option being implemented, it would be useful to clarify or
refine certain definitions. We also believe that an initial
intensive effort should be made to audit AMP data.'' We don't
want to just substitute some letters. We need to have some
accuracy. Do you have any idea of what the definitions that we
would need to address to clarify and define what the IG is
talking about in terms of AMP?
Mr. Scully. That is considerably lower and I think it
generally works. It is confined to Medicaid by statute, and our
Medicaid staff has access to what the Medicare staff does not.
It is audited. If we use it for a broader chunk of the market
and used it for Medicare as well as Medicaid, obviously
incentives for people reporting their prices would--we'd have
to probably audit more carefully, as the IG said, and be much
more thorough in making sure the prices are accurate. But the
idea of AMP, which is similar to an average sales price
concept, is to actually find out what the manufacturer sells it
to all customers in the country in any particular year and then
come back and make it that that is the average price that we
pay. I think the data is there now to make it work, and it is
certainly the best measure to make it work.
The problem is if you go out to many areas of the country
where physicians and oncologists may actually have to pay more
for it, there may be places where somebody can't get access to
that. That was the argument about paying 85 percent of AMP back
in 1991. If a physician in Iowa, for instance, couldn't get
access to the drug for that price, he might never get it. So
some have suggested that just consensually what we would do is
allow the companies charge whatever they want, but then at the
end of the year come back and reconcile, similar to what
Medicaid does now, and say you sold us a million units of the
drug times whatever the average manufacturer's average sales
price is, you owe us the difference. That way you keep access
to the physician out there buying in the market while actually
recovering from the manufacturer.
The problem with that, which is what I was trying to get to
Mr. Brown, is then what do you do up front as far as charging
20 percent of what, the inflated AMP or the real end of the
year price the government ends up paying, and that is
difficult.
All things I think we can talk about fixing legislatively,
but it is a complicated problem to make sure we don't overpay,
but that we also don't shut off access to physicians who may
not in some parts of the country be able to get access to the
drugs. So it is a complicated problem. I think we can fix it,
but I have only been looking at it intensively the last 2 or 3
days and I can't tell you all the answers yet.
Mr. Ganske. Can this committee expect from the
administration and from you and CMS some specific suggestions
for instance on the, quote, clarification and refinement of
certain definitions, unquote, that we would need to do
legislatively if we were looking at going the AMP route?
Mr. Scully. Sure. Obviously we are hoping, and if we are
only here for a month to spend a lot of time on legislative
issues, we certainly have a lot of suggestions in this area. We
have already spent a lot of time talking to committee staff.
Mr. Ganske. We are dealing with 24 drugs; is that right?
Mr. Scully. I think the bulk of the 24 is about 90 percent.
Mr. Ganske. It would seem to me that we ought to be able to
get a handle through sampling of real invoices on 24 drugs,
what the real average wholesale price, or the AMP, should be to
address this.
Mr. Scully. Actually the companies that report AMP are
required to tell us what their average price was to all their
buyers in the course of the year in any category, and we audit
that. So it should be a pretty accurate number. We just can't
use it right now for Medicare.
Mr. Ganske. How do you audit that?
Mr. Scully. I believe the IG--the Medicaid actually goes
into the companies and audits----
Mr. Ganske. It goes into the company books and then
checks----
Mr. Scully. That is right. It is the OIG who actually does
it for us.
Mr. Ganske. And then checks back with the customers of
those companies to see whether that in fact----
Mr. Scully. Yeah. The only potential flaw I have seen is
that some drugs, once you put Medicare and Medicaid together,
it is--you know, to figure out what the rest of the market is
paying and piggyback on that. A few of these drugs, the market
is mostly Medicare and Medicaid. So it is a little difficult to
figure out the prices if the non-Medicaid/Medicare market is 10
percent. That is the only flaw I have seen so far in looking at
it.
Mr. Ganske. We both know it has been difficult to get
accurate indices of practice expense. There has been a lot of
controversy in those areas. If we are talking about changing
this reimbursement, what will be the process to get an accurate
assessment from these medical specialties that will be
affected?
Mr. Scully. I believe, and again I hope somebody will jump
in here if I am wrong, all the specialties already have the
ability to put in their own surveys. The oncologists could have
put in their own practice survey and did not. The data that we
had on oncology combined their actual drug costs so close to
their practice expense costs that we made the decision, which I
believe GAO agreed with, that we couldn't use that data. So we
used the average physician's practice expense. I think that was
defensible because arguably the physicians are already, from
what we have heard today, being overcompensated on the drug
side; so using the average physicians practice expense is
reasonable.
If you in fact reduce the AVP and you made the judgment
that we should go back in and do a survey of oncology data or
have them submit their own, we believe that would result in
their practice expenses going up, but right now the practice
expense component for oncologists is the actual average
practice expense for all physicians because we don't use
oncology specific data.
Mr. Ganske. We have testimony today from Dr. Norton to the
effect that the Medicare payment for services for
administration may be one quarter what the actual costs are. Do
you have a feeling for that?
Mr. Scully. I have not, to be honest with you, looked at
that level of detail. Totally independent of each other, both
the GAO and our staff looked at this number and came up with a
remarkably close initial determination. So I am happy to go
back and spend time with the oncologists discussing it, I am
sure I will if you are looking at legislation, but I have yet
to find a physician group that was not unhappy with their
practice expense allocation. I think that is the nature of the
beast.
Mr. Ganske. Thank you, Mr. Chairman.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes the gentleman, Mr. Norwood, for 5 minutes.
Mr. Norwood. I thank the chairman and I only have one
question. I am curious to see what Mr. Scully has to say. You
implied earlier there seems to have been a problem at least as
far as 10 years back, that HCFA has been concerned and has
raised questions about this for a long time, however generally
when you raised questions very loud and stuck your head up very
far, Congress pounced on you. Is that where we have been?
Mr. Scully. That is fair, but sometimes in fairness it is
Congress, sometimes it is, you know, groups coming in and
screaming within your own administration, whether it is--Gail
Walinsky was the first person to get involved in this in 1991
and I was in the White House then, and I remember not knowing
very much about it but I remember we got a lot of heat for it.
I think the level of understanding and interest this year is an
all-time high and that is positive. I think generally whether
it is Congress or just people complaining about it, when you
have talk about cutting, the groups that are affected are
always upset, and generally they are upset because in the past
the issue has generally been lowering reimbursements without
being sensitive to the fact that maybe there is an
unfortunate--but reality is cautious. As I mentioned, I know
for ESRD clinics, they argue that their rates are too low as
well and that they rely on AVP transfers and cost shifts.
Generally the answer in the past has been cut the rates and
don't be sensitive to the other side, which does not seem to be
the case this year.
Mr. Norwood. My question, Mr. Scully, though, is since this
has been a problem for a long time, I am a little bit surprised
that why would not CMS or GAO or somebody be coming to this
hearing today with a solution?
Mr. Scully. It is not an easy solution. I spent 4 hours the
other day with probably 10 people at CMS that have worked on
this for the longest time and went around with the options I
put in front of you today briefly, and I am not sure we have a
consensus in our agency about what is right. We are going to
have to pick one. I think it will be a hybrid of a bunch of
these, but I am not sure that you could find a consensus
solution anywhere. I would be happy to sit down with the
committee and give you my opinions.
Mr. Norwood. I was struck by the different options that you
sort of threw at us pretty quickly, and I guess is this not
solvable?
Mr. Scully. I think it is very solvable. I think there are
shortcomings to every solution and some benefits to every
solution, and some people are not troubled by just saying let
us pay the Federal Supply Schedule. I don't think that that--
which the VA pays, which the Coast Guard and other agencies
pay. I think that probably causes significant access problems
for some physicians in some places. So there are pros and cons
to every option and, if you would like, I would be happy to
share my staff paper on the pros and cons with you.
Mr. Norwood. I think my feeling is this, the Energy and
Commerce Committee is going to do something about this one
which way or the other and it certainly should be and is our
responsibility, but I also think it is the responsibility of
the Federal agency to also come up with a solution. It doesn't
necessarily mean we will adopt that. It doesn't mean that that
will be the final solution. But I think you need to lead your
organization to the plate, get up to bat, let us hear what you
want to do. And at the same time our chairman, all of them
along the line are going to be doing the same thing. But I am
not sure I feel like we, the members of this committee have--
should have had the experience dealing with this problem for 10
years at the same level as your agency has had experience
dealing with this problem, and I am suggesting that you have
some responsibility in my mind to not give us a dart board and
hope we hit the right one. Come in here and say what you want
to do.
Mr. Scully. Mr. Norwood, I almost have never been accused
of not having strong opinions about things for better or worse.
The problem is that we are legislatively prohibited at least
until today from considering this. So there is not an
administration position. As I have----
Mr. Norwood. Are you prohibited from coming up with a
solution?
Mr. Scully. No. But the fact is we have an administration
with a White House and the Secretary--I have talked to the
Secretary a little bit about it. I am not sure that the White
House is aware of this. I can't state the administration's
position publicly today. I have opinions. I will talk in the
next week or so with people in the administration, and I have
no doubt we will have a strongly held administration position.
I am just not in a position today to go any further than I
have.
Mr. Norwood. I didn't expect today for you to come up with
a solution. I expected for you to turn to some of that staff
that has been over there over the last 10 years and I presume
are working on this. At some point in time the agency itself
should make a recommendation as to how they think we would best
solve this problem and hopefully this committee and the
subcommittees and full committee will go along with that, maybe
alter that, maybe change that. But you need to have a position.
Mr. Scully. I hope we can come up with a joint position
with the committee, and we will give you lots of technical
input, and whatever the committee decides I have a feeling will
be the administration's position as well and we will hopefully
do it together aggressively and on a bipartisan basis.
Mr. Norwood. Thank you, Mr. Chairman.
Mr. Greenwood. The time for the gentleman has expired. Let
me comment that in fairness to everyone, we have all been on
hold until the GAO study came out, which has been released
today, and we now feel that we have a solid footing upon which
to build our solution. The wholesale acquisition costs will
almost certainly be the basis for the new reimbursement rates,
will take care of the oncologists and others based on the data
that we have now, and I think we will be prepared to work with
CMS over the next couple of weeks and have a firm detailed
legislative product in short order.
Mr. Scully, thank you for your excellent testimony. Thank
you for your patience and you are excused. Look forward to
working with you.
I call now the third and final panel: Dr. Larry Norton,
President of the American Society of Clinical Oncologists; Mr.
Kevin Martyn, Executive Director of Care for Life; Mr. Thomas
Connaughton, President of American Association of Homecare; and
Dr. Ezekiel Emanuel, Chief, Clinical Bioethics Department,
Warren G. National Magnuson Clinical Center, National
Institutes of Health. Welcome. We thank you for your patience
in waiting all morning and all afternoon to testify, but we are
glad to have you with us.
As you probably heard me say to the previous witnesses,
this is a joint committee hearing between the Health
Subcommittee as well as the Oversight and Investigation
Subcommittee, and when the Oversight and Investigation
Subcommittee is involved, we take testimony under oath. Do any
of you object to providing your testimony under oath?
Seeing no such objection, I would inform you that you are
entitled under the rules of this committee and under the rules
of the House to be represented by counsel. Do any of you desire
to be represented by counsel? Seeing no such desire, if you
will rise I will give you the oath.
[Witnesses Sworn.]
Mr. Greenwood. Thank you. You are each under oath now, and
we will begin with you, Dr. Norton. You are recognized for 5
minutes for your testimony. Make sure your button is----
Dr. Norton. Am I on?
Mr. Greenwood. Yes.
TESTIMONY OF LARRY NORTON, PRESIDENT, AMERICAN SOCIETY OF
CLINICAL ONCOLOGISTS; KEVIN MARTYN, EXECUTIVE DIRECTOR, CARE
FOR LIFE; THOMAS A. CONNAUGHTON, PRESIDENT, AMERICAN
ASSOCIATION OF HOMECARE; JoANN LAMPHERE, LEWIN GROUP; AND
EZEKIEL EMANUEL, CHIEF, CLINICAL BIOETHICS DEPARTMENT, WARREN
G. MAGNUSON CLINICAL CENTER, NATIONAL INSTITUTES OF HEALTH
Mr. Norton. Hi, I am Larry Norton. Pleasure to be here. I
am a physician, an oncologist, and this year I am President of
the American Society of Clinical Oncology. I am also a New
Yorker. So I don't have to belabor this. It has been a really
rough couple of weeks, but I am delighted that you are having
this hearing at this time because this is a topic of great
urgency and importance to cancer doctors and cancer therapists
in the United States.
My organization represents cancer therapists, physicians,
nurses, patient advocates, and others who take care of people
with cancer and also people doing clinical research. I
currently am also the head of Medical Oncology, called the
Division of Solid Tumor Oncology, at Memorial Sloan-Kettering
Cancer Center in New York. I have dedicated my life almost 30
years to cancer treatments, largely chemotherapy treatments and
largely for breast cancer, and it is of critical importance to
me and my colleagues that the therapies that we develop that
have been improving the life-span, cure rates, and the quality
of life for our patients, that this can actually be delivered
to our patients. So this is an issue of really critical
importance to us.
We agree that the system has to be fixed. We think that the
payments for the drugs have to be aligned more closely to the
actual costs, but we also think that the payments for the
services that are rendered in the administration of these
therapies have to be made more realistic, and we think this has
to be done very carefully, has to be done jointly, or else we
see the possibility of severe disruption to the care of our
Medicare patients, and for this reason I underscore the urgency
of this particular activity.
We have made really significant progress in cancer therapy
over the years. Many therapies that developed initially in the
inpatient setting can now be given in the outpatient setting
safely, the advances in treatment of nausea, advances in
treatment of low blood cell counts, and many other improvements
as well as the therapies themselves that have made such a
difference. Therapies that used to require inpatient
administration not that long ago can now be given--complex
skill requiring therapies can now be given routinely in
doctors' offices and this is more than just a convenience. This
is an essential contributor to the quality of life as well as
the length of life for our patients. We want to be sure
whatever happens, whatever you decide to do and however you go
about this, that the net result must be that doctors will be
able to give chemotherapy to their patients in their offices.
We calculate that about 70 percent of chemotherapy treatments
are given in doctors' offices right now. If the payments, the
total payments, for these therapies are not adequate, doctors
will not be able to afford to do it. Some people said then they
will refer them to hospitals or cancer centers. Cancer centers
could be very far away from the patient in many parts of the
country, and I don't know any cancer center that can handle a
large influx of patients in this particular setting, certainly
not my own.
I am in charge of the Outpatient Breast Center of Memorial
Sloan-Kettering Cancer Center and if we had a sudden influx of
cancer patients with--breast cancer patients in the community
for us to treat, we just couldn't handle it. So I don't think
that is really a solution. Therefore, whatever we do if we
don't do it carefully, we could see a real massive disruption
in the system.
So much of the discussion today is concerned with
reimbursement for the drugs that are administered. We think the
system does need to be fixed. There is no question about that,
but I want to emphasize there has to be a simultaneous change
in the reimbursement for the physician administering the
therapy. Right now there is a gross underpayment, as everybody
has acknowledged, and that the payments for drugs have to some
degree compensated for that.
If we don't reform the whole system at the same time,
things are going to get thrown out of whack. It is like a car
with a bad axle and a bad tire rim. You fix one. If you don't
fix the other, you can't drive the car. I think that's exactly
the situation that we find ourselves in. Medicare has
determined this and I haven't heard anybody say this is not the
case.
I have a quote here that says Medicare payments for
services related to provision of chemotherapy drugs are
inadequate. We agree with this assessment. Actually our own
calculations are that Medicare now pays for less than a quarter
of the actual costs to the doctor in administering principal
chemotherapy treatments. We think that part of this is the way
that the--the methodology for calculating the payment amounts
for services that do cost the doctor a lot but not directly
furnished by the patient. In 1998, when Medicare adopted this
particular methodology, it called its approach an interim
approach, but it still hasn't been revised.
We also feel there has to be a new type of Medicare payment
for services that are directly related to administration of
chemotherapy, directly related but right now not covered by any
explicit reimbursement. There are many services that
oncologists and their staff provide that are absolutely
essential for taking care of these patients, such as social
work, such as nutritional counseling, such as psychological
support, and these are not really being covered. A big
difference between oncology and the specialties is in other
specialties an occasional patient has this requirement, for the
oncologist essentially all the patients, and this has to be
provided as an intrinsic part of the procedure.
We believe that the costs of the chemotherapy
administration has to be covered, but if it's just covered,
then there is not going to be sufficient funds to provide these
other critical services, and this has to be taken into account.
Now, concerning the payment for the drugs themselves, we
agree with pretty much everything that's been said. The AWP
really overstates by varying amounts the amount, and clearly
this is a big problem. We think this is not right. Mr.
Chairman, you use the word ``outrageous,'' and I think it is a
well chosen word. We actually have--we have proposals on the
table. We have proposed a solution. It is in the form a white
paper, and I would like to request that it be included in the
record.
Mr. Greenwood. The document will be included in the record.
