Oncologists Taking the Profits

by Tracy A. Shields

Abstract

                Ever since the transfer from inpatient to outpatient cancer treatment, there have been many issues involved with the pricing of cancer drugs.  Oncologists are receiving discounts from large pharmaceutical companies and administering them to cancer patients for a large profit.  Medicare reimbursed these doctors according to the AWP.  They are beginning to realize the inaccuracy of the system.  Oncologist claim the need for these extra reimbursements is due to the extra expenses incorporated with each outpatient visit.   

Oncology and Profit Making

            A 70-year-old woman named Jan Cohn has been diagnosed with colon cancer.  An Oncologist is treating her in an office setting instead of going to a hospital.  Jan soon receives a letter stating that Medicare is not paying enough in reimbursement for the oncologists to perform her chemotherapy treatments.  She may be forced to switch to a more toxic form of cancer treatment or have to travel to a hospital and wait for a longer period of time before receiving her chemotherapy treatment.  Not only do the elderly have to deal with the fact that they have cancer, they also have to deal with the outrageously high prices that go along with treatment. Are physicians charging too much for these drugs? (Harris 2004) 

            Oncologists are cancer doctors that administer drug treatments into cancer patients.  The most common drug used by oncologists is chemotherapy. Around 80% of cancer patients will use this treatment.  Chemotherapy is also the most profitable drug for the oncologists.  Although Medicare does not pay for prescription drugs, it will make an exception for cancer patients.  Medicare will reimburse the oncologists up to 80% and the rest would be copayment for the patient (Benson 2001).  If all of this is true, why is there controversy between the oncologists and the government?  Oncologists should not be able to buy their own cancer treatment drugs at a discounted price and sell them for a major profit. 

Oncologists Selling Drugs to Patients

            In 2002, the American Cancer Society estimated about 1.3 million new cancer cases will be diagnosed and 555,000 are expected to die.  In 2001 Americans spent a total of $56 billion on direct medical care.  In the prior five years, the incidence and death rates had fallen steadily by 1.1 percentage points each year.  They have also discovered a five year survival rate for all cancers.  That comes to a 62 percent survival rate which involves more diagnostic tests for a healthier population.  The radiation treatment known as chemotherapy is now even stronger, safer, and targets to specific conditions.  Oncologists use this on top of a host of other drugs used exclusively to manage the harsh side effects (Serb 2002).

            The process of transferring cancer patients from the hospital to private office settings was meant to be a better way of administering drugs.  It turned out to be more convenient, but also much more expensive.  People pay more for the drugs than the actual services being offered by the oncologist.  Oncologists are one of the very few doctors that are able to purchase and sell their own drugs to their patients.  Certain pharmacies that produce these cancer drugs sell them to the oncologists at a discounted price.  Some drugs, such as carboplatin sells for about 20% less than the regular market value (Benson 2001).  Another drug was discounted at 86% called leucovorin.  This drug cost the doctors $3.00 and their total reimbursement for it was $17.50 (Abelson 2003).  Even at these discounted prices the oncologist will turn around and sell the drug for more than its original market value, in turn creating a large profit for themselves.  A large percent of the money they receive comes from Medicare and other governmental insurance programs.  Because oncologists tend to charge an excess amount of money for chemotherapy along with other cancer fighting drugs, they get a larger reimbursement from Medicare.  Some insurance companies have a plan to buy the drugs themselves to administer to the cancer patients and just pay the oncologists for their time and services they put in with that patient.  This would save money and also make sure that the oncologists are being paid honestly.  The Clinton administration tried also to change the reimbursement plan and it was shot down primarily by doctors and also the governor of Texas at the time George W. Bush. Testifying before Congress, Robert M. Hayes said, “We think it’s a bad system that creates bad incentives that creates bad medicine.” (Abelson 2003).

            Another problem with oncologists administering their own drugs is determining when a patient should discontinue the treatment.  Some cancer patients are continuously treated when there is no effect at all.  Many patients are reported going through chemotherapy in the last six months of their life.  A team of researchers at the National Institute of Heath found “a third of those patients received chemotherapy in the last six months of their lives, even when their cancers were considered unresponsive to chemotherapy.”  Oncologists continue to administer these drugs without any real evidence of progress toward the cancer patient.  This is yet another way for them to legally gain a profit off of Medicare (Abelson 2003).

