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The Big C - Cost

Changes in Medicare payments have doctors who treat cancer patients in the office wondering whether they can survive.

TAMPA - Every weekday at 4 p.m., Patty Chastain, insurance manager at Bay Area Oncology, gets a list of about 30 drugs that will be needed the next day for infusion into the practice's cancer patients.

Then Chastain sits down at her computer, pulls up her drug wholesalers' Web sites and starts shopping.

"I've learned how to play the game," she said of the negotiations that result in next-day drug deliveries to the Habana Avenue office. "I know what we're spending on drugs and what we're getting reimbursed by Medicare and the private payers."

But the game is changing. Last year's Medicare Modernization Act, while expanding government coverage to most outpatient drugs, cut the reimbursements that have gone to doctors who treat cancer patients in their offices.

The cost of cancer care has skyrocketed for Medicare in recent years because of an aging population, an increasing incidence of cancer and an abundance of new drugs that are incredibly effective but also devastatingly expensive. For example, Herceptin, the most popular treatment for breast cancer, can be given once a week for years. The drug's price: about $2,000 a dose.

Officials with the Centers for Medicare and Medicaid Services, the federal agency that runs Medicare, said these attempts to rein in costs should have no effect on patients. But a St. Petersburg doctor said that at a recent national meeting, half of the oncologists present said they would stop treating Medicare patients if the changes go through as planned over the next two years.

And practices such as Tampa's Bay Area Oncology, which gives transfusion treatments to 60 patients a day, half on Medicare, worry that the cuts will put them out of the chemotherapy or infusion business.

"I don't want to sound like overpaid whiners," said Dr. Christopher George, one of three physicians at Bay Area Oncology. "But I know what it costs to run this infusion center. And if the Medicare cuts go through as planned next year, we'll have to close it."

Though George already has diverted some patients on high-priced medicines to the outpatient infusion unit at St. Joseph's Hospital, that's unlikely to be a long-term alternative to in-office services offered by George and other Tampa Bay area oncologists.

Michael Quaranta, administrative director of St. Joseph's Cancer Institute, said oncologists currently provide chemotherapy in their offices to more than 75 percent of the 8-million cancer patients receiving such treatments nationwide.

"Hospitals would never be able to absorb that influx," he said. "And we're already losing money on Medicare patients."

In Pinellas County, Dr. Jeffrey Paonessa heads an oncology practice that delivers chemotherapy to about 200 patients a day in four offices. Earlier this year his five-physician practice merged with a three-doctor office in north Pinellas, a move prompted by changes in Medicare reimbursements. They hope a bigger practice translates into volume discounts on drugs.

The group also may consolidate its four infusion clinics into one central location to save costs. And Paonessa said he wouldn't be surprised to see the group's infusion treatments ended completely within two years.

"Five years ago I would have fought to keep it," he said. "Now the government can have it. We'll order the drugs and let the hospitals, pharmaceutical companies and government work it out. I didn't go into oncology to become a pharmaceutical rep."

Until this year, oncologists were reimbursed for chemotherapy drugs at 95 percent of the average wholesale price (AWP). But it was widely acknowledged, even by doctors, that this formula overpaid them for drugs. The joke in the industry was that AWP, a number that often bore little resemblance to the doctor's cost for the drugs, stood for "Ain't what's paid."

In 2000 the General Accounting Office estimated that Medicare overpaid doctors at least $500-million for chemotherapy drugs.

Physicians argue that Medicare used a formula that overpaid them for medications while underpaying them for every other expense tied to infusion treatments, which average two to three hours. That includes pharmacists' and nurses' time, tubes, pumps, refrigeration and office overhead.

"We had a system where we made up the overhead out of the margins (on drugs)," said George, who has been with the Tampa practice for 18 years. "The implication that we were making millions on these drugs and doctors were choosing drugs based on the reimbursements is simply not true."

Chastain in George's office said that under the old system, Medicare's reimbursements were about 15 percent above the cost of the drugs. That allowed the practice, which has 25 employees, to pay registered nurses certified in oncology to deliver all chemotherapy treatments. It also helped pay salaries for support staff who schedule appointments, arrange outside tests, get insurance authorizations and handle billing.

Paonessa in Pinellas County, whose four offices have 128 employees, said the margins allowed him to treat Medicare patients who had no supplemental insurance to cover their 20 percent copay. He also didn't have to worry about financial ruin if reimbursement for a drug was denied by an insurer.

As part of last year's Medicare overhaul, in January the government reduced reimbursements for cancer drugs to 85 percent of the average wholesale price. To offset the cuts, payments for administering infusion treatments were given a one-time boost of 32 percent. The bottom line for this year, most doctors agree, is a slight but manageable decline in Medicare reimbursements.

But more cuts are coming. Next year, Medicare will reduce reimbursement for the infusion process and it will institute a new formula for drug reimbursements. Medicare will give doctors 106 percent of the average sales price, a figure now being compiled using data from the pharmaceutical industry. Doctors fear the formula could pay them less than their cost for the drugs. The new drug rates will be announced by Medicare in July.

Medicare says the lower chemotherapy rates are based on data submitted by oncology trade associations. An executive with the American Society of Clinical Oncologists, which represents more than 20,000 cancer specialists, said the government is working with a flawed formula and insufficient data.

The upshot of the wrangling is that Paonessa said his reimbursement for a chemotherapy treatment will drop to $160 next year, compared to $217 this year. It will go even lower in 2006.

Dr. Robert Berenson, a senior fellow with the Urban Institute and former acting deputy administrator of Medicare, said the change was long overdue.

And he doesn't necessarily believe oncologists will stop providing chemotherapy in their offices as a result of the cuts.

"I'm sure some are saying the sky is falling so somebody changes the policy," he said. "I'm not convinced oncologists won't continue in the mid to upper middle income bracket (among doctors). And though chemotherapy might not be quite a profit center it once was, if the payment is appropriate, doctors will continue to provide it."

While oncologists and Medicare battle over the definition of appropriate, cancer patients are wary of losing the option of receiving treatment at the doctor's office. Annette Goddard, an 84-year-old St. Petersburg resident, has been a patient of Paonessa's since March.

"I am so interested in Medicare reaching a reasonable solution, rather than closing up these centers and running everybody through the hospital," she said. "That would be much more expensive and take so much time."

Myrtle Dierlam, 70, has been receiving chemotherapy for colon cancer at George's Tampa office for the past 31/2 years.

"They've kept me alive," she says of the biweekly treatments which have included $4,500 shots to combat the treatments' side effects. "When they say you have cancer, it's like they're saying you've got a death sentence and you're scared. At Dr. George's office, the nurses are wonderful. It helps take your mind off being a cancer patient."

Dierlam's husband, Richard, has ferried his wife to countless infusion treatments, as well as regular CT scans at the hospital. He said his wife would have little choice but to turn to the hospital for treatment if Medicare cuts force doctors to give up infusion.

"It would be crowded and you'd have to take a number, like in a meat department at a big grocery story," he said. "But if you were in the position my wife is in, you'd take it because everybody wants to live."

- Kris Hundley can be reached at hundley@sptimes.com or 727 892-2996.

Planned changes in Medicare reimbursements for in-office chemotherapy

IN 2005:

New cost formula introduced, with reimbursement for drugs at 106 percent of average sale price.

Reduction in reimbursement for other costs of infusion treatment.

IN 2006:

Further reductions in infusion reimbursement.

Doctors can obtain drugs directly through Medicare.