Mr. Norton. Thank you. And in that we talk about the
surveys of the drug sellers to determine market prices or a
correction in the actual published prices, and that's really
what should be used to determine the reimbursement. But
fundamentally we believe that if the cost is not covered, it's
going to be impossible for the doctors to administer the
therapy. Our job is to take the best possible care of our
patients with cancer. It's a very hard job. I want to emphasize
that. It's not just the intellectual challenges. The field is
changing all the time. It's the psychological challenges, the
emotional challenges, the spiritual challenges and I've got to
tell you the hours are just unbelievable.
We want to provide the very best care for our patients. We
think that we need to have accurate reimbursements so we can do
it financially. Anything that we do that is going to throw the
system out of whack is going to hurt us from doing that. We are
totally dedicated to quality cancer care and we want to work
with Congress to make sure that the care we're now
administering is provided at the highest possible quality
level.
Thank you very much.
[The prepared statement of Larry Norton follows:]
Prepared Statement of Larry Norton, President, American Society of
Clinical Oncology
My name is Larry Norton, President of the American Society of
Clinical Oncology (ASCO). ASCO is the national organization
representing physicians who specialize in clinical research and the
treatment of cancer. ASCO has over 17,000 members, including
nonphysician healthcare professionals and cancer specialists located
abroad.
I appreciate the opportunity to appear before the Committee today
to present ASCO's views on the important subject of Medicare payment
for the drugs and related services furnished in outpatient cancer
treatment. ASCO agrees that Medicare payments for drugs and related
services should be restructured to more closely align the payment
amounts with the cost of providing cancer care. Payments for drugs
should be reduced while payments for the related services should be
increased. It is imperative that this be done carefully, however, to
insure that delivery of treatment to Medicare beneficiaries is not
disrupted.
need to preserve outpatient chemotherapy
I am Head of the Division of Solid Tumor Oncology at Memorial
Sloan-Kettering Cancer Center in New York. As a specialist in the
treatment of breast cancer, I am very familiar with chemotherapy and
its importance in cancer treatment. Any reform of the Medicare payment
system for chemotherapy must insure that cancer patients can continue
to receive what they need to fight their disease. Chemotherapy is
central to modern cancer treatment and is likely to be even more
important in the coming years. Chemotherapy treatment was once
considered far worse than the disease, requiring extensive hospital
stays. Now, with better drugs to control side effects, patients can
receive treatments in outpatient settings most convenient for them--and
for their families. This is usually in physician offices.
In restructuring the Medicare payment system for chemotherapy, the
net result must be aggregate payment amounts that enable physicians to
continue offering office-based chemotherapy. It has been estimated that
70% or more of chemotherapy treatments are furnished in physician
offices. If Medicare payments are not adequate to cover the costs of
this service, physicians will be forced to have chemotherapy delivered
in some other setting. It is far from clear, however, whether hospital
outpatient departments have the capacity or the resources to handle a
large inflow of chemotherapy patients. Any significant reduction in
office-based chemotherapy could therefore result in a massive
disruption in the care of Medicare patients with cancer.
payments for drug-related services
As I stated above, ASCO supports a reduction in the Medicare
payments for drugs. Before discussing that aspect, however, I want to
speak first about the simultaneous change that must be made to insure
that Medicare cancer patients will still be able to obtain chemotherapy
treatment after the drug payments have been reduced. Under the current
reimbursement system, the payments for drugs compensate for the
underpayment or lack of payment for the related services, and all parts
of the system must therefore be reformed at the same time.
In the 1970s, there were few drug treatments available for cancer
and, as I mentioned earlier, those that were available were generally
administered to hospital inpatients. The few types of chemotherapy that
were first furnished in the office setting were relatively simple, but
they established the basis for the low Medicare payment levels for
chemotherapy administration services that continue to exist today.
There has been no major revision, even though the complexity of
chemotherapy furnished in the outpatient setting has increased
enormously. This problem was noted by Congress as early as 1987, when
the Omnibus Budget and Reconciliation Act required the Department of
Health and Human Services to conduct a study of the costs of furnishing
chemotherapy in the office and assess whether payments are adequate.
Unfortunately, this study was never conducted.
Last year, however, the Health Care Financing Administration, now
the Centers for Medicare & Medicaid Services (CMS), reviewed the matter
and wrote Congress that ``Medicare payments for services related to the
provision of chemotherapy drugs . . . are inadequate.''
The inadequacy of the Medicare payment amounts is illustrated by
the costs of one of the principal services. Under the physician fee
schedule, the current Medicare payment level for the first hour of a
chemotherapy infusion (CPT 96410) averages about $62. The cost of the
supplies and equipment used in this procedure are estimated to be about
$29, based on the 1994-95 prices used by CMS for these estimates. The
salary and benefits of the oncology certified nurses who furnish
chemotherapy are currently estimated by CMS to average about $35 an
hour, and the total nurse time involved in furnishing an hour of
infusion is estimated at about two hours. Among other elements, this
work includes reviewing the patient's medical history, verifying the
drug orders, preparing the drug, educating the patient, assembling the
necessary supplies, administering the drug, documenting the procedure,
and follow-up phone calls.
Thus, the costs of the supplies, equipment, and nurse time for an
infusion by themselves significantly exceed the Medicare payment
amount. Moreover, there is nothing in the Medicare payment to cover the
other costs of the office, including the administrative staff and the
overhead, which CMS, using American Medical Association data, estimates
to be about two-thirds of a physician's costs. The Medicare payment
amount for chemotherapy services are far less than the costs incurred
to furnish the services. ASCO estimates that Medicare pays less than
one-fourth of the total costs of the principal chemotherapy procedures.
ASCO believes that this underpayment results at least in part
because of the way in which the methodology for the Medicare physician
fee schedule sets payment amounts for services that may represent
significant expense to a practice but are not directly furnished by the
physician. Chemotherapy is one example. At the time CMS adopted this
methodology in 1998, it characterized its approach as ``interim'' but
the methodology has not yet been revised.
ASCO believes that the payment amounts for services of this kind--
those that do not have a physician work component--should be based on
information about the costs of providing those services, and not on the
current ``top-down'' methodology that is used in general to set payment
amounts. Although it would be desirable to collect new cost data, any
restructuring in the near future must depend on information that
currently exists or can be promptly developed. Consequently, ASCO
recommends use of the data on costs that was initially developed by the
Clinical Practice Expert Panels and has subsequently undergone review
in the American Medical Association refinement process and analysis by
CMS. Medicare should pay the full direct and indirect costs of
chemotherapy services as estimated in that process.
There should also be a new type of Medicare payment for services
that are related to chemotherapy but are not part of the chemotherapy
procedure itself. Oncologists and their professional staffs typically
furnish a variety of services to cancer patients for which there is no
explicit reimbursement. These services include the extensive support
that seriously ill cancer patients frequently require, including social
worker services, psychosocial services, and nutrition counseling.
Social worker services encompass a variety of services intended to help
patients carry out their therapy, such as help with insurance,
arranging transportation to treatment, and filling prescriptions.
Psychosocial support includes services such as counseling patients on
their activities of daily living, support groups that meet in the
physician's office, and grief counseling. In addition, physicians
treating cancer patients perform an extraordinarily high amount of work
outside the patient's presence, including family counseling, telephone
calls, arranging for entry into clinical trials, and so forth. While
other types of physician specialists may provide such services to
occasional patients, oncologists and their staffs typically provide
these services to the bulk of their entire patient load. If the
Medicare payments for the drugs and drug administration are aligned
closely with their costs, there will not be sufficient funds available
to continue these services, which are so important to the seriously ill
cancer patient population. Medicare patients need to continue to
receive these services to deal with their disease, and the services
should not be cut off to save money.
payments for drugs
Finally, let me turn to the Medicare payments for the drugs
themselves. The current Medicare payment amount for covered drugs is
based on 95% of published average wholesale price (AWP). As is widely
known, published AWP overstates, by a varying amount, the prices at
which drugs can actually be purchased. This circumstance does not
necessarily make AWP useless, however, and AWP is widely used by public
and private insurance programs in their reimbursement methods for drugs
that are dispensed by pharmacies or administered in physician offices.
In recent years, the difference between AWP and actual prices for
some drugs has become very large. This situation typically occurs for
multiple-source drugs or drugs with close competitors, where
competition forces down the actual price even though the list price, on
which AWP is based, remains high. The large discrepancy between price
and reimbursement amount for some drugs is not an appropriate
situation.
As part of restructuring the Medicare payment system, ASCO
recommends one of two approaches to revising the payments for drugs.
First, Medicare could determine the market prices of each drug. Instead
of using AWP, the law could require drug wholesalers to report to a
Medicare contractor the prices at which they sold each Medicare-covered
drug, considering all discounts, and the quantity sold at that price.
The contractor could then compile those reports into a picture of the
range of market prices for each drug and set a Medicare payment level
accordingly.
If this market approach is adopted, ASCO believes that a number of
features should be included to insure that the survey results in an
appropriate payment level:
<bullet> The price reports should be frequent so that they reflect
changing market conditions. ASCO recommends that the
wholesalers submit reports every month and that the contractor
process the data promptly so that it can be used for
reimbursement purposes in the second following month. For
example, prices of drugs sold in January would be used to set
the payment amounts for March.
<bullet> Since there will be a variation in the prices, the Medicare
payment level for each drug should be set at an amount that
will cover the prices actually paid by the vast majority of
physicians. ASCO recommends the 95th percentile. Prices
actually paid may vary greatly because physicians in larger
groups are able to negotiate lower prices based on their volume
purchases. It would be extremely unfair to pay based on the
median price or some similar price because that would
systematically discriminate against physicians who are unable
to negotiate lower prices. Oncologists who are routinely
reimbursed less than what they pay for a drug would be unable
to continue furnishing drugs to their patients.
<bullet> The payment methodology should be flexible enough to take
known manufacturer price increases into account immediately.
For example, if data on wholesale prices is collected during
January for use in March, but the manufacturer raises the price
of a drug by 5% on February 1, that should be taken into
account in setting the March payment amounts.
<bullet> There should be an add-on amount to reflect certain costs
associated with use of the drug. These include costs such as
spillage, wastage, the opportunity cost of the capital tied up
in drug inventory, procurement and storage costs, and unpaid
patient coinsurance (bad debt). Although Medicare Part B does
not ordinarily cover bad debt, bad debt here represents an out-
of-pocket loss to the physician and should be treated
specially. The various components of these extra costs are
difficult to estimate, so ASCO recommends a flat 10% add-on to
cover them.
<bullet> Sometimes physicians will encounter especially high prices for
drugs, such as if they have to purchase a drug from a pharmacy
in an emergency. The system should always allow a physician to
be reimbursed for the actual acquisition cost by submitting
documentation as to the purchase price.
<bullet> In states that impose a sales or gross receipts tax on
physician-administered drugs, Medicare should also cover that
amount so as to keep the physician financially whole.
An alternative approach to using a survey of market prices would be
to make the published prices used by Medicare more accurate. The main
concern expressed about the published prices has been the particularly
large differences between the published prices and actual prices for
some drugs. The law could be changed to require manufacturers to submit
accurate prices to the publishers. This approach would have the
advantage of not requiring a government contractor to compile data.
ASCO could support either of these approaches and we would be happy
to work with Congress to develop the details of an appropriate
methodology. Our concern is only that the resulting Medicare payment
must be adequate to cover the full costs incurred by oncologists.
Oncologists pay varying amounts for drugs, with large practices and
entities able to obtain volume discounts not available to everyone. The
methodology adopted must be adequate to insure that all oncology
practices, regardless of size, obtain full reimbursement of all their
drug-related costs.
hospital outpatient departments
The Medicare statute ties payments under the hospital outpatient
prospective payment system to AWP by paying for drugs used in cancer
therapy based on 95% of AWP for a two to three year transitional
period. As the payment methodology for drugs furnished in physician
offices is revised, it is important that possible effects on payments
for services in hospital outpatient departments be kept in mind.
Hospital outpatient departments are an essential part of the delivery
system for cancer care, and Medicare payments must be adequate to
support their continued operation.
conclusion
In summary, ASCO supports restructuring Medicare payments for
chemotherapy related services by reducing the payments for drugs and
appropriately increasing the payments for related services. It is
essential that the cumulative payments after this restructuring fully
cover the costs of the items and services that oncologists furnish to
cancer patients. If their costs are not covered, oncologists will be
unable to continue furnishing chemotherapy in their offices, and the
result could be extreme disruption of the cancer care delivery system.
Oncologists have dedicated their professional lives to treating
patients with cancer, and our only objective here is to insure that our
patients can continue to receive the therapy and services that they
need in the setting that is most convenient and accessible. We believe
that Medicare payments can be restructured without adverse consequences
if our recommendations are adopted, and we look forward to continued
work with the Congress toward that end.
Mr. Greenwood. Thank you very much, Dr. Norton. We
appreciate your testimony. And now, Mr. Martyn, you are
recognized for 5 minutes.
TESTIMONY OF KEVIN MARTYN
Mr. Martyn. Thank you, Mr. Chairman and members of the
committee, for allowing me the opportunity to testify today.
This hearing addresses a subject that has a potential to impact
directly the quality of care that our patients receive, and I
would ask that the prepared testimony that I have submitted be
included for the record.
I am the Executive Director of Care for Life, which is a
pharmacy and home health care provider. We provide blood
clotting factor products and related services and support the
persons diagnosed with hemophilia who self-infuse at home. The
ability of our patients to treat their conditions by self-
infusing at home instead of being treated in a hospital
emergency room or treatment center allows individuals suffering
from this condition to lead more normal, healthy and productive
lives. We believe that home infusion also saves the government
money.
Mr. Chairman, as a health care provider who has served the
hemophilia community for many years, I very much appreciate
this committee's concerns over the high cost of medications and
providing care. I am aware that there has been considerable
criticism for paying providers based on the average wholesale
price, and I would agree that the AWP may not be the right
mechanism for all parts of the Medicare program.
Having said that, Care for Life experienced firsthand last
year what happened when AWP was reduced without adequate
consideration for the impact on patient care. When AWP was
suddenly lowered for blood clotting products, my company faced
the difficult task of telling some patients that we could no
longer provide care. We delayed this decision in every case for
several months while operating at a loss, but as a business we
cannot do that for long. Fortunately, in all but a handful of
cases the State Medicaid directors decided to switch back to
the previous accepted AWP levels or made modifications to their
reimbursement level accordingly, and we were able to continue
to provide care.
At least with respect to disease that we treat, the current
payment mechanism has resulted in good care at a fair price. I
would like to describe briefly how we arrived at this system,
the system that at least for hemophilia works quite well.
Mr. Chairman, many years ago the primary way for
hemophiliacs to receive care was to go to a hospital emergency
room. There the doctor would examine them and continue to
infuse and to notify the patient that they were having a
bleeding episode, and of course in this diseased state many
patients are aware previous to that of that situation. They
would then be admitted, given an IV, or infusion, and then
released.
Eventually policymakers, the health care industry, and the
hemophilia community realized it would be just as effective
medically to encourage a shift to self-infusion at home and
that doing so would in many cases be better for patients. Home
infusion is better because patients begin to infuse sooner,
which stops the bleeding faster, thereby decreasing likelihood
of greater damage. In addition, Medicare and Medicaid pay
dramatically less than if a patient had to go to the hospital
for treatment.
The idea worked and today Medicare and Medicaid enjoy very
significant cost savings from home infusion. For example,
according to a study published in the Journal of Care
Management in June 1998, treating a minor bleeding incident at
home cost $4,400 less than treating the same incident at the
hospital. If only one-third of the hemophilia population
experiences 10 minor bleeds for which they are needlessly
required to visit the emergency room for treatment, the
additional cost would be upward of $44,000 per person for minor
incidents per annum. Multiplying that by 8,000, roughly one-
third of the hemophilia population, that total cost of
government could be as high as an additional $352 million
annually. For severe hemophiliacs the additional cost of
emergency room treatment would be much higher, more than
$100,000 per year. These additional costs do not include those
costs associated with treating the increased physical injuries
hemophiliacs suffer from the delay involved in having to make a
trip to the emergency room.
In addition to the health benefits, self-infusion at home
reduces administrative cost. For the service we provide the
Federal Medicare program only makes one payment under Part B.
With the reimbursement based on AWP, Care for Life performs all
the services associated with providing the clotting factor.
These services include having pharmacists on staff to dispense
and track drug interactions, nurses, administrative personnel,
shipping, storage, training, supplies, and the cost of
advancing the money used for purchasing the clotting factor.
Care for Life, like many of the providers upon which Medicare
relies, is a for-profit enterprise. Just like any other
business we must make a reasonable profit margin or investors
will put their money elsewhere. After taxes we make roughly 7
percent, which I believe is a reasonable return.
If the reimbursement mechanism were changed so that the
reimbursement was substantially decreased, providers like Care
for Life would be forced to send patients back to the hospital.
That in turn would ultimately lead to increased costs to the
Medicare and Medicaid programs and the decrease in quality of
care received by individuals with hemophilia. It is an outcome
that I am confident this committee will work to avoid.
Again, I thank you for holding this hearing and for giving
me the opportunity to testify. I share in your concerns, and I
applaud your efforts to develop a reasonable approach to
Medicare reimbursement, and I will welcome any questions you
might have.