Medicare Reimbursements

            Long ago, cancer patients where to receive their treatments as an inpatient in the hospital.  Soon after, they developed the outpatient treatment, which was more beneficial to the governmental insurance programs.  They finally developed the clinical way of administering drugs to cancer patients.  This was supposed to be the most convenient way for Medicare as well (Harris 2004).  About 80 percent of patients now receive their care in a clinical setting.  In an estimated ten years, no Medicare beneficiary will be able to afford this.  Instead, they will all be pushed back into the hospital setting.  If these clinical centers stop delivering this care, it could lead to an overwhelming demand for hospitals all over the country (Jarvis 2003).  The Medicare reimbursement is very generous when it comes to cancer treatment.  Cancer drugs, such as chemotherapy, are one of the very few drugs that Medicare will reimburse.  Because oncologists can get these drugs at a discounted price, Medicare reimburses them by about 95% of the manufacturers’ AWP.[1]  The GAO[2] estimates that Medicare could be overpaying oncologists up to $1 billion per year on reimbursements, which go directly to the oncologists themselves (Benson 2001). 

The overcharging of these drugs lead the federal Medicare program to change the way they pay these doctors.  This change in reimbursement is making some oncologists very angry.  They started to write letters to their patients threatening them with large out-of-pocket costs of administering chemotherapy.  Instead they would administer more toxic, generic drugs that are to have the same effect, but at a greater risk.  The oncologists’ plan was to turn people against the new federal Medicare program to lower reimbursements by using scare tactics.  To compensate for the loss of money, Medicare decided to lower the reimbursement of drugs administered by about 10% on average and almost double the office fee.  This seems to be a better approach to the reimbursement processes (Harris 2004).  If this change in plan leaks over into 2005, oncologists believe that this will cause a “substantial impairment” of patients being able to receive cancer treatments.  They are asking Congress to adjust the payments so they can receive the same amount of reimbursement in 2005 and 2006 as they did in 2004 (Piotrowski 2004).

Rachel Tyree of the American Cancer Society does not think that patients should have to wait until 2006 to receive expedited coverage of oral drugs.  The oral drugs make up about 5 percent of the oncology market and are only covered by Medicare if it’s in an injectable form.  She also believes that Medicare should pay for cancer screenings to anyone who wants them.  As of now patients are only getting screenings if their doctor feels they are at high risk.  “Our hope is we’ll have a number of Medicare beneficiaries who take preventative action and get screenings before they get sick,” she stated.  “Last year, 380,000 Medicare beneficiaries died of cancer.  In the future we hope to see the numbers drop” (Jarvis 2003).

According to a survey of cancer doctors, the Bush administration estimates cuts in Medicare payments too nearly double.  The governmental reimbursement will not even equal the cost of some of these drugs to the doctor.  Reimbursement for medications will drop 15 percent on average although the cuts would not exceed 8 percent on average.  Oncologists will spend more on epoetin,[3] which is a common treatment for cancer patients, than Medicare will reimburse.  Also, Medicare won’t even cover 70% of what it costs for the drug pamidronate.[4]  Medicare will not reimburse most prescription medicines until 2006.  They will cover intravenous chemotherapy and some other treatments that are supposed to be dispensed by the oncologist.  The government is looking at a saving up to $530 million for these proposed benefits.  Medicare is looking at $270 million in savings for next year.  The reason the overpaying went on so long is because the government acknowledged the fact that the doctors were underpaid for their practice expenses such as equipment and nurses (Sherman, 2004).

Under the new Medicare bill, cancer patients will be covered for oral anti-cancer drugs, such as Gleevec and Tamoxifen.  They will also be covered by prostate, colorectal and cervical cancer screenings.  These will be done as a part of the Welcome to Medicare physical.  Mammography screenings will also be covered although payments will increase if it calls for a diagnostic mammography.  Finally, under this bill, oncologists will receive an increase in payments for their practice expense (Jarvis 2003).