[The prepared statement of Kevin Martyn follows:]
Prepared Statement of Kevin Martyn, President, Care For Life
Chairman Bilirakis, Chairman Greenwood, Members of the Committee,
good morning. My name is Kevin Martyn. I would like to thank you for
the opportunity to testify today. This hearing addresses a subject that
has the potential to impact directly the quality of care that our
patients receive. I would ask that the prepared testimony that I have
submitted be included in the record.
I am the President of Care For Life. Care For Life is a pharmacy
and home health care provider. We provide blood clotting factor
products and all related services and support to persons with
hemophilia who self-infuse at home. The ability of patients to treat
their condition by self-infusing at home--instead of being treated in a
hospital emergency room or treatment center--allows individuals
suffering from this condition to lead more normal, healthy, and
productive lives. Home infusion also saves the government money.
Mr. Chairman, as a health care provider who has served the
hemophilia community for many years, I very much appreciate this
Committee's concerns over the high cost of providing care. I am aware
that there has been considerable criticism of paying providers based on
the average wholesale price, or AWP, and I would agree that AWP may not
be the right mechanism for all parts of the Medicare program. Having
said that, Care For Life experienced first hand last year what happened
when AWP was reduced without adequate consideration for the impact on
patient care. When AWP was suddenly lowered for blood clotting
products, my company faced the difficult task of telling some patients
that we could no longer provide care. We delayed this decision in every
case by several months by operating at a loss. But as a business we
could not do that for long. Fortunately, in all but a handful of cases
the state Medicaid directors decided to switch back to the old AWP
levels, and we were able to continue to provide care. At least with
respect to the disease that we treat, the current payment mechanism has
resulted in good care at a fair price. I would like to describe very
briefly how we arrived at this system--a system that, at least for
hemophilia, works quite well.
Mr. Chairman, many years ago the primary way that hemophiliacs
received care when they were having a bleeding episode was to go to a
hospital emergency room. There, a doctor would examine them and tell
them what they already knew: they were having a bleeding episode and
needed an infusion of clotting factor to stop the bleed. The patient
would be admitted, hooked up to an IV, given an infusion, then
released. Eventually, policymakers, the health care industry, and the
hemophilia community realized that it would be just as effective
medically to encourage a shift to self-infusion at home, and that doing
so would in many cases be better for patients. Home infusion is better
because patients begin to infuse sooner, which stops the bleeding
faster, thereby decreasing the likelihood of greater damage. In
addition, Medicare and Medicaid pay dramatically less than if the
patient had to go to the hospital for treatment.
The idea worked, and today Medicare and Medicaid enjoy very
significant cost-savings from home infusion. For example, according to
a study published in the Journal of Care Management in June of 1998,
the cost to the government of treating a minor bleeding episode in an
adult male who self-infuses at home is $1,186.
Alternatively, if that patient had to make an emergency room visit
to get treatment--for the same minor bleeding episode--the cost to the
government would be $5,620. That is a difference of more than $4,400
per incident, again, based on a minor bleeding episode.
Light to moderate hemophiliacs may bleed around 12 times per year.
Those with severe hemophilia may experience a bleed 52 times per year.
The Centers for Disease Control and the national organizations
representing the hemophilia community estimate there are 17,000 to
30,000 hemophiliacs in the U.S. The reported numbers vary because not
all hemophiliacs seek treatment at treatment centers that report to the
CDC.
Accordingly, if only one third (approximately 8,000) of the
hemophilia population experiences 10 minor bleeds for which they are
needlessly required to visit the emergency room for treatment, the
additional cost to the government would be $44,000 per person for minor
incidents in that year. The total additional cost to the government
would be $352,000,000 annually.
For severe hemophiliacs, the additional cost of emergency room
treatment would be much higher, easily more than $100,000 annually per
patient. These additional costs do not begin to address the increased
physical injury hemophiliacs suffer from the delay involved in having
to make a trip to the emergency room to get treatment or the additional
costs involved in treating those increased injuries suffered as a
result of the delay in receiving infusion treatments.
In addition to the health benefits, self-infusion at home reduces
administrative costs. With respect to providing clotting factors to
hemophiliacs, the federal Medicare program only makes one payment under
Medicare Part B. Under the statutory formula, the actual payment from
Medicare equals 76% of the AWP for the clotting factor used. We get 76%
of AWP because the law directs Medicare to pay 80% of the allowable
cost, which is statutorily set at 95% of AWP. The provider must collect
the other 20% of the 95% allowable cost--the co-pay--from either the
patient, private insurance, or the state Medicaid program. In the case
of Care For Life, roughly 90% of the time we are successful in
collecting some portion of that 20% co-payment.
With the reimbursement based on AWP, Care For Life performs all of
the services associated with providing the clotting factor. These
services include having pharmacists on staff to dispense and track drug
interactions, nurses, administrative personnel, shipping, storage,
training, supplies, and the cost of advancing the money used to
purchase the clotting factor, to name a few.
Care For Life, like many of the providers upon which the Medicare
system relies, is a for-profit enterprise. Just like any other
business, we must make a reasonable profit margin, or our investors
will put their money elsewhere. After taxes, we are making roughly 7%,
which I believe is a reasonable return. It is much less than the
margins earned by some of the country's telecommunications companies,
car companies, and entertainment companies, but enough so that it makes
sense to be in this line of business.
If the reimbursement mechanism were changed so that reimbursement
was materially decreased, providers like Care For Life would be forced
to send patients back to the hospital. That in turn would ultimately
lead to increased cost to the Medicare and Medicaid programs, and a
decrease in the quality of care received by individuals with
hemophilia. That is an outcome that I am confident that this Committee
will work to avoid.
Again, I thank you for holding this hearing and for giving me an
opportunity to testify. I share your concerns and I applaud your
efforts to develop a reasoned approach to Medicare reimbursement. I
welcome any questions that you may have.
Mr. Greenwood. Thank you, Mr. Martyn. Mr. Connaughton for 5
minutes.
TESTIMONY OF THOMAS A. CONNAUGHTON
Mr. Connaughton. Mr. Chairman, I am President of the
American Association for Homecare. Our association includes the
full spectrum of the home care industry, including providers of
inhalation and infusion therapies in the home setting. Drugs
provided in these therapies have been relevant to this hearing.
I am accompanied by Dr. JoAnn Lamphere of the Lewin Group.
At our request Lewin conducted a survey of companies offering
inhalation and infusion therapies across the country to
determine the costs of providing those therapies in the home.
Dr. Lamphere will report on Lewin's analysis of this survey and
after making a few general statements I will defer to her.
I want to highlight that the pharmaceutical products used
in inhalation and infusion therapies are not simply oral
medications. In the case of respiratory medications these drugs
must be utilized in conjunction with nebulizers. Infusion drug
therapy involves primarily the administration of the drug into
the body through a needle or catheter. These therapies cannot
typically be administered without a complex array of services.
There are some fundamental principles that are important to
understand regarding home care and Medicare reimbursement for
prescription drugs.
First, our members provide these products in the home,
which is significantly more cost effective than providing them
in an institution.
Second, the work of the home care provider begins with a
prescription. The provider must furnish the drug prescribed by
the physician and is not engaged in the selection of a
particular product.
Third, administering pharmaceuticals in the home setting
involves a number of functions and services performed by the
home care provider. These services include the preparation of
patient specific sterile drugs, comprehensive training of
patients and often their families, and clinical monitoring to
prevent infections and other potentially life-threatening
complications. Trained professionals are on call on a 24-hour
basis. In most cases providing these services is more costly
than the drug itself, as the Lewin report will underscore.
Fourth, unlike managed care, which pays for a product plus
services, the sole reimbursement under Medicare Part B for
these products is for the drug itself. The difference between
the reimbursement rate and the cost of the drug must cover all
the services. Outside of a small dispensing fee for respiratory
drugs, there is no fee schedule for our services, unlike the
physicians schedule.
Fifth, Medicare coverage for infusion therapies is very
limited, and Medicare is losing the advantage of efficiencies
provided in the home setting that the private sector is taking
advantage of.
Sixth, we have not been able to make a recommendation for
replacement of the AWP system, and I am somewhat comforted that
there has been a lot of questions from everyone who has come up
here. It is very complex and there are so many variables. That
is why we advise you to proceed with care. If, however,
Congress revises the reimbursement system for Medicare Part B
drugs, it should make certain that it provides for
reimbursement of all the services and functions involved in
providing these therapies in the home setting based on
standards that are widely used in private sector. It should
further expand the coverage of infusion therapies for Medicare
beneficiaries.
H.R. 2750, introduced by Mr. Engel and others earlier this
year, addresses these issues in the context of infusion
therapy. We believe this approach is equally appropriate for
inhalation therapies.
Dr. Lamphere?
[The pepared statement of Thomas A. Connaughton follows:]
Prepared Statement of Thomas A. Connaughton on Behalf of the American
Association for Homecare
Mr. Chairman, my name is Tom Connaughton. I am President of the
American Association for Homecare (``AAHomecare''). Our Association was
formed by the merger of three national associations on February 1,
2000. We are the only national association that represents every line
of service within the homecare community. Our members include providers
and suppliers of home health services, durable medical equipment (DME)
services and supplies, infusion and respiratory care services, and
rehabilitative and assistive technologies, as well as manufacturers and
state associations.
We thank you for the opportunity to discuss the Medicare
reimbursement system for pharmaceuticals administered to beneficiaries
by homecare providers and suppliers, in particular, home infusion
therapies and inhalation therapies administered to respiratory
patients. Homecare providers and suppliers save Medicare money by
treating patients in the most cost-effective setting--their homes. The
savings generated by treating patients at home can be dramatically
cost-effective when compared to the cost of the same therapy
administered in an institutional setting.
Joining me is JoAnn Lamphere (Dr.P.H.) of The Lewin Group. At the
request of our association, The Lewin Group conducted a survey of
providers and suppliers of inhalation and infusion therapies in order
to determine the costs associated with these therapies. The Lewin Group
has prepared a report analyzing the results of this survey. To our
knowledge, it is the most definitive report on the subject to date. Dr.
Lamphere will summarize the findings of that report and, of course, a
complete copy is attached for your information.
I want to begin by making an important distinction between infusion
and inhalation therapies administered to patients in their homes and
conventional outpatient drugs such as pills and ``patches.'' The key
difference is that pills and patches do not require professional
services to administer. An individual can consume a pill or apply a
patch himself after obtaining it from a retail or ``traditional''
pharmacy. In contrast, infusion and inhalation therapies cannot be
administered to patients at home without a complex array of
professional services. These medications are provided only on the
prescription of a physician and as required by regulatory, accrediting
and pharmacy licensing bodies, are prepared in high-tech, sterile
settings similar to those found in a hospital. These services ensure
the safe and effective administration of infusion and inhalation
therapy in the home.
As we begin this discussion, it is also important to note that
homecare providers and suppliers are not paid separately for these
important services. Medicare does not have a separate benefit for these
homecare therapies. Infusion and respiratory medications furnished to
homecare patients are covered under the Medicare DME benefit. This
means that the only items that are explicitly covered and reimbursed
are the drugs, the equipment, and the supplies. Unlike other health
care professionals, homecare providers and suppliers do not have a
mechanism that reimburses the services necessary to administer the
drugs in addition to the reimbursement for the drugs. By comparison,
the private managed care sector has recognized the tremendous cost-
savings associated with homecare and it continues to provide coverage
for a growing list of home infusion and inhalation therapies. Moreover,
such organizations contract with providers for extended periods of
time, guarantee tremendous volume, and structure their contracts with
both a fee for the drug and a per diem to assist in covering the
providers' costs of services.
inhalation therapy
Inhalation therapy is administered to patients with respiratory
disease, including, for example, chronic obstructive pulmonary disease
(COPD). COPD is the fourth leading cause of death in the United States,
affecting 16 million people.<SUP>1</SUP> COPD includes a number of
chronic respiratory diseases such as emphysema, chronic bronchitis, and
asthma. Individuals with COPD have a progressive illness. The disease
can be stabilized, but it cannot be cured. Inhalation therapy is used
to manage COPD throughout the course of the disease, but in the more
advanced stages of COPD, other therapeutic interventions may be
required.
---------------------------------------------------------------------------
\1\ See National Institutes of Health, Global Initiative For
Chronic Obstructive Pulmonary Disease, April 2001; Agency for Health
Care Quality Research Evidence Based Practice Guidelines, Management of
Acute Exacerbations of Chronic Obstructive Pulmonary Disease.
---------------------------------------------------------------------------
Specifically, inhalation therapy is the process through which a
drug or a combination of drugs is delivered into the airways and
inhaled directly into the lungs via a device called a nebulizer. These
drugs may include beta-adrenergic bronchodilators, anticholinergic
bronchodilators, mast cell stabilizers, anti-inflammatory steroids,
antibiotics, and sputum liquefiers. Patients receiving inhalation
therapy at home are monitored by respiratory therapists and highly
trained pharmacists. Inhalation therapies reduce acute exacerbations of
COPD, saving the Medicare program money in emergency room visits and
inpatient stays.
infusion drug therapy
Private sector insurance plans and private managed care plans
increasingly have embraced home infusion drug therapy since the 1980's.
Antibiotic therapy, chemotherapy, and pain management are among the
spectrum of infusion therapies that are now commonly provided to
patients in their homes. Currently, there are over twenty different
drug therapies being offered in the home and other outpatient settings
in the private sector. The private sector plans and payers typically
recognize expressly and separately the professional services necessary
to provide infusion drug therapy in a safe and effective manner in the
home setting.
Infusion drug therapy involves primarily the administration of the
drug into the body through a needle or a catheter. Typically, infusion
drug therapy means that a drug is administered intravenously, but it
may also apply to situations where drugs are provided through other
parenteral (non-oral) routes. Generally, infusion drug therapies are
used only when less invasive means of drug administration are
clinically unacceptable or less effective. A team of patient service
representatives, clinical pharmacists, high tech infusion nurses, and
delivery and reimbursement professionals support patients and their
caregivers throughout their treatment. These services are inextricably
linked to the therapies and are often mandated by accrediting bodies
whose standards ensure quality delivered in an alternate site setting.
Providing infusion therapies at home has several advantages over
hospital-based therapy. Most patients prefer to receive such therapies
at home rather than in the hospital or in a skilled nursing facility.
Homecare therapy allows many patients to lead normal lives throughout
the duration of the therapy; it enables terminally ill patients to
spend valuable time with their families and loved ones. Also, the
ability to administer these therapies in the home reduces the risk of
hospital-acquired infections that are sometimes associated with
prolonged in-patient stays. In most cases, the cost of infusion drug
therapy when properly provided in the home is far less than the cost of
such care in the hospital.
medicare coverage of home respiratory and infusion inhalation therapies
It is important to note that Medicare covers very few of the
infusion drug therapies when provided at home. Further, as I stated
above, Medicare does not have a separate inhalation therapy benefit or
a home infusion therapy benefit. Medicare coverage for these therapies
in the home is found only under the DME benefit--but only when
equipment such as a nebulizer or an infusion pump is necessary. The
fact that coverage for these therapies is limited to the DME benefit is
a very important point in understanding the homecare community's issues
with drug reimbursement, because the DME benefit explicitly covers only
the drugs, supplies, and equipment. There is no recognition of the
professional services and other functions that are widely recognized as
necessary to providing inhalation and infusion drug therapies in the
home in a safe and effective manner.
The Medicare program's lack of recognition of these professional
services is illogical, potentially threatening to beneficiaries, and
contrary both to how clinicians define and the private sector plans
cover these therapies. The clinical value and necessity of the
provision of professional services to deliver inhalation and infusion
therapies is reflected in various accreditation standards commonly used
by private sector payers, such as the standards established by the
Joint Commission on Accreditation of Healthcare Organizations (JCAHO).
Indeed, private payers pay for these services as a specific component
of the benefit. The Lewin Group's analysis provides a good picture of
the costs involved in providing such services.
These therapies require specialized pharmacy services. Such
services include the compounding of many of the drugs in a sterile
setting, responding to emergencies and questions regarding therapy, and
participating in the training and education of the patient (and often
the patient's family). These therapies also require the services of a
nurse or respiratory therapist to perform a variety of functions,
including patient screening and assessment, patient training regarding
administration of the pharmaceuticals, and general monitoring of the
patient's health status. In the case of infusion therapy, these
services also include care for the infusion site, and monitoring of the
catheter exit site for signs of infection or other complications. In
addition, the drug, supplies, and equipment are delivered to the
patient's home often within four hours of the prescription. Patient
satisfaction and other outcomes are measured and reported to
accrediting organizations as part of quality improvement programs.
Finally, staff, including licensed pharmacists, pharmacy technicians,
respiratory therapists, and registered nurses, are on call 24 hours a
day.
It is important to underscore that none of the specialized pharmacy
services is covered under any other Medicare benefit. In a minority of
cases, Medicare home infusion patients may meet the ``homebound''
requirement and qualify for the home health benefit. In such instances,
the nursing services described above would be covered under that
benefit. For all other Medicare Infusion Patients, the nursing services
are not covered by the home health benefit.
average wholesale price and drug pricing issues
Much has been said about how Medicare pays for the few outpatient
drugs that are covered currently. The use of the average wholesale
price (AWP) as the principal basis for determining reimbursement for
drugs has received much criticism recently as being an inaccurate
reflector of the physicians' and pharmacists' costs for these drugs.
There is little question that these criticisms are correct--if the
payment ``buys'' drugs only. In actual fact, the drug payment
calculated on the basis of AWP has been used for far more than that.
With regard to inhalation and infusion therapy in the home setting, the
drug payment is the only available payment mechanism for needed
functions that are essential to providing good quality care. In other
words, the spread between the providers and suppliers' acquisition cost
and the Medicare reimbursement under Medicare Part B must cover all
functions and services. The acquisition cost of the drug is only a
fraction of the overall cost of caring for these patients at home.
The conclusions of the Lewin report, which Dr. Lamphere will
explain in more detail, reinforce the point that the cost of the drugs
represents only one small portion of the overall cost of caring for
these patients in need of inhalation or infusion therapy. Indeed, the
cost of goods represents 26% of total costs while direct patient care
costs average 46% and indirect costs such as accreditation, information
systems, and Medicare/Medicaid regulatory compliance amount to another
25%.
In the case of infusion therapies delivered to Medicare
beneficiaries, providers, and suppliers, costs exceed the revenues
received under Medicare. For respiratory medications, providers and
suppliers report an average margin of 9.2% after taxes, which is
considerably less than the average after tax margin of 14.4% reported
by companies on the S&P index for the same time period in 2000.
It is important to note that homecare providers are not engaged in
the selection of a particular drug. Physicians prescribe exactly which
drugs should be used. The services furnished by homecare providers and
suppliers are triggered by the physician's prescription. Their jobs
begin when they receive the physician's order.
Policymakers simply cannot look at drug payment as an isolated
issue, separate from the other workings of a particular therapy.
Reducing drug payments dramatically, without corresponding changes in
other aspects of the payment methodologies, would truly strain the
ability of suppliers and providers to continue to provide these drug
therapies to Medicare beneficiaries. Indeed, homecare providers and
suppliers are in a far more tenuous position regarding drug
reimbursement than are other providers because they receive no payment
whatsoever for the important functions and services. Reimbursement for
drug therapies delivered in the home is tied solely to the drug
supplies and equipment. There is no fee schedule for services. These
necessary professional services must be recognized, and they should be
reimbursed.
While we have analyzed the AWP system and possible alternatives, we
have not been able to develop a recommendation for the Subcommittees
for a system that accurately determines the cost of products to
providers and suppliers. These costs vary so widely among providers and
suppliers that it is difficult to conceive of a system that accurately
accounts for all of these variables. Accordingly, we urge Congress to
proceed with caution. However, if Congress contemplates changing the
reimbursement system under Part B for drugs administered in the home,
it is critical that it recognizes the services involved and provide a
framework for reimbursing them. It is not an option, in our opinion, to
limit payment and coverage strictly to what is covered under the DME
benefit. If Medicare beneficiaries receive only what the DME benefit
currently recognizes--the drug, supplies, and equipment (pump or
nebulizer)--then the level of care for the Medicare beneficiaries will
be far less than that commonly provided in the private sector. Indeed,
there are questions whether there will be access for Medicare
beneficiaries at all. That result would be neither fair nor clinically
appropriate. Medicare beneficiaries often are less able to deal with
the complexities of these technical homecare therapies than are people
who are decades younger.
recommendations
We believe that it is important to establish accurate definitions
of home respiratory and infusion therapy, create quality standards
based on those currently and widely used in the private sector, and
establish a fee schedule that reflects all the covered components of
the therapies. H.R. 2750, introduced earlier this year by Congressman
Engel of New York, Congressman Rush of Illinois, Congressman Towns of
New York, and Congresswoman Hart of Pennsylvania, would do exactly that
for Medicare coverage of home infusion therapy. This bill would remove
coverage of home infusion therapy from the DME benefit and establish a
new benefit that accurately reflects how these therapies are and should
be provided. If enacted, this bill will bring the Medicare program in-
line with the private sector as to how these therapies are covered and
defined. We believe this approach is equally appropriate for inhalation
therapies provided in the home if Congress revises the reimbursement
system for Medicare Part B and drugs.
Mr. Chairman, AAHomecare thanks you for the opportunity to present
views on behalf of our member companies. Please do not hesitate to call
upon us for additional information.
TESTIMONY OF JoANN LAMPHERE
Ms. Lamphere. Mr. Chairman, my name is JoAnn Lamphere.
Thank you for the opportunity to present key findings of the
Lewin Group's study. The significance of this study is that it
supplies the most current and extensive estimates of the cost
of respiratory and infusion therapies and the cost of the
services that accompany quality patient care to Medicare
beneficiaries in the home.
This past summer the Lewin Group surveyed 19 home pharmacy
companies that served Medicare patients in all 50 States. A
description of the study's analytic approach is in our report.
Key findings of the study include pharmacy, nursing
coordination, patient education, and other direct costs account
for 46 percent of the total costs incurred by pharmacies
providing respiratory and infusion therapies to Medicare
patients. Medicare does not currently recognize these costs.
The acquisition cost of the drug itself accounts for 26
percent. Indirect costs and bad debt account for another 28
percent. The distribution of direct patient costs varies by
type of therapy. For respiratory therapy service costs equal 46
percent. For home infusion service costs range from 40 percent
for chemotherapy to 26 percent for antiinfectives. Pretax
operating margins are 20.5 percent for respiratory and negative
22.2 percent for home infusion services. The bottom line after-
tax Medicare margin is 9.1 percent, which represents the
combined margin for respiratory and infusion therapies provided
to Medicare patients by home care providers after corporate
income tax and interest and depreciation are recognized.
If we are to assure that Medicare beneficiaries across the
United States have access to medically prescribed respiratory
and infusion therapies in the home, these companies must
continue to be financially viable.
Mr. Chairman, thank you.
[The prepared statement of JoAnn Lamphere follows:]
Prepared Statement of JoAnn Lamphere, The Lewin Group
Mr. Chairman. My name is JoAnn Lamphere, Dr.P.H. I am a Senior
Manager in the Health Care Finance Practice of The Lewin Group. Thank
you for the opportunity to present key findings of a study that The
Lewin Group conducted for the American Association for Homecare. The
purpose of this study was to determine the costs to providers
associated with the clinical and support services offered to Medicare
patients receiving respiratory and home infusion therapies in the home.
The significance of this study is that it provides the most current
and extensive estimates of the cost of respiratory and infusion
medications and the cost of the associated services that accompany
quality patient care. This information should be useful to you in the
months ahead as you consider the adequacy of Part B payments for drugs
and biologicals under the Medicare program.
This past summer, The Lewin Group surveyed 19 home pharmacy
providers. The sample was selected with the intent of representing
homecare pharmacy companies nationwide. As a group, the sampled
providers serve Medicare patients nationwide in all 50 states. The
sampled companies range in size from less than $1 million to greater
than $1 billion in annual net revenue. Sampled companies served 164,782
respiratory and 2,400 home infusion Medicare patients in CY 2000.
A chief financial officer (or designee) or head pharmacist from
each participating company completed a mail-in survey; the information
they provided was based on company financial records. The Lewin Group
validated data submitted through follow-up telephone interviews and
available secondary data sources. The information that respondents
provided included Medicare revenues, acquisition cost of goods, cost of
pharmacy operations and other direct patient care, and other major
costs that accompany the provision of respiratory and home infusion
therapies to Medicare patients in the home. (Respondents were directed
to exclude any costs and revenues associated with skilled nursing
services that are reimbursed through home health agency provisions of
Medicare.) Respondents were asked to proportionally allocate specified
Medicare service expenses based on the volume of Medicare patients they
served.
In a study such as this, it is important to assure that findings
are not biased by a small sample size. To achieve this objective, a
double weighting process was adopted. First the sample of homecare
pharmacies was divided into two groups, large companies and small
companies, based on volume of their respiratory and home infusion
business. Revenues and costs were then pooled at the ``large'' and
``small'' company levels and sampled companies' respiratory and home
infusion service costs and margins were calculated from these numbers.
Next, an additional set of weights was employed in order to ensure that
calculations from the sample reflect the industry's distribution of
large and small firms with respect to Medicare respiratory and home
infusion services. Thus, the Lewin estimates of Medicare product and
service costs for respiratory and home infusion therapies and Medicare
operating margins were calculated in such a way that they are broadly
representative of the homecare pharmacy industry as a whole.
What was learned from this Lewin study? Our key findings include:
<bullet> Pharmacy operations, patient care and education, and other
direct costs account for 46 percent of the total cost incurred
by homecare pharmacies providing respiratory and home infusion
therapies to Medicare patients. The acquisition cost of the
goods themselves account for about 26 percent of the total
cost, on average.
<bullet> The distribution of costs for pharmacy operations, direct
patient care, and other services varies dramatically by type of
therapy. For respiratory therapy, service costs equal 46
percent of the total cost of providing respiratory services in
the home. For home infusion therapies, service costs range from
a high of 40.2 percent for chemotherapy and 38.7 percent for
pain therapy and management to 25.8 percent for anti-infectives
and 26.4 for inotropic therapy.
<bullet> Indirect costs, such as management systems, regulatory
compliance programs, field administration, and bad debt make up
the remaining 28 percent of home pharmacy costs.
<bullet> We analyzed pre-tax operating margins individually for
respiratory and infusion therapies. Pre-tax operating margins
are 20.5 percent for respiratory and -22.2 percent for home
infusion services. Combined, pre-tax operating margin for both
services is 20.4 percent.
<bullet> The bottom line after-tax margin for sampled companies is 9.1
percent. This 9.1 percent is the estimated combined margin for
respiratory and home infusion services provided to Medicare
patients by home pharmacy companies after federal and state
corporate income taxes, as well as interest and depreciation,
are recognized.
Assuring quality patient care and meeting established patient
quality care standards (e.g., accreditation, federal and state
licensure and regulatory requirements, etc.) is an essential component
of the service homecare pharmacy providers offer to all patients,
regardless of whether Medicare reimbursement policies expressly
recognize these services.
Currently, Medicare Part B reimbursement for drug products offsets
the costs of important patient services for which there is no direct
Medicare payment. The financial realities of the health care
marketplace that provides respiratory and infusion therapies to
Medicare patients at home require a positive after-tax margin in order
to attract equity capital for future operations. Thus, if we are to
assure that Medicare beneficiaries across the United States have access
to medically prescribed respiratory and home infusion therapies in the
home, these companies must continue to be financially viable.
Mr. Chairman. Thank you for the opportunity to present these
findings from The Lewin Group's study. A copy of the full report, on
which this testimony is based, is provided for your consideration.
Mr. Greenwood. Thank you very much for your testimony. Dr.
Emanuel for 5 minutes.
TESTIMONY OF EZEKIEL EMANUEL
Mr. Emanuel. Thank you, Mr. Chairman and members of the
subcommittee, for inviting me to testify. I am Ezekiel Emanuel,
an oncologist and bioethicist, and I work at the NIH as the
Chair of the Department of Bioethics. I also am Chairman of the
American Society of Clinical Oncology's Task Force on Quality
of Cancer Care.
Let me start by saying what I am not. All my life I have
worked in an academic setting at Dana-Farber Cancer Institute
at the NIH, and I have never once billed Medicare for any
chemotherapy I administer, so I know very little about AWP.
The primary purpose of my testimony, however, is to talk to
you about a study we conducted to look at the use of
chemotherapy at the end of life. This is an area I've been
interested in for about 15 years. As you know, there's
widespread perception among the public that dying cancer
patients receive too much chemotherapy. Conversely, my
colleagues believe that dying patients and their families often
demand chemotherapy and that they use chemotherapy judicially
at the end of life to enhance quality of life and prolong life.
Ironically, there is no data on this subject and it's never
been looked at before. We looked at nearly 8,000 patients in
Massachusetts who died of cancer. Let me just summarize six of
our findings.
First, in the last 6 months of life about 33 percent of
patients who died of cancer received chemotherapy and almost a
quarter of patients received chemotherapy in the last 3 months
of their life.
When we compared--second point, when we compared patients
who had chemotherapy responsive tumors like breast cancer,
colon cancer, ovarian cancer, with patients who had at that
time chemotherapy unresponsive tumors, tumors that did not
shrink with chemotherapy like pancreatic cancer or liver cancer
or gall bladder cancer, we found no difference in the frequency
with which the chemotherapy was given. So it was given as
frequently to chemotherapy responsive tumors as chemotherapy
unresponsive tumors.
Third, dying patients who were younger were much more
likely to get chemotherapy than older patients regardless of
cancer type.
Fourth, how long dying patients receive chemotherapy,
however, differed very much by the type of cancer patients had,
so that those patients who had chemotherapy unresponsive tumors
like pancreatic cancer or liver cancer got chemotherapy for
only one cycle whereas those people who had breast cancer and
colon cancer tended to get more chemotherapy.
Fifth, unlike lots of other previous studies we found that
patients who received chemotherapy at the end of life had
substantially higher Medicare costs than patients who did not
receive chemotherapy, up to a third more.
Finally, let me make the point that these data are not
unique to Massachusetts. We did a small sample just to verify
looking at California patients and found very similar data,
although the exact numbers varied.
How might these data affect the hearing here? One of the
important questions is why are people getting chemotherapy at
the end of life? What motivates people? There are several
potential explanations. Let me highlight several.
First, I have to admit I can't tell you from these data
exactly why each patient got chemotherapy. We just looked at
the Medicare data and it's very hard to draw motivations. But
one potential explanation is that many cancer patients, as
mentioned by Congressman Ganske, need or want chemotherapy at
the end of life, especially when they get diagnosed with a
terminal illness, they go to an oncologist, they have no
previous relationship and they want to try anything.
Oncologists acquiesce, give the chemotherapy, and patients then
find out they may not like it and that is why you get a lot of
patients getting only one cycle of chemotherapy.
Another potential explanation is that chemotherapy does, we
know, improve quality of life of patients. It's very hard for
those of us who are healthy, who have never had cancer, who
recognize the side effects, the nausea, the vomiting, baldness,
that this might improve quality of life, but there are a number
of studies showing that with lung cancer, colon cancer, ovarian
cancer, chemotherapy improves pain and improves quality of life
of dying patients.
A third potential explanation is that we're just uncertain
about this, how long in fact are they going to live, and we are
always cautious, so we would use chemotherapy.
A fourth potential explanation is that oncologists may give
chemotherapy for a financial reimbursement, the spread between
AWP and what they get.
I want to emphasize from my data I can't tell you which of
these explanations is right, and we need a lot more research to
tell how much these factors influence people. But one of the
major concerns by our study I think is revealed when you
contrast it with other data we have from Medicare, and I want
to highlight data from colleagues of mine at Memorial Sloan-
Kettering. They recently looked at chemotherapy administered to
patients with colon cancer where we know the chemotherapy
prolongs life and can cure patients, and they revealed that
only 55 percent of Medicare patients with colon cancer actually
got chemotherapy. This is chemotherapy for which doctors would
be reimbursed the same amount as in other cases, and so we know
there are cases where there is overuse and cases where there is
under use.
And this leads me to this issue: While we are focusing on
costs here, let me suggest that there is a bigger issue, and
that is that we as oncologists cannot guarantee Americans who
are diagnosed with cancer get optimal cancer care. Sometimes
they may get too much chemotherapy, sometimes too little, even
when oncologists are being reimbursed to give them
chemotherapy. And I think that what we really need to figure
out is how we're paying for quality cancer care and that people
who need the drugs get the drugs, and that's actually why I
have been working with ASCO on a $5 million project to try to
figure out how we can get quality cancer care and what are the
barriers to getting people the right drugs at the right time
that prolongs their life and improves their quality of life.
Thank you very much for inviting me, and I will be happy to
answer any of your questions.
[The prepared statement of Ezekiel Emanuel follows:]
Prepared Statement of Ezekiel Emanuel, Chief, Clinical Bioethics
Department, Warren G. Magnuson Clinical Center, National Institutes of
Health
There is substantial concern about end-of-life care provided to
Americans. In particular, a number of commentators are concerned that
dying cancer patients are frequently overtreated with chemotherapy.
Critics contend that many oncologists overtreat dying patients with
chemotherapy because they are reluctant to accept death and
apprehensive about discussing end-of-life
care.\1\<SUP>,</SUP>\2\<SUP>,</SUP>\3\ Indeed, some critics contend
that oncologists prey on their patients' vulnerability, implying that
chemotherapy is the vehicle of hope, and pressing them to try it before
reconciling themselves to death.\4\ Oncologists respond that it is
terminally ill patients who demand treatment. More importantly,
oncologists contend that they use chemotherapy prudently in patients at
the end of life, when it is likely to provide symptom relief and
enhance dying patients' quality-of-life.