Oncologists Fight Back

            Oncologists feel like they are being targeted for bad publicity.  The revenue they receive from the sale of cancer drugs has put them in a very bad position.  These doctors believe that the money they receive is adequate for the expense of administering the highly toxic drugs.  They would be happy to accept a lower reimbursement if they were fairly compensated for the medication delivery to the patients.  Most oncologists admit that they receive a very good profit on these drugs, but this is not their motivation.  The tremendous infrastructure of delivering chemotherapy is not recognized by most of the public.  The price of staff and special equipment along with the extra space can be very expensive (Green 2003).  Some doctors are accused of providing chemotherapy to patient who don’t actually need it and are showing no improvement.  Oncologists say they only do what the patient wants.  If there is a chance of living, no matter how slim, the patients willing to take it even if they are showing no improvement.  Oncologists don’t deny these ambitions because undertreatment is a much greater risk (Abelson 2003).  

            If Medicare does the $1 billion cut annually over ten years, it will be too expensive for oncologists to administer their drugs in community clinics.  They believe that the drugs are expensive and Medicare doesn’t even begin to compensate for them.  Some oncologists believe that Medicare is gambling on doctors not sending their patients to hospitals.  They expect them to absorb the cost from some different source (Jarvis 2003).  Dr. Peter D. Eisenberg is an oncologist from Greenbrae California state, “Now, reimbursements are going down to Kmart levels, and we can’t provide the level of service our patients have become accustomed to.”  He goes on to say that his practice had to lay off six of their staff members due to this cutback.  These setbacks are an inconvenience to the patients and staff members (Harris).    

Legal Issues

            One problem involved with the reimbursement is the Medicare fee schedule that was mandated into law under the Balanced Budget Act of 1997.  A large collection of Medicare reforms were in this legislation, which is hospital-based, not office-based.  The reimbursement established by congress in 1997 is inaccurate according to today’s standards.  Head of the Center for Medicare and Medicaid services Thomas Scully testified that “Congress could provide about $51 million a year in additional funding to oncologists that would cover their practice expense” (Benson 2001).   He goes on to say that the Medicare payments for drugs are much higher than the amounts drug manufacturers and wholesalers actually charge the providers.  This means that the Medicare beneficiaries and the United States taxpayers pay more than the average price that the law intended them to pay.  He wants to continue to work with Congress to implement an effective legislation.  The Improvement and Protection Act of 2000 is another idea to a market-based system for drugs.  This would adjust payments for services related to furnishing drugs such as practice expenses for oncology administration.  It also provides authority for the secretary to act after reviewing the GAO report to Congress (Scully 2002). 

            Congress is expected by cancer patients and oncologists to keep a current level pricing payment until 2006.  This could give the various agencies time to complete their studies on the new pricing system.  Ketchum Communications is a public relations company working to promote the change in Medicare law, along with oncologists and administration.  They have spent $87 million on television and mailing ads to get the word out about the prescription drug coverage that will be available in 2006 through Medicare (Sherman 2004),

            Some say that we can lower the prices by having patients buying their own oral drugs.  Oncologists argue that patients may suffer if the doctors don’t buy the chemotherapy drugs directly.  A case in Kansas City, Mo. described a pharmacist who was sentenced to 30 years in prison for diluting chemotherapy drugs.  He then sold these drugs to the doctors who in turn administered them in their offices.  This illustrates why oncologists would be worried about patients buying their drugs directly from the pharmacists (Abelson 2003).

            A British drug firm named AstraZeneca agreed to settle federal charges for giving away free samples of its cancer drug, Zoladex.  American doctors were benefiting from these drugs by receiving reimbursements from Medicare even though they were of no charge at all.  These crimes involve cheating the American government and costs millions of dollars to settle.  The National Health Care Anti-Fraud Association in Washington DC believes that 3 percent of America’s total health care spending may be lost to fraud.  In 2001 this total came to $1.4 trillion.  The government spends about $100 million to fight the health care fraud (Sick 2003).   