How can we determine if chemotherapy is used too frequently for
terminally ill cancer patients? There are no standards for the
appropriate use of chemotherapy at the end of life based upon either
randomized controlled trials or expert, consensus guidelines. While
there are some data on treatment of patients with metastatic
cancers,\5\ even basic data on how frequently cancer patients are given
chemotherapy in the months before death are lacking. To explore whether
chemotherapy is used prudently and rationally at the end of life, we
separately examined its use among Massachusetts and California Medicare
beneficiaries who died of cancer in 1996. Dividing patients into two
groups according to whether they died of cancers responsive or
unresponsive to chemotherapy, we evaluated the use of chemotherapy, and
the expenditures in the last year of life.
methods
Identifying Cancer Decedents: To focus only on persons who died
from cancer--not merely with cancer--based on the primary cause of
death listed in the death certificate, we followed a 3-step process.
First, in both Massachusetts and California we studied fully entitled
Medicare beneficiaries who died in 1996, were at least 66 years old at
death and were not enrolled in Medicare's End Stage Renal Disease
program. Decedents 66 years of age were selected to ensure we obtained
a full year of Medicare expenditure data prior to death. We studied all
such decedents in Massachusetts and 5% in California. Second, we merged
HCFA's denominator files with each state's 1996 death certificate
files. In Massachusetts, 42,452 Medicare decedents met the criteria. In
merging the files we used social security number (SSN), date of birth
(DOB), date of death (DOD) and sex. A match was accepted if either of
the following conditions was met: 1) there was a perfect match on SSN
and either sex or both DOB and DOD or 2) a match on at least 7 of SSN
digits and a perfect match on sex, DOB, and DOD. Of the 42,452
decedents, there was a match between the HCFA files and death
certificates for 39,447 (92.9%). Only beneficiaries continuously
enrolled in both Parts A and B Medicare insurance and who were not
enrolled in an managed care organization over the entire last 12 months
of life were retained, yielding 34,131 Massachusetts decedents. Third,
we selected the 7,919 decedents whose primary cause of death listed on
the death certificate was cancer.
In California, the same general protocol was applied to a random 5%
of Medicare enrollees yielding 4,715 total decedents overall, of which
956 died of cancer.
Classifying Cancer Types: We classified breast, colon, and ovarian
cancers as chemotherapy responsive solid cancers. Multiple
chemotherapeutic agents shrink these cancers, and randomized trials
have shown chemotherapy to be effective in prolonging lives of patients
at least as adjuvant therapy. We classified pancreatic, renal cell,
hepatocellular, gallbladder, cancers, and melanoma as chemotherapy
unresponsive solid cancers. In 1996, these cancers were known to be
``refractory to virtually all chemotherapeutic agents'' such that the
general consensus in standard textbooks is that ``there are no
particularly compelling cytotoxic chemotherapeutic agents [with which]
to treat'' them.\6\
We examined data for other cancers that we did not categorize as
responsive or unresponsive. For example, while prostate cancer is
generally considered a chemotherapy unresponsive solid cancer, hormonal
injections may appear in claims data as chemotherapy. To avoid
uncertainty, prostate cancer is reported separately. Lung cancer also
examined separately because using claims data, it is impossible to
differentiate lung cancers into small cell and non-small cell (NSCLC)
tumors. Furthermore, while small cell cancers are chemotherapy
responsive, using chemotherapy for metastatic non-small cell lung
cancers is highly controversial.\7\ Data suggest that chemotherapy for
NSCLC extends life by 6 weeks and may improve quality-of-life despite
toxicities.\8\<SUP>,</SUP>\9\<SUP>,</SUP>\10\ Finally, hematological
malignancies, encompassing both acute and chronic leukemias, Hodgkin's
disease, and all non-Hodgkin's lymphomas, were analyzed separately.
Although they are chemotherapy responsive, patients may die acutely
from treatment related toxicities.
Identifying the Use of Chemotherapy: Patients who had claims in the
inpatient, outpatient or physician/supplier Medicare files for
chemotherapy agents, chemotherapy administration, or the medical
supervision of chemotherapy were considered to as having received
chemotherapy. The codes used were: intravenous chemotherapy agents--
HCPCS codes 964XX, 965XX, J9000-9999; chemotherapy administration--IC
Procedure 99.25, HCPCS codes Q0083-Q0085; medical evaluation for
chemotherapy--ICD Diagnosis V58.1, V66.2, and V67.2. It is possible
that our method of identifying chemotherapy missed patients who
received oral chemotherapeutic agents. Patients without claims using
these codes were classified as not having chemotherapy.
We examined chemotherapy use for decedents for 30-day periods from
the date of death back for 12 months.
Expenditure Data: Total expenditure is calculated as the sum of
HCFA payments and payments from other sources of insurance for Medicare
covered services. The average payment per person from other insurance
accounts for only 0.15% of costs. Expenditures for each decedent are
calculated from 5 HCFA files: 1) Medicare Provider Analysis and Review
(MedPAR), including acute hospitalizations, long term hospitalizations,
and skilled nursing home care; 2) Hospital outpatient; 3) Part B
physician-supplier; 4) Home health care; and 5) Hospice. Durable
medical equipment (DME) expenses were excluded, but in Massachusetts,
they contributed just $400 per person over the last year of life.
results
Frequency of Chemotherapy in the Last Months of Life: Figure 1
shows that 41% of our study population in Massachusetts received
chemotherapy in the last year of life. Fully 33% of Massachusetts
cancer decedents received chemotherapy in the last 6 months of life,
23% in the last 3 months of life, and 9% of cancer decedents received
chemotherapy in the very last month of life.
Table 1 provides data on the proportion of terminally ill cancer
patients treated in Massachusetts with chemotherapy in the last 6, 3
and 1 months of life. Patients who died of hematological malignancies
received chemotherapy most frequently, with more than half getting
chemotherapy in the last 6 months of life and 19% in the last month of
life. Massachusetts patients with chemotherapy unresponsive solid
cancers received chemotherapy at about the same frequency as patients
with chemotherapy responsive solid cancers (Table 1). Among patients
with chemotherapy unresponsive solid cancers taken together
(pancreatic, hepatocellular, gallbladder, and renal cell cancers and
melanoma) 23% received chemotherapy in the last 3 months of life, which
was the same as the percentage of patients with chemotherapy responsive
cancers (breast, colon, ovarian) that received chemotherapy.
An interesting example of the use of chemotherapy at the end of
life is pancreatic cancer. In the last 6 months of life, 33% of
Massachusetts patients dying of pancreatic cancer received
chemotherapy, 25% in the last 3 months, and 8% in the last month of
life. On May 15, 1996, the FDA approved gemcitabine as the first agent
shown to be effective in pancreatic cancer. Prior to this date, when
there were no effective agents, 28% of patients dying of pancreatic
cancer received chemotherapy in the last 6 months of life. After May
15th, 37% received chemotherapy (one-sided p=0.04).
A comparison of the chemotherapy unresponsive melanoma and renal
cell cancer with chemotherapy responsive breast and colon cancers is
also instructive. Of patients dying of melanoma, 21% received
chemotherapy in the last 3 months of life and 10% in the last month of
life. Similarly, among patients dying of renal cell cancer, 22%
received chemotherapy in the last 3 months of life and 7% in the last
month of life. Surprisingly the frequency of chemotherapy for dying
breast and colon cancer patients was almost identical. 22% of patients
dying of breast cancer received chemotherapy in the last 3 months and
8% in the last month of life. Similarly, 23% of patients dying of colon
cancer received chemotherapy in the last 3 months and 7% in the last
month of life.
There are no substantial differences in the use of chemotherapy by
sex (Table 1). However, the use of chemotherapy at the end of life is
age related. Among Massachusetts patients 65-74 32% received
chemotherapy in the last 3 months of life, compared to 22% for patients
75 to 84 year old, and 11% for patients over 85 years of age (Table 1).
These variations by age were similar in chemotherapy unresponsive and
responsive solid cancers (Table 2). Overall, 13% of 85 year olds with
chemotherapy unresponsive solid cancers received chemotherapy in the
last 3 months of life compared to 10% of 85 year olds with chemotherapy
responsive solid cancers (Table 2).
Number of Months of Chemotherapy in the Last Months of Life: Among
Massachusetts patients who received chemotherapy in the last 6 months
of life, 41% had a short ``trial,'' just one month or less of
chemotherapy, with 36% receiving chemotherapy for 1 to 3 months, 23% 4
or more months of chemotherapy (Table 3). The number of months of
chemotherapy did not depend on sex, but did depend upon age (Table 3).
Importantly, the chemotherapy responsiveness of the solid cancers
was associated with a difference in the number of months of
chemotherapy provided to decedents (Table 3). Among Massachusetts
patients dying of chemotherapy unresponsive tumors who received
chemotherapy, over half received 1 month or less of chemotherapy and
31% received chemotherapy for 1 to 3 months. Conversely, among patients
dying of chemotherapy responsive cancers who received chemotherapy a
third received 1 month or less of chemotherapy and 40% received
chemotherapy for 1 to 3 months of the last 6 months of life. Notably,
17% of patients dying from chemotherapy unresponsive cancers had 4 or
more months of chemotherapy (Table 3).
Returning to patients with pancreatic cancer, 49% received
chemotherapy for 1 month or less, 34% for 1 to 3 months and 3% during
each of the last 6 months. For patients dying of breast cancer, 32%
received chemotherapy for 1 month or less, 39% for 1 to 3 months and 5%
across all 6 final months.
The Use of Chemotherapy and Expenditures: Annual expenditures for
dying Massachusetts cancer patients who received chemotherapy in the
last 6 months of life were 32.5% higher than patients who did not
receive chemotherapy ($39,707 v. $29,974) (Table 4). Annual expenditure
for patients with chemotherapy unresponsive cancers who received
chemotherapy was $33,365 about 10% less than the expenditure for
patients with chemotherapy responsive cancers who received chemotherapy
($36,684). Expenditures for patients with chemotherapy unresponsive
cancers who received chemotherapy were 20% more than for patients with
the same cancers who did not receive chemotherapy ($33,365 v. $27,737),
while expenditures for patients with chemotherapy responsive cancers
who received chemotherapy were 23.9% more than for patients with the
same cancers who did not receive chemotherapy ($36,684 v. $29,610).
Comparison with Cancer Decedents from California: We used decedents
our sample of 956 cancer decedents from California to test whether our
findings in Massachusetts might apply more generally (Table 5). Among
California cancer decedents, 26% received chemotherapy in the last 6
months of life, 20% in the last 3 months and 9% in the last month of
life. Among decedents with chemotherapy responsive tumors, 17% received
chemotherapy in the last 3 months of life compared to 20% for the
chemotherapy unresponsive tumors.
Similarly, use of chemotherapy at the end of life was age related
in California for both chemotherapy responsive and unresponsive
cancers. Among decedents aged 65-74, 26% of those with chemotherapy
responsive tumors compared to 32% of those with chemotherapy
unresponsive tumors received chemotherapy in the last 3 months of life.
Similarly, among decedents aged 75-84 19% of those with responsive
tumors compared to 18% of decedents with unresponsive tumors received
chemotherapy in the last 3 months of life. Overall, 25% of patients
with chemotherapy responsive tumors receiving chemotherapy received
less than 1 month of chemotherapy while 35% of those with chemotherapy
unresponsive tumors did so.
discussion
This study provides insight into the frequency of use of
chemotherapy at the end of life. Overall 33% of Medicare patients dying
of cancer in Massachusetts in 1996 received chemotherapy in the last 6
months of life and nearly a quarter in the last 3 months. Most
surprisingly, patients dying of chemotherapy unresponsive cancers, such
as pancreatic, gallbladder, renal cell, and hepatocellular cancers,
were just as likely to receive chemotherapy at the end of life as
patients dying of chemotherapy responsive cancers, such as breast,
colon, and ovarian cancers. This suggests overuse of chemotherapy at
the end of life, at least among patients with chemotherapy unresponsive
cancers.
Traditionally, to document over- and underuse of health care
services, studies compare claims data with optimal practices
established by randomized controlled trials or by expert, consensus
panels. Lacking randomized trials or consensus panels to establish
standards for the appropriate use of chemotherapy at the end of life,
we examined tumor responsiveness to chemotherapy. Cancers are
traditionally divided in those that are chemotherapy responsive, in
which chemotherapy can commonly induce complete and partial responses,
compared to those in which chemotherapy rarely leads to tumor
shrinkage. In our data, lack of responsiveness of the cancer to
chemotherapy did not reduce the prevalence of chemotherapy use.
Patients with unresponsive cancers were just as likely to receive
chemotherapy in the last few months of life as patients with
chemotherapy responsive cancers. Indeed, patients with unresponsive
cancers were slightly more likely to receive chemotherapy than patients
with lung cancer in which data suggests chemotherapy in the last 6
months of life, may extend life by a few weeks and even palliate
symptoms.
Although patients dying of chemotherapy unresponsive solid cancers
received chemotherapy as frequently as those with responsive cancers,
they received fewer months of chemotherapy. This suggests some
selectivity in the use of chemotherapy at the end of life. It is
possible that after one cycle of therapy many patients and oncologists
are convinced by ineffectiveness and/or the side effects to stop
treatment for chemotherapy unresponsive cancers. Nevertheless, 17% of
patients receiving chemotherapy for chemotherapy unresponsive cancers
received chemotherapy during four or more of the final 6 months of
life.
Many reasons may explain the use of chemotherapy at the end of life
for patients with unresponsive cancers. The most reasonable explanation
may be that patients and families demand to at least ``try'' to see if
chemotherapy might shrink the cancer. Oncologists frequently meet
patients for the first time right after they have been newly diagnosed
with chemotherapy unresponsive tumors that present a bleak prognosis.
These patients and their families often want to try anything that might
shrink their cancers. Indeed, data suggest that cancer patients are
willing to endure significant side effects for very small prolongations
in life.\11\<SUP>,</SUP>\12\ Lacking an established relationship with
the patient or family and confronting an emotional demand to try
anything, oncologists may acquiesce. One cycle of chemotherapy is often
sufficient for patients and families to adjust and absorb the realities
of the diagnosis, prognosis, and to realize the ineffectiveness of the
chemotherapy and the undesirable side effects. That over half of the
patients receiving chemotherapy for unresponsive cancers received 1
month or less of chemotherapy strongly supports this explanation.
Obviously, additional research is necessary to provide insights into
how much of a role patient and family demand plays in the use of
chemotherapy at the end of life.
Other potential reasons for the use of chemotherapy at the end of
life include uncertain prognosis and time of death, uncertain
responsiveness of the cancer to chemotherapy, and use of experimental
chemotherapies. These reasons are unlikely to account for our data on
chemotherapy unresponsive solid cancers. While the exact date of death
cannot be known in advance, cancers, especially chemotherapy
unresponsive solid cancers, are unlike the terminal phases of COPD or
heart failure; they tend to have a monotonic, unremitting decline to
death despite all interventions.\13\ Typically within the last three
months of life, oncologists can predict, with reasonable certainty that
the patient will die in a few months regardless of treatment.
Furthermore, there is no real uncertainty about the chemotherapy
unresponsiveness of the solid tumors we classified as ``unresponsive.''
Finally, although some patients may be receiving experimental
chemotherapy, this is likely to be rare among Medicare beneficiaries
who are often ineligible due to age and comorbidities.
Yet another potential explanation for the use of chemotherapy for
patients with unresponsive cancers is that chemotherapy may improve
quality of life and palliate symptoms for dying patients even if it
fails to prolong life or shrink tumors.\14\<SUP>,</SUP>\15\ There are
some data supporting the palliative effect of chemotherapy for lung and
colon cancer and some suggestions that this might also operate in
ovarian cancer.\16\<SUP>,</SUP>\17\<SUP>,</SUP>\18\<SUP>,</SUP>\19\
Frequently, emotional functioning and fatigue are the quality-of-life
subscales with the most improvement. That these improvements occur
without objective tumor responses suggests that they may be related to
patient expectations or possibly the placebo effect of chemotherapy,
rather than any biological impact.\20\ The mechanism by which
chemotherapy in terminal phases may palliate without objectively
shrinking cancers requires further research.
The similar frequency of chemotherapy use regardless of the
responsiveness of the cancer may be because near terminal patients with
breast, colon, and ovarian cancers may have been treated with many
different chemotherapy regimens and their cancers may have become
chemotherapy resistant. In this way, patients dying of chemotherapy
responsive tumors may be more like decedents with chemotherapy
unresponsive cancers. This does not justify using chemotherapy for
unresponsive tumors. It also raises the question of whether providing
chemotherapy in the last 3 months of life to nearly a quarter of cancer
patients whose tumors have become resistant to chemotherapy is itself
an indication of overuse.
This study suggests that use of ineffective chemotherapy consumes
substantial medical resources. Annual expenditures for patients who
received chemotherapy, regardless of the responsiveness of the cancer,
were 32.5% higher than for patients who did not receive chemotherapy in
the last 6 months of life. Among patients who died of chemotherapy
unresponsive cancers, the use of chemotherapy in the last 6 months of
life was associated with 20% higher annual expenditures, or more than
$5,500 per decedent. The extra amount spent on providing chemotherapy
to patients dying of unresponsive cancers is comparable to the average
annual expenditure for all Medicare beneficiaries and nearly one third
higher than annual per capita health expenditures in the U.S. These
data contrast with studies suggesting that compared to ``best
supportive care'' chemotherapy for non-small cell lung cancer does not
increase, and may even decrease medical
costs.\21\<SUP>,</SUP>\22\<SUP>,</SUP>\23\ The disjunction between our
results and these studies may arise because of the difficulty in
translating results of randomized trials into actual clinical practice.
Care protocols in research may limit use of unnecessary interventions,
whereas in actual clinical practice use of treatments,
hospitalizations, and other interventions vary more. Furthermore, the
cost data on best supportive care come only from Canada and are more
than a decade old21-23, and patients receiving best supportive care
were frequently hospitalized, using more hospital days than patients
receiving chemotherapy. These old data, especially of hospitalizing
patients receiving ``best supportive care'' reflect practices not found
in these data and unlikely to still be common. It may also be that in
actual clinical practice patients not receiving chemotherapy may not be
receiving ``best supportive care'' reducing expenditures.
Finally, this overuse of treatment at the end of life is
particularly wasteful when placed in the context of the documented
underuse of treatments proven by randomized controlled trials to be
effective in prolonging life. Studies have shown that only 55% of
Medicare beneficiaries receive adjuvant chemotherapy for Stage III
colon cancer.\24\ Indeed, among 85 year old patients the use of
chemotherapy for Stage III colon cancer is 11% less than the frequency
of the use of chemotherapy in the last 3 months for 85 year olds with
chemotherapy unresponsive cancers. Unfortunately, it appears that there
may be overuse of chemotherapies in the last few months of life
coincident with underuse of therapies known to be effective in
prolonging life.
In health care, Massachusetts is known as a high use and high cost
state.\25\ A major issue is whether these data on chemotherapy use at
the end-of-life are unique to Massachusetts or are generalizable. While
there are some differences in the absolute use of chemotherapy for some
cancers, our data from California, although limited, suggest a similar
pattern of use of chemotherapy at the end of life. In California one in
five cancer decedents receive chemotherapy in the last 3 months of
life, and this does not differ between chemotherapy responsive and
unresponsive cancers. Clearly, these results need to be confirmed in
other, larger populations. However, these data show that the situation
in Massachusetts is not unique.
This study has some significant limitations. First, the data may
not generalize in other ways. Chemotherapy use among decedents under 65
years of age might be different. The strong trends toward greater use
of chemotherapy among younger decedents suggests these data might
actually underestimate chemotherapy use in the last 6 months of life
among cancer decedents of all ages. Chemotherapy use in managed care
settings also might differ. Second, we have no data on stage of cancer;
some patients may have died from acute toxicities of chemotherapy
without being terminally ill. However, data from trials suggest that
acute toxic deaths among patients receiving adjuvant therapy are rare,
and thus unlikely to account for a substantial proportion of cancer
mortality.\26\ Indeed, adjuvant chemotherapies associated with high
toxic mortality would be used infrequently. Third, the cause of death
listed on death certificates is not always accurate. However, listing
cancer as the cause of death may be insensitive, but it is specific,
and Massachusetts and California are among the states with the most
accurate death certificates. Fourth, annual expenditures were
calculated but we tracked chemotherapy use only in the last 6 months of
life. Decedents who received chemotherapy in the 7 to 12 months before
death only are classified in the ``no chemotherapy'' group, increasing
the costs of this group. This makes the difference in expenditures
appear smaller than if the comparison had been with decedents who had
received no chemotherapy in the entire last year of life. Most
importantly, these data provide no explanation for why chemotherapy is
provided in any particular case. Additional study is needed to
determine the reasons why chemotherapy is used in the last 6 months of
life, especially for chemotherapy unresponsive cancers.
conclusion
There is substantial disagreement about whether chemotherapy is
used appropriately in patients near the end of life. This study
demonstrates that one third of patients in Massachusetts receive
chemotherapy in the last 6 months of life, even among those persons
dying from chemotherapy unresponsive cancers. Oncologists should
reconsider the use of chemotherapy at the end of life.
acknowledgements
We would like to thank Joan Warren, Deborah Schrag, and Peter Bach
for helpful advice and comments on the project and manuscript. We would
also like to thank many questioners at the 2001 Annual American Society
of Clinical Oncology meeting for helpful challenges.
Frequency of Patients Receiving Chemotherapy in the Last Months of Life
(This will be a figure)
------------------------------------------------------------------------
Massachusetts
(N=7,919)
------------------------------------------------------------------------
Last 1 month of life................................... 9%
Last 2 months.......................................... 17%
Last 3 months.......................................... 23%
Last 4 months.......................................... 28%
Last 5 months.......................................... 31%
Last 6 months.......................................... 33%
Last year of life...................................... 41%
------------------------------------------------------------------------
TABLE 1: Characteristics of Massachusetts Cancer Decedents by Receipt of Chemotherapy in the Last 6 Months of
Life
----------------------------------------------------------------------------------------------------------------
Cancer Decedents Receiving
Chemotherapy in Last:
All -----------------------------------
Cancer 6 months 3 months 1 month of
Decedents of life of life life
(N=2,625) (N=1,854) (N=715)
----------------------------------------------------------------------------------------------------------------
All Cancers........................... ......................... 7,919 33% 23% 9%
Sex................................... Male..................... 3,863 35% 22% 10%
Female................... 4,056 31% 26% 8%
Age................................... 65-74.................... 2,926 44% 32% 12%
75-84.................... 3,392 31% 22% 8%
85+...................... 1,601 16% 11% 5%
Chemotherapy Responsive Solid Cancers. Total.................... 1,627 34% 23% %
Breast................... 612 30% 22% 8%
Colon.................... 846 32% 23% 7%
Ovarian.................. 269 47% 30% 7%
Chemotherapy Unresponsive Solid Total.................... 870 31% 23% 9%
Cancers.
Pancreas................. 408 33% 25% 8%
Melanoma................. 84 30% 21% 10%
Renal Cell............... 147 29% 22% 7%
Hepatic and Gallbladder.. 231 29% 20% 8%
Other Types of Cancer................. Lung..................... 2,003 28% 19% 7%
Prostate................. 602 39% 28% 10%
Hematological*........... 760 51% 42% 19%
All Other................ 2,057 30% 20% 9%
----------------------------------------------------------------------------------------------------------------
* Includes all acute and chronic leukemias, non-Hodgkin lymphomas, Hodgkin's disease, but excludes multiple
myeloma.
TABLE 2: Massachusetts Cancer Decedents Receiving Chemotherapy in the Last 3 Months of Life by Cancer Type and
Age
----------------------------------------------------------------------------------------------------------------
Number of
Patients
Getting
Chemotherapy 65-74 75-84 85+
in last 3 (N=2,926) (N=3,392) (N=1,601)
Months of
Life
----------------------------------------------------------------------------------------------------------------
All Cancers.......................... ....................... 1,854 32% 22% 11%
Chemotherapy Responsive Solid Cancers Total.................. 377 36% 21% 10%
Breast................. 135 38% 19% 7%
Colon.................. 191 33% 23% 11%
Ovarian................ 51 43% 22% 17%
Chemotherapy Unresponsive Solid Total.................. 199 30% 22% 13%
Cancers.
Pancreas............... 101 33% 24% 12%
Melanoma............... 18 27% 19% 13%
Renal Cell............. 33 36% 15% 10%
Hepatic and Gallbladder 47 23% 21% 15%
Other Types of Cancer................ Lung................... 371 28% 12% 6%
Prostate............... 170 32% 34% 11%
Hematological*......... 321 54% 44% 17%
All Other.............. 416 26% 20% 11%
----------------------------------------------------------------------------------------------------------------
* Includes all acute and chronic leukemias, non-Hodgkin lymphomas, Hodgkin's disease, but excludes multiple
myeloma.
TABLE 3: The Number of Months of Chemotherapy Provided to Massachusetts Cancer Decedents Receiving Any
Chemotherapy in the Last 6 Months of Life
----------------------------------------------------------------------------------------------------------------
Mean
1 Month 1 to 3 3 Months Number of
or Less> Months> Months
----------------------------------------------------------------------------------------------------------------
All Cancers........................... ......................... 41% 36% 19% 2.4
Sex................................... Male..................... 38% 36% 20% 2.2
Female................... 45% 36% 16% 2.5
Age................................... 65-74.................... 35% 39% 21% 2.5
75-84.................... 44% 35% 17% 2.3
85+...................... 59% 28% 11% 1.9
Chemotherapy Responsive Solid Cancers. Total.................... 33% 40% 22% 2.6
Breast................... 32% 39% 24% 2.6
Colon.................... 35% 41% 19% 2.5
Ovarian.................. 29% 39% 24% 2.8
Chemotherapy Unresponsive Solid Total.................... 52% 31% 14% 2.0
Cancers.
Pancreas................. 49% 34% 14% 2.1
Melanoma................. 56% 36% 0% 1.8
Renal Cell............... 51% 37% 10% 2.0
Hepatic and Gallbladder.. 59% 21% 17% 2.1
Other Types of Cancer................. Lung..................... 45% 39% 13% 2.2
Prostate................. 30% 31% 31% 3.0
Hematological*........... 32% 39% 22% 2.7
All Other................ 50% 33% 14% 2.1
----------------------------------------------------------------------------------------------------------------
* Includes all acute and chronic leukemias, non-Hodgkin lymphomas, Hodgkin's disease, but excludes multiple
myeloma.
TABLE 4: Expenditures in the Last Year of Life for Massachusetts Cancer Decedents by Receipt of Chemotherapy in
the Last 6 Months of Life
----------------------------------------------------------------------------------------------------------------
Decedents % Increase
who Received Decedents for
No who Received Decedents
Chemotherapy Chemotherapy Receiving
(N=) (N=) Chemotherapy
----------------------------------------------------------------------------------------------------------------
All Cancers.............................. ........................... $29,974 $39,707 32.5%
Sex...................................... Male....................... $29,729 $39,539 33.0%
Female..................... $30,193 $39,890 32.1%
Age...................................... 65-74...................... $32,551 $43,042 32.2%
75-84...................... $31,155 $36,989 18.7%
85+........................ $24,803 $34,055 37.2%
Chemotherapy Responsive Solid Cancers.... Total...................... $29,610 $36,684 23.9%
Breast..................... $26,817 $36,277 35.3%
Colon...................... $31,435 $32,972 4.9%
Ovarian.................... $30,870 $50,400 63.5%
Chemotherapy Unresponsive Solid Cancers.. Total...................... $27,737 $33,365 20.3%
Pancreas................... $26,356 $35,371 34.2%
Melanoma................... $19,982 $32,717 63.7%
Renal Cell................. $32,923 $35,735 8.5%
Hepatic and Gallbladder.... $27,911 $29,275 4.9%
Other Types of Cancer.................... Lung....................... $29,750 $38,967 31.0%
Prostate................... $27,685 $34,167 23.4%
Hematological*............. $34,430 $52,619 52.8%
All Other.................. $30,861 $39,830 29.1%
----------------------------------------------------------------------------------------------------------------
* Includes all acute and chronic leukemias, non-Hodgkin lymphomas, Hodgkin's disease, but excludes multiple
myeloma.
TABLE 5: The Characteristics of California Cancer Decedents by Receipt of Chemotherapy in the Last 6 Months of Life
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cancer Decedents Receiving Chemotherapy in Last:
All Cancer --------------------------------------------------
Decedents 6 months of 3 months of 1 month of life
life (N=253) life (N=191) (N=85)
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Cancers..................................... .................................. 956 26% 20% 9%
Sex............................................. Male.............................. 437 30% 24% 11%
Female............................ 519 23% 17% 7%
Age............................................. 65-74............................. 323 39% 31% 12%
75-84............................. 444 25% 18% 9%
85+............................... 189 8% 6% 3%
Chemotherapy Responsive Solid Cancers............................................... 175 25% 17% 6%
Chemotherapy Unresponsive Solid Cancers............................................. 108 24% 20% 8%
Other Types of Cancer........................... Lung.............................. 280 23% 17% 8%
Prostate.......................... 83 37% 27% 13%
Hematological*.................... 112 36% 29% 14%
All Other......................... 198 25% 19% 9%
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes all acute and chronic leukemias, non-Hodgkin lymphomas, Hodgkin's disease, but excludes multiple myeloma.
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Mr. Greenwood. Thank you, Dr. Emanuel, for your coming in
and your helpful testimony. I appreciate that.
The Chair recognizes himself for 5 minutes to ask
questions. Let me turn to Dr. Norton first.
It is evident from this hearing and from all of the work
we've done leading up to this hearing, which has been
extensive, that there is virtual unanimity among most Members
of Congress with the GAO, the IG, the pharmaceutical industry,
and your association that we need to get rid of AWP, that it's
irrational, that it causes overpayments, cruel overpayments to
beneficiaries. That is certainly inconsistent with what the
intention of Medicare is. There is also, I would say, virtual
unanimous consent to the notion that we need to then
simultaneously, so that there is no disruption in service or no
inequity imposed by our changes, come back with a way to make
sure that your profession and all of the other professions that
are here and that are not here who would be affected by a
change in AWP are adequately and appropriately reimbursed.
Now, the GAO study says that in order to do that, we need
to put about $51 million into increasing practice expenses. Mr.
Scully from CMS testified that he thought the number was
somewhere between $45 and $55 million and that those figures
were arrived at totally independently, which gives us a fair
amount of confidence in the order of magnitude of those
changes.
Does your association--you have submitted a white paper, et
cetera. I have a sneaking suspicion that your association
thinks that the number might be a bit higher than that. Are you
putting a number on the table here?
Mr. Norton. We don't think we have the data--we don't think
that anybody has the data to come up with an accurate number,
frankly. It gets down to fundamental logical issues about what
it actually costs to give chemotherapy. The GAO report we
haven't seen yet, the latest one. We thought that this issue is
being studied carefully. We're--and I think we're going to have
to scrutinize the report to see whether the report which just
came out to today really does address the issue, but the only
real way we feel that you can actually figure out the cost is
to measure the cost of what is really required, how much
nursing time is required, the cost of the syringe, the cost of
the IV tubing, cost of the needles, the cost of the tape. All
these things are costs, the inventory of drugs, spillage,
wastage, all these issues that are involved, and we really
don't have that data.
We will be very happy to do a survey to collect that data.
We'll be very happy to work with the government, anybody who
Congress designates to work to actually get that data, but just
looking at this as a scientist, I don't think that the methods
really are giving us the numbers we really need to figure out
what the true costs are.
Mr. Greenwood. Thank you. While I am posing this next
question, if Mr. Martyn and Mr. Connaughton would separate
yourselves and, Mr. Scanlon, if you would bring a chair up and
I am going to ask you to comment after I ask Dr. Norton another
question.
In your testimony, Dr. Norton, you said that--and I am
quoting--``Oncologists and their professional staffs typically
furnish a variety of services to cancer patients for which
there is no explicit reimbursement. These services include
extensive support that seriously ill cancer patients frequently
require, including social work services, psychosocial services,
nutrition counseling. Social work services encompass a variety
of services intended to help patients carry out their therapy,
such as help with insurance, arranging transportation to
treatment and filling prescriptions. Psychosocial support
includes services such as counseling patients on their
activities of daily living, support groups that meet in the
physician's office and grief counseling. In addition,
physicians treating cancer patients perform an extraordinarily
high amount of work outside the patient's presence, including
family counseling, telephone calls, arranging for entry into
clinical trials, and so forth.''
And I don't doubt any of that and I have visited
oncologists in my district and I have heard from them and from
their staff similar concerns.
Let me actually turn to Mr. Scanlon, and if you will pull
the microphone up. I would assume that there are other medical
specialties that either provide or would like to provide and be
reimbursed for these services. Does Medicare reimburse anyone
for these kinds of services in addition to their regular fees?
Mr. Scanlon. Not explicitly. The issue here with
oncologists and other specialities, the way that the system has
been constructed, is that the costs of these kinds of services
to the extent that they are incurred by a practice are included
in calculating fees but they are distributed across the
procedures and the services that are being recognized by
Medicare. This is something that is related to the American
Medical Association, which is establishing the CPT, the current
procedural local terminology system, which identifies what are
discrete services that physicians are going to provide, and
then there is some amendment or modification of those by
Medicare. That process is what we need to look at, and as I
mentioned, we are doing work on additional data. This is one of
the areas where we need additional data. Should there be
discrete activities that are now recognized as services and
sort of why isn't it that they haven't been identified as
discrete services under CPT?
Mr. Greenwood. Let me just ask you this. When you came
forward with your $51 million estimate to compensate to raise
the practice expenses, were you assuming that any of these
kinds of services would be included in that?
Mr. Scanlon. We were not assuming they would be included
explicitly, but we were assuming that the costs of those
services were reflected in the data that we had and that those
costs were distributed--$51 million represented distributing
those costs more appropriately across different services and
across different specialties. So we feel like the data and the
method reflect these services, but better data may lead to a
different change in fees.
Mr. Greenwood. Dr. Norton, your comments.