There have also been many cases brought against drug companies using discounts on their drugs to influence doctors.  A Minnesota lawsuit accused Pharmacia[5] of having “induced physicians to purchase its drugs, rather than competitors’ drugs, by persuading them that the wider ‘spread’ on the defendant’s drugs would allow the physicians to receive more money, and make more of a profit, at the expense of the Medicaid program and Medicare beneficiaries” (Abelson 2003).  An example is a drug called Adriamycin,[6] which is sold to doctors for just $7.40 for 10 milligrams by Pharmacia.  The patient using this drug must make a copayment of $8.60 for this dose.  On top of that, Medicare will reimburse the doctor $34.42 according to the AWP.  This means the oncologist will receive $35.62 over what they paid for the drug.  Another lawsuit was filed in Connecticut against seven companies who produce chemotherapy drugs.  Oncologists are administering the drug Anzemet[7] for $166.50 per dose priced by the AWP, and they are receiving it at a discounted price of $90.45.  Yet another lawsuit came up in New York against three different companies.  They are accused of conducting “elaborate schemes to inflate the price of prescription drugs for consumers and government health plans” (Green 2003).  TAP Pharmaceutical Products agreed to settle federal charges and pay $885 million in 2002 for conspiring with doctors to bill the government for free samples of the cancer drug Lupron[8].  After Congress changed the reimbursements from Medicare, oncology lobbyists said this would devastate the system of cancer health care (Harris 2004).  Similar to this case, Bristol-Myers Squibb Co., which is the largest supplier of oncology products and cancer treating drugs, provided doctors with inducements in exchange for purchases of other Bristol pharmaceuticals.  Such incentives included free drugs and devices such as “cytoguards” which prevent spilling of intravenous administered treatments.  This is suspected to be a disguised kickback.  They also improperly billed Medicare for these free drugs given to them which violated the Prescription Drug Marketing Act of 1987.  If violated, this statute provides 10 years in prison and $250,000 in fines for each billing violation (Cloud 2001).

Christine Kirby is a spokesperson for Aventis, which is another producer of the overpriced drug Taxotere[9].  The net profit made off of Taxotere by oncologists is $44.79 with a $56.73 copayment from the patient.   She states, “The issue is broader than the pharmaceutical industry, and the issues that have been raised cannot be resolved by the industry or by a particular pharmaceutical company alone.”  She goes on to say that reimbursements according to the AWP are undefined because the government departments use AWP in different ways at different times.  For this reason, Aventis quit using the AWP system all together.  Kirby also states, “Historically the system for reimbursing prescription medicines has been fraught with complexities, confusion and inconsistencies, and long-standing efforts on a national basis to reform the system have so far been fruitless” (Green 2003).   

Generic Drug use for Cancer Patients

            The production of generic cancer drugs will help to lower the outrageously high prices of name brand drugs being produced now.  An example of a drug would be Taxol.[10]  This drug is very important for a cancer patient’s survival but it comes at a high price.  It is anywhere between $10,000 and $20,000 for a complete treatment.  If there could be a generic brand of Taxol out there it could lower the price significantly about 30 percent to 50 percent.  Having a generic brand would benefit hospitals, oncologists, patients, and government reimbursements (Miller 2000).

            Large drug companies have come up with clever ways to avoid the production of generic cancer drugs.  In order for them to delay the approval of generic drugs is a stream of complicated drug regulatory laws.  Developing a patent by finding new purposes for old drugs is yet another way.  They can also use patents on chemicals used for these drugs and the way they are administered.  Bristol-Myers Squibb Co. took advantage of all these powers and had an exclusive right to sell Taxol given to them by the federal government in 1992.  This contract was for five years and after that other drug companies where able to sell different versions of this drug.  Ivax was the first drug company to make a generic brand and was approved by the FDA to have exclusive rights for six months.  In this amount of time they could sell their version of the drug at about one-third less than the original Taxol.  This drives the market down for Taxol and balances the prices.  If more generic drugs are made, the prices will continue to drop and it will reduce monopolies.  Soon after AWP would lower, therefore reducing the reimbursement for Medicare and cancer doctors could still receive them at a discounted price (Miller 2000).    

Conclusion

            Oncologists should not be able to buy their own cancer treatment drugs at discounted prices and sell them for major profit.  By reading these facts it’s clear to see the situation being faced by both oncologists and the government health programs.  Oncologists would like to see the reimbursement stay the