Mr. Norton. We don't think they have the data. If they are
relying--like the AMA data, there are a small number of
oncology practices that were scrutinized and there was a
tremendous amount of estimation involved. One thing that makes
oncology different from other specialties is other specialties
it's some patients that require these services. In medical
oncology it's essentially everybody. As the therapies go on, as
patients get sicker, as the medicines change, it sometimes gets
more complex rather than less. The time the nurse spends with
the patient talking about the drugs, talking about the side
effects, monitoring for side effects during the infusion and
between infusions, this is just essential and it's not covered
at all. It's just--and it's not really reflected in the
numbers. It's not really reflected in the data because it
hasn't been scrutinized carefully.
Mr. Greenwood. Let me just bring forth, when we are talking
about data here, one piece of data. A recent survey in Modern
Health Care estimated that the average oncologist's salary
could be as high as $334,000 per year. Is that a figure that
you think is within the ballpark, sir?
Mr. Norton. That sounds high to me, and I've seen surveys
of various medical specialties. I don't actually recall the
absolute numbers but they varied a lot, again depending upon
the sample that was used, the geography, and many other
samples. But I do remember that medical oncologists were not
outliers in terms of their income by any stretch of the
imagination in terms of other medical specialists.
You know, if medical oncology were a very attractive
specialty for financial reasons we would have an abundance of
candidates. You know, we're having trouble filling our training
programs. Everybody who trains medical oncologists is having
trouble finding quality candidates for their training programs.
It's not a highly subscribed speciality because it is so
difficult. It is such a difficult life-style and it's not an
especially lucrative life-style either.
Mr. Greenwood. Thank you, sir. The gentleman from Ohio, Mr.
Brown, for 5 minutes.
Mr. Brown. Dr. Norton, I have an article from the Journal
of Cancer Economics, March, 1997, and I was intrigued by a
speech made by a chief medical officer at United Health Care
Corporation in Minneapolis to the National Cancer Centers
Network, which as I understand the audience is made up of many
oncologists and other people. I want to read a little bit from
what he said and ask what's happened in the last 4 years. This
is March 1997.
He says, ``You're going to have to make chemotherapy a cost
neutral equation. I would tell you that the industry is
probably going to do this for you. Without eliminating the
markup on drugs, I really do fear that you are going to lose
credibility within organizations outside. Employers are already
bringing this up to me. What are you doing about oncologists
who are making too much money on drugs? My case managers are
coming to see me and saying that about half my patients are
dying within 2 weeks of their last chemotherapy course. So
where was the oncologist saying it is time for quality of care?
Let me give you good supportive care and pain relief. Let me
get you into a hospice.''
He then goes on to say, ``The markups for chemotherapy
medicines are going to be so high that the public is beginning
to react. You are losing credibility from that,'' he tells the
oncologist. ``What you will see happening in my company and I
suspect others is that you will no longer be getting reimbursed
at average wholesale price.''
What you will see happening in my company, and I suspect
others, is that you will no longer be getting reimbursed at
average wholesale price; you will be getting reimbursed at
catalog prices. The reason for doing that is to make this
decision truly a decision made, because it's the right thing to
do, not because you have a financial incentive.
It sounds to me, from taking these excerpts, that managed
care was not going to take it anymore; in a sense, that they
were not going to pay you the--they were not going to follow
the price structure that Medicare seems to.
What has happened in these 4 years?
Mr. Norton. No, that's not an individual I know or an
organization that I attend. So I don't know exactly what
transpired there, what was, you know, sort of implied by all
this.
Mr. Brown. What has happened with managed care payments?
Mr. Norton. The managed care payments generally are much
lower than the actual costs of administration of the therapy.
You know, sort of across the board, it really is a big issue.
Mr. Brown. Lower than Medicare?
Mr. Norton. I do not know the specifics, sir. I do not know
the specifics.
I do know, for example, in my own center that if I didn't
have philanthropy pouring into the center, I couldn't provide
anyone near the services I provide. I applaud my colleagues in
practice, especially small practices, for doing as much as they
can with the amount of money that they have flowing in.
Mr. Brown. So you can't tell me if Medicare--if managed
care companies are paying more or less than Medicare?
Mr. Norton. I personally cannot. I can't provide that
information for you in great detail.
Mr. Brown. Considering the markup, considering if a drug
costs $200 and Medicare is reimbursing 1,000 and the oncologist
is pocketing some amount of the 800, I would think you'd give
us some ball park about what might be happening with managed
care companies.
Mr. Norton. I would challenge the notion of the doctor
pocketing the money. The doctor is using that money to take
care of the patient. That is what is happening. It is a broken
axle and it's a broken wheel. We have to understand the system
is working, quality is being provided and the money coming in
that's in excess of one side is balancing the other. We've all
said the same thing.
Mr. Brown. I wish you were a little better informed about
the managed care side of it, because when I--I go back to
Chairman Tauzin's comments earlier about the fact that the
copay for many seniors is actually more than the cost of the
drug that the doctor is paying. In some cases, that 20 percent
is 20 percent of a much larger, huge number in some cases than
20 percent of the real cost of the drug; and I would think
maybe if we were able--if anybody on this panel could give us
the information about how much a drug--how much the managed
care companies were paying, maybe we could help Mr. Scully come
up with ``20 percent of what'' figures, because we don't know.
We only know 20 percent of the AWP, but it would be nice to
know 20 percent of the lesser figure, and perhaps the managed
care companies have alighted on that figure, if you will. But
apparently nobody on this panel, with as much expertise as you
have, can tell me what managed care has done in the last 3 or 4
years.
Mr. Norton. I'm not an expert in health economics, frankly.
I can get the information for you, and I'd be delighted to work
with you on it, but, no, I don't know that.
But I do know----
Mr. Brown. Would you submit that for the record, please,
Dr. Norton?
Mr. Norton. Any information you need, you ask us, we'll
provide.
Mr. Brown. Thank you.
I'd like to know what managed care companies, versus what--
for these 24 drugs; is that it--these 24 drugs, what managed
care companies are paying, on average.
Mr. Norton. As I said, we'll be very happy to cooperate
with Congress in every way to give you the information you
need.
Mr. Brown. Good. Thank you.
Mr. Emanuel. I just wanted to say one thing about the
patients and managed care companies.
Almost exclusively, in managed care companies they do not
pay a percentage of the drug, right, almost exclusively in
managed care companies. If Medicare is going to look like
managed care companies, they are going to have a fee schedule
that is like $5 and $10, independent of the price of the drug.
Okay? That is the way managed care companies are run now.
Now, they may be shifting because of rising prices----
Mr. Brown. If I can interrupt, Dr. Emanuel. I don't think
that--because Medicare doesn't have much of a track record of
paying for drugs. Only these drugs that--and it's such a
peculiar way you do it. I don't know how you can say that
Medicare will set a price and it's irrespective of the price
that the drug actually costs.
Mr. Emanuel. That is not what I said. Sorry. Maybe I was
unclear.
Mr. Brown. Tell me again. I'm sorry. I misunderstood you.
Mr. Emanuel. In managed care, patients are--they have
copays of $5 and $10. They are unrelated to the price of the
drug.
Mr. Brown. The copay?
Mr. Emanuel. And Medicare is different in that it makes the
copay related to the price of the drug.
If you want to make Medicare like managed care, then you
fix the copay independent of the price of the drug.
Mr. Brown. I didn't say I wanted to make Medicare like
managed care in that way.
If, in fact, managed care has done what this article might
suggest it will have done in the next couple of years, starting
back 4-plus years ago, then we might be able to use that as a
real price for these drugs. If that, in fact, is what these
drugs cost from the manufacturer that managed care is paying
for, then we might be able to talk more about Chairman Tauzin's
20 percent of that figure rather than 20 percent of the AWP
figure.
Mr. Emanuel. I'm not an expert on managed care pricing
either, but let me just say one other thing.
One of the problems is that if you go to managed care and
talk to them--and one of the other things I do in my head is
talk to them about these things--they don't have a price for
the drug. Just like manufacturers play around with prices to
doctors and to pharmacies, they play around with drugs to
managed care, so if you buy three of our drugs, we'll give you
this kind of discount.
If you're only putting one on the formulary--so there is no
such thing as ``the price of a drug.''
Mr. Brown. We know that, and particularly when--in light of
the fact that Americans, out of pocket, pay about twice as much
as what managed care companies on the average pay for the cost
of prescription drugs.
So, so be it. Thank you.
Mr. Greenwood. The time of the gentleman has expired.
The gentleman--the chairman, Mr. Tauzin.
Chairman Tauzin. Thank you, Mr. Chairman.
Dr. Norton, let me see if I can help understand this a bit
better, and maybe you can give us some history--a bit. In terms
of the way the different physician groups negotiate with CMS,
formerly HCFA, for their reimbursement for practice expenses,
would oncology groups actually go in and make a case for the--
all of the expenses you indicated were not now covered?
Mr. Norton. Absolutely for----
Chairman Tauzin. Have you made that case over the years?
Mr. Norton. If we are asked to. We have offered it. We have
offered to do that, and they have said that we'll call you when
we need you, but we are still waiting for the phone call.
Chairman Tauzin. You've never had the opportunity to make a
case on what your true practice expenses are?
Mr. Norton. That is exactly right.
Chairman Tauzin. So are you telling me that HCFA, in the
past, was just not interested in hearing from you on those
numbers?
Mr. Norton. Again, what CMS or HCFA previously has done
is--you know, they will have to tell you that.
I do tell you, we are very anxious to help in trying to
determine these costs. We have offered it, and we've been told
that we will be called when they need us.
Chairman Tauzin. Staff is advising me that every physician
group has the right on a yearly basis to submit data to refine
the practice reimbursement costs. Have oncologist groups taken
advantage of that opportunity under the law?
Mr. Norton. The--my understanding is that it's done sort of
collectively, but that oncologists are clearly, you know, part
of a very large number of physicians that--you know, that do
this. But my organization, ASCO, the American Society of
Clinical Oncology, has offered on many occasions to help in
determining these costs, and we're still very willing to do
that.
Chairman Tauzin. Mr. Scanlon, you're here. Could you help
us with that process?
I mean, my understanding is that every group can come in
every year and do that. If Dr. Norton has said they really
haven't had that opportunity, I'd like to know why not and
what's wrong with the process.
Mr. Scanlon. Groups do have the opportunity to come in
individually. There has been additional information that's been
incorporated in the practice expense that comes from the
American Medical Association's survey of all specialties, but
individual specialties--and thoracic surgery is one that has
submitted data of its own--it involves doing a survey of its
practices.
Chairman Tauzin. So they weren't invited to do it? They did
it on their own?
Mr. Scanlon. Congress gave them the right to do this in the
Balanced Budget Reform Act.
Chairman Tauzin. So the question, Dr. Norton, is why
haven't oncologists on their own submitted data to have the----
Mr. Norton. We have offered and we have been told that we
will be contacted when it's appropriate for us to give the
information; and we're still willing.
Chairman Tauzin. What I'm hearing is that you don't have to
offer to do it. You have a right to do it. You don't have to
have an invite from them. You don't have to make an offer that
is accepted. The law says that every year every specialty of
practice has a right to submit new data, revised data, to ask
the agency to revise the reimbursement under the pool. And my
question is, why haven't you done that?
Mr. Norton. We have had contact with numerous agencies, and
we've offered our assistance in determining these prices.
There's issues in costs, in fact.
Chairman Tauzin. Well, you tell me what you did, but you're
not telling me why you didn't do what you could do. So let me
say it again as clearly as I can.
If you have the right to submit it without an invitation,
if the law gives you the right every year to go to CMS now and
say, these are our numbers on what it takes to properly
reimburse us for practice expenses, why haven't you done that?
Mr. Norton. Well, part of it is that it's an expensive
proposition to do it properly, frankly. It's--we are a
voluntary organization, and it's a very expensive proposition
to do that.
Chairman Tauzin. But I don't understand that. If you're
being so underreimbursed, why would--if other companies have
done that, why wouldn't you do that?
Mr. Norton. You know, we didn't create AWP; we inherited
AWP. You created AWP, and the fact is, it's been working. It's
a broken axle, broken wheel, but it's been working.
Chairman Tauzin. I thought that was the answer, because
that is our suspicion. The reason why we've never gotten a real
definitive, you know, resolution of what the true practice
costs are in some of these fields is that you felt comfortable
with the AWP reimbursement as taking care of whatever
deficiencies exist. Right?
Mr. Norton. We haven't felt comfortable with AWP. We've
been opposed to the whole concept ethically, morally.
Chairman Tauzin. I'm just saying in terms of the dollars.
Mr. Norton. The economics have worked. We're able to keep
the ship afloat.
Chairman Tauzin. So that if you didn't have the advantage
of the overreimbursements under AWP, you would probably be more
likely to do what other specialty groups have done every year,
and that is get in there and pitch a case for why you want to
be reimbursed more thoroughly for your practice expense?
Mr. Norton. We absolutely would help determine the proper
reimbursement, absolutely.
Chairman Tauzin. Now, recognizing that that hasn't happened
and recognizing that if we do eliminate this practice of
overreimbursing for drugs, which some specialty groups, like
your own, have relied on upon rather than seeking changes in
that pool, if we did that, you would--is there any doubt you
would head straight to that pool and seek a reassessment of
your practice expenses?
Mr. Norton. Oh, we would like to work to make a fair cost.
Absolutely. Sure.
Chairman Tauzin. And would it be helpful if we had your
cooperation and the cooperation of other groups, specialty
groups, affected, in eliminating this practice of the AWP--
because it has other pernicious effects, not just this
financing thing--if we got rid of it, would it be helpful if we
asked you to work with GAO and the IG and Scully and our own
committee to determine what is, in fact, a fair estimate of
what practice----
Mr. Norton. It would not only be helpful; it would be
wonderful. We would relish that opportunity.
Chairman Tauzin. If we told you in advance that we were
prepared, and this committee was able, to support additions to
the fund so that, in fact, there would be less pressure on you
having to go get your dollars from some other practice group,
but there would be room to make up a reasonable--in a
reasonable way, commensurate with what other practice groups
are getting--I'm not saying that we should favor one practice
group over another in that process, but to give more room for
you to adequately get a reevaluation of your practice----
Mr. Norton. See, again----
Chairman Tauzin. Would such a proposal meet with your
support?
Mr. Norton. Yes. It sounds great. Frankly, you know, the
point is that we're not talking about consultation costs or
visit costs. We're talking about actually--the cost of actually
treating patients, the cost to treat patients. Any solution
that enables us to be able to continue to treat our patients is
a solution we'd be happy----
Chairman Tauzin. That is the solution we want. When we
started this discussion, the chairman will tell you we had
briefings, and I, among a number of members, made it very clear
that if we're going to do this, if we're going to take this on,
this massive project to change this, when 10 years have gone by
and nobody could do it, that the one outcome we could not have
is that somehow you were not going to be out there taking care
of cancer patients as a result. And then that's your leverage
in this thing. We understand that.
But our leverage is that--I want you to understand this.
Our leverage is that I don't think patients in America, upon
learning that they're paying a 20 percent copay that is equal
to 500 percent of the cost of a drug that the doctor buys--I
don't think patients in America are going to let anybody put up
with this system, now that that's out in the open; and that
patients are gradually going to understand how bad that is.
I mean, when my 82-year-old mom hears that she has to pay a
20 percent copay that's equal to five times what the doctor is
charged for the drug, I can tell you, I'm going to get a few
phone calls from that lady, and I suspect every Member of
Congress would. And if there were a legislative stand-alone
proposal to change that, it probably would zip through this
Congress.
So I guess my message is that we understand, I think, the
problem of how we've gotten in this mess. I also want to say
this again. I think you're the angels sent from God for the
work you do, and I know why you're having a hard time
recruiting in some cases.
It's so awful to watch people go through what people go
through in cancer, and you guys do it all the time, and I
admire you so much for that. I want you to understand that.
We understand the problem you're in, but we need your help
to fix it. And if we're going to come up with a formula that
works, we're going to need all the specialty groups working
with us to come up with a solution that answers it. If we
don't, we're going to end up having to sell parts of it at a
time, like this 20 percent copay thing, and that's not going to
be good. That's just going to take a chunk out of income.
But, in fairness, I can't see asking my mom or anybody else
to pay 500 percent for some--for the cost of some drug, when
the law says they ought to pay 20 percent of it. There's
something wrong there.
Bottom line, I guess what I'm saying is, I think we're
seeing our way to some solutions, but we're going to need the
support, help and encouragement of the provider groups, such as
yours, in finding it in a way that you continue and can
continue to serve America's cancer patients; and at the same
time that we can put an end to this system, not simply because
it may be wrong financially, but because it has some potential
aspects to it that are so disturbing.
To think that the bonus paid for chemotherapy might
encourage anybody to use it when it's not appropriate is just
an awful thought, and I hope it does--I hope it is not
happening in America. But the thought that it could is just so
disturbing, that I think we have to--we have to deal with this
pretty soon.
And so, again, thank you for your contributions today, all
of you, and I hope we--I want to do one more thing, if I can,
Mr. Chairman. I want to turn to Dr. Emanuel.
What is a nonresponsive chemo situation? You named a bunch
of cancers. Tell us what that means. That means that chemo
doesn't help at all?
Mr. Emanuel. Right. The chemotherapies we have available do
not shrink the cancers.
Chairman Tauzin. Do they help with the patients in any
other way?
Mr. Emanuel. Usually they are not recommended when they
don't shrink the cancer.
Chairman Tauzin. Well, that's what I'm having a hard time
understanding. Why in the Massachusetts study did you--and
maybe, Dr. Norton, you can help me.
Mr. Norton. I can help you.
Chairman Tauzin. Why did you find that doctors were doing
chemotherapy on patients when chemotherapy was known not to
work?
Mr. Norton. Generally speaking, we define ``responsive'' as
about a 20 percent response rate. But somebody who is desperate
will take less than a 20 percent response rate, and that's--
frankly, I think it's one cycle. You say, Listen; the patient
says, Listen, Doctor, please try.
Chairman Tauzin. Very often, it's a patient saying, I don't
want to----
Mr. Norton. I spent 45 minutes with the daughter of a
patient this morning before I came here. She was begging me to
treat her mother with chemotherapy, and I frankly said I didn't
think it was appropriate.
Chairman Tauzin. So I just----
Mr. Norton. One cycle is what Dr. Emanuel found in his
study. You know, when a patient comes in, desperate, and says,
Please try; and you can find in the medical literature 5, 10
percent response rates in all these diseases to various--you
say, We will try one cycle; if the cancer doesn't shrink, we
will stop. And frankly I don't think that is so unreasonable.
You know, you say the last 6 months, the last 3 months of life;
you don't know that until a patient has died. If they respond
to therapy, it's no longer 3 months.
Chairman Tauzin. I'm trying to help you. So the fact is
that the bonus that exists in this reimbursement system may not
be the reason why even in a nonresponsive cancer case chemo is
selected, because the patient may want it in some cases.
Is that right, Dr. Emanuel? Do you agree with that?
Mr. Emanuel. Yes. I think that's--we've all experienced
that situation.
Chairman Tauzin. Thank you very much, Mr. Chairman.
Mr. Greenwood. The gentleman's time has expired.
The gentleman from New York, Mr. Engel, is recognized for 5
minutes.
Mr. Engel. Well, thank you, Mr. Chairman.
If this was another hearing in talking about Medicare and
reimbursements and what Medicare pays for, I'd be talking about
how Medicare can pay for syringes but not for the drug insulin
to--which is used in the syringes. I'm constantly confused by
what goes on.
But since we're talking about home infusion, infusion
therapy, I want to talk a little bit--and I thank you, Mr.
Connaughton, for mentioning it in your testimony. I want to
highlight my bill, which is H.R. 2750. We called it the
Medicare Home Infusion Therapy Act, and what it does is it
addresses the particular problems associated with home infusion
therapy.
Medicare's reimbursement policy for home infusion therapy
is simply outdated. Modern medicine has made the administration
of many drugs safe and effective in the home. Because of these
ridiculous reimbursement provisions, many senior citizens are
forced to stay in hospitals or trek to physicians' offices on a
daily basis to receive their treatment, when this treatment can
be given to them in their homes.
It's much cheaper. It's much easier for everyone around,
and yet we can't do that. It can be conducted in the home
safely, and it could be at a fraction of the cost.
So, to address that issue, the bill directs the Secretary
of Health and Human Services to set up a fee schedule for drug
reimbursements and provider reimbursements that would ensure
adequate and fair payments to providers. I very strongly feel
that this legislation appropriately addresses the needs of
seniors and providers together and could serve as a model for a
broader approach to the problems with AWP, and I'm hoping that
we as a committee will examine the legislation.
Mr. Connaughton, since you mentioned it, I'm wondering if
you could expand on some of your remarks, because as I
mentioned, the bill doesn't only reform how currently covered
home infusion drugs are regulated, but it would also extend
coverage to drugs that are not currently covered, such as home
antibiotic therapy; and I wonder if you could just talk about
that expansion. And what do you think this bill would do for
Medicare beneficiaries?
Mr. Connaughton. Let me just make a couple of comments.
First of all, I think your bill is absolutely consistent
with the five principles the chairman enunciated earlier when
he was speaking with Mr. Scully. Medicare, as I've mentioned in
my testimony, is losing the advantage of infusion therapy in
the home. The coverage by Medicare for home infusion is
extremely narrow. Managed care is taking advantage of that
opportunity, and indeed Medicare's use of home infusion is less
than 20 percent of what home infusion companies do.
There are many therapies that are not covered by Medicare
now that could be covered by Medicare and are covered by
managed care in the home. It would make tremendous savings.
The key to your bill I think, Mr. Engel, is that it spells
out a reimbursement scheme and recognizes that these services
are a value in the home, but it spells out a reimbursement
scheme that is based upon costs of a product and the costs of
the services and recognizes that there are standards for those
services that are recognized in the private sector; and we
think it's a very, very good piece of legislation.
Mr. Engel. Thank you.
Let me ask you this: If Medicare were to adopt the same
quality standards that are used in the private sector, how do
you think this would affect the care provided to Medicare
beneficiaries?
Mr. Connaughton. Well, it would ensure they are getting the
same quality of care that they're getting in the private
sector. In the private sector there are standards; they spell
out the services. Medicare, for whatever reason, just does not
recognize that these services exist; and I think it's important
for them to recognize them and spell out the standards.
Mr. Engel. And as things have evolved in health care--
obviously, when Medicare was first put into place, we couldn't
have anticipated the changes and the improvements we've made,
and therefore I think it's fair to say--and I'm sure you would
concur--that we need to change some of the--to update, I think
that's a better word, some of the procedures that we have now.
Mr. Connaughton. I would agree with that.
In the case of home care, technology is going to allow us
to do a lot more things. Infusion therapy is a current issue,
but I hope over time that Medicare will be able to take
advantage of those technologies.
Mr. Engel. Now, I want to make sure that I understand
something you mentioned earlier. I think the chairman also--I'm
sorry. Mr. Brown, I think, mentioned it before.
The costs of acquiring the drug for home care suppliers are
in many cases less than the cost of administering it.
Mr. Connaughton. That's the case. On average--it varies
from therapy to therapy, but on average, our survey that was
conducted, about 26 percent of the cost of providing the
therapy is the drug.
Mr. Engel. So obviously that is something we need to fix.
I'm sure that's why Mr. Brown mentioned it, and I think it's
something that the committee ought to look at.
I'm wondering if anyone else would want to comment on that.
Yes.
Ms. Lamphere. Indeed, the services that you were talking
about and the quality standards that you were talking about are
very important. The nursing coordination, the patient
education, the pharmacy operations, all of these direct
services, at least in the case of home infusion and respiratory
therapy, account for 46 percent of the total cost of providing
respiratory and home infusion services in the home.
Mr. Engel. Yes. I think that's a shocking statistic, and I
certainly think it shows that things are broken and need to be
fixed. I thank you.
Thank you, Mr. Chairman.
Mr. Greenwood. I thank the gentleman.
The gentleman from Iowa, Mr. Ganske, for 5 minutes.
Mr. Ganske. I thank the members of the panel for staying
for a long day.
I think that there's been a consensus today, from the
previous participants, that the way that we've calculated
reimbursement for drugs and Medicare needs to be made more
accurate, and that we need to take into account the true costs
of the administration and the services to get those drugs to
the patients. And I think your testimony has been effective. I
thank you and I yield back.
Mr. Greenwood. The gentleman, Mr. Norwood for 5 minutes.
Mr. Norwood. Thank you, Mr. Chairman. I will be relatively
brief, but I'm interested in a couple of things.
Dr. Norton, you listed in your testimony a number of
services that clearly the oncologist has to perform for the
patient if they are to get good care. Those services presently
are not recognized by Medicare.
Mr. Scanlon, I'm curious, since the GAO seems to know a lot
about this subject, why aren't--well, let me go back a minute.
You said, ``not explicitly.'' That means no, I gather.
Mr. Scanlon. No, it doesn't. Excuse me. Not recognized, but
paid for. And the difference is that the way that Medicare
practice expense fees are determined is that all the costs of
the practice are taken into account, so presumably these kinds
of activities generate costs which are carried on the books;
and those should be taken into account when practice expense
payments are determined.
Mr. Norwood. Dr. Norton, do you believe that that is
actually the case?
Mr. Norton. You know, I am an expert in statistics; that, I
am, even though I'm not an expert in economics. And my
understanding is that the methods that are used to actually
make these determinations are filled with approximations. It's
approximation upon approximation--approximation of expense,
approximation of time, calculations, multiplications of
submitted procedures and various percentages.
I question, just as a scientist--and I'm not an economist.
As a scientist, I question the validity of some of these
methods, frankly.
I would like to see a method that starts with the actual
procedure and builds up and calculates the cost on that basis.
You know, if it's going to be a half an hour of somebody's time
to talk to a patient, then it should be a half an hour of this
hour that's reported into the equation, and that's the way it
ought to be calculated.
If we do it that way, we very well might come up with a
different number. And I'm not even saying that I know for sure
we'll come up with a different number. I just think that the
science of actually coming up with the cost estimates could be
improved.
Mr. Norwood. Well, Mr. Scanlon, and then you.
It appears that the providers of this care, though their
services aren't listed, feel that they aren't compensated.
That's fairly clear to me.
Now, Mr. Scanlon, I presume that a lot of your numbers are
the result of estimations.
Mr. Scanlon. The numbers are based upon samples, samples
both of the practices in terms of reporting their actual costs
that they incurred; and then panels of experts that were put
together, doing what Dr. Norton suggested, which is to take for
each procedure and to say, this is our estimate as to how much
nurse time, how much other staff time, how much supplies, et
cetera, it takes to provide that procedure.
The flaw that was discovered in that method is, when you
add it up, for all of the times and all of the different costs
that the panels had, they didn't match the data that the
practices were actually writing checks for. And that's why it
was critical to bring both of these pieces of information
together.
Think of it in terms of, if we were all asked to tell
everyone how we spent yesterday, give every activity that you
were engaged in and the amount of time, it might not add up to
24 hours, but there were still only 24 hours in yesterday. And
the problem is, it's very hard in the abstract sense to say
this is going to take 50 minutes, this is going to take an
hour, et cetera. So the data of costs that practices actually
incur is a very good and strong benchmark in terms of being
able to calibrate these expert panel estimates.
I agree with Dr. Norton, in a sense, that the data need to
be improved. We need to get data that are going to be more
robust, have smaller variance in terms of the estimate of the
true values. I don't agree that the method is invalid.
The method is valid. We just need better information with
which to execute it.
Mr. Norwood. Well, isn't it then true that perhaps the
reason we are having this hearing is, the data is not robust,
as you put it? As far as I know, the oncologist did not come up
with a plan for how to be reimbursed in terms of the cost of
drugs. I presume that our old agency, HCFA, dreamed that up.
Mr. Scanlon. There are two elements; I mean, in terms of
why we may be having this discussion. One is data, and we--and
I've talked about that. The other that I mention in my
testimony is the fact that the method that I'm saying is valid,
the method I think that needs to be applied for all
specialties, is not the method that was used to calculate the
fees for chemotherapy administrative services, as well as for
other services where there's not direct physician involvement.
We believe that CMS needs to calculate all fees, using what
we've referred to as the basic method, which in our mind,
appropriately allocates total practice expenses across the
procedures that specialties have, takes into account to the
greatest extent possible differences in the costs of delivering
a service by one specialty versus another.
Oncology, again, is affected by what HCFA did in the past.
It took the chemotherapy administration services and put them
in a pool with all other similar types of services from other
specialties and calculated fees on the basis of that average.
We don't think that is appropriate.
So if we were to apply the method appropriately, we would
get a different result. It's the chemotherapy fee--
administration fees would change 16 percent; overall fees to
oncologists would change 7 percent. So those are the kinds of
things that we have been talking about.
Mr. Norwood. Dr. Norton, I heard Chairman Tauzin say that
he knew that Mr. Scully would be greatly interested in your
organization's input, and I know you're interested in doing
that. You're president of your society, are you not?
Mr. Norton. That's right, sir.
Mr. Norwood. How many members do you have?
Mr. Norton. About 17,000.
Mr. Norwood. American Society of Clinical Oncology.
What is your pay as president?
Mr. Norton. Oh, I don't get any pay at all. This is
voluntary. My institution gets some money--I actually don't
even know the amount--to compensate partially for the time I
spend. But since I spend essentially 100 percent of my time
doing this job as well as 100 percent doing my other job, it's
nowhere near compensation. I receive no funds whatsoever.
Mr. Norwood. So I want to point out to our chairman that
you are a volunteer organization, and sometimes it is not as
simple as it seems when a voluntary organization is asked to
defend itself against a Federal organization--a Federal agency
that has thousands and thousands of employees who sometimes
don't get in a hurry.
I may be wrong about that, but a lot of times it's very
difficult on the other end to do what we're asked to do.
And I don't frankly understand, for example, why CMS
doesn't list the services and determine, with the help of
people like Dr. Norton, what a fair, reasonable fee is, and
make it so much simpler for everybody; rather than putting the
onus on the back of a volunteer organization, oh, it's all your
fault because you're not being reimbursed.
I know I'm running out of time. I've got two quick things,
Mr. Chairman, if I could finish.
Mr. Scanlon, just yes or no. Do you happen to know, is it
GAO that told President Johnson that the cost of Medicare in
1990 was going to be $9 billion?
Mr. Scanlon. No.
Mr. Norwood. Okay. Just checking. I know one of the
agencies did. I just can't remember which one.
Dr. Emanuel, God forbid if you should ever have cancer,
where would you choose to be treated?
Mr. Emanuel. Think it depends on the kind of cancer. I
would try to find the right oncologist for the cancer.
Mr. Norwood. Would you prefer to be treated in the United
States?
Mr. Emanuel. Well, certainly compared to other--certain
other countries which are struggling.
Mr. Norwood. You implied that our oncology care in America
is pretty poor and listed reasons why you thought perhaps they
were poor, and I wondered if that's what you meant to imply.
Mr. Emanuel. No. I think what I said, or certainly what I
meant to say, is that we at this moment cannot guarantee every
American who has cancer the highest quality oncological care
for that cancer. We know that there are problems. We know that
there is underuse and we know that there is overuse, and part
of the issue is to make sure that we can guarantee everyone
that they get the right care at the moment.
Mr. Norwood. We can't guarantee everyone we can stay out of
the way of an airliner. How can we guarantee everyone?
Mr. Emanuel. Well, we don't even have a monitoring system
to make sure that Americans do----
Mr. Norwood. And who do you want to determine who gets the
care, if you don't want the people who are trained in oncology
to determine it?
Mr. Emanuel. I think we need----
Mr. Norwood. Some oncologists decided a patient shouldn't
get the treatment, or should. Okay. If you don't like them
deciding, who do you want to decide?
Mr. Emanuel. I'm--at the moment, I certainly think
oncologists have to be part of it. I'm actually at the moment
the head of the ASCO Task Force on the Quality of Cancer Care.
One of the things I think we do need is to have a monitoring
system to make sure that people who are diagnosed with cancer
get referred to the right person, get the right procedures, not
too much and not too little, and who----
Mr. Norwood. Who is ``we''?
Mr. Emanuel. I think that's a collective responsibility,
and as a matter of fact, ASCO, the American Society of Clinical
Oncology, has undertaken a $5 million study to try to find out
where the flaws in the system are. We know that there are flaws
in the system and that it's not working perfectly; and I think
it would be wrong at this point in time to say, just because
I'd like to be treated in the United States, that we have a
flawless system.
We know we have quality problems, and we know we need to
have oversight and to improve the quality of cancer care
delivery. The issue is, where are the problems, how can we
monitor them, and how can we collectively--oncologists, the
government, nurses, hospitals, insurers--improve that system.
Mr. Norwood. I see the red light, Mr. Chairman.
Mr. Greenwood. The time of the gentleman from Georgia has
expired. I thank the gentleman for his questions, and let me
advise the gentleman from Georgia that it is my intent, in the
legislation that we introduce, to fix this problem; that we
will, in fact, direct CMS to do the work with these
associations, but certainly to provide the technical support so
that we can develop the data, so that they are adequately
compensated. And that will not be a burden placed on the backs
of the voluntary organizations exclusively.
Mr. Norwood. And, Mr. Chairman, if the organization has a
white paper on--at least their opinion on how to go about
fixing the problem, shouldn't at least CMS have a white paper
on how they think the problem ought to be fixed?
Mr. Greenwood. Well, we're going to make them work so fast
that they won't even have time for a white paper.
The Chair asks unanimous consent to submit for the record
the following documents: two volumes of committee documents;
the opening statements of--the statements submitted by
Congressman Stark and other members' opening statements; two
letters to the committee from U.S. Oncology, clarifying the
documents obtained by the committee.
And I would ask unanimous consent that we hold the record
open for members to submit questions.
With that, we thank the final panel for your testimony, for
your presence, for your endurance as well. This committee does
intend to fix this problem. We intend to fix it in short order.
We intend to fix it rationally and fairly for the benefit of
the taxpayers, the beneficiaries and the valued health care
providers. Thank you.
The committee hearing is adjourned.
[Whereupon, at 3:15 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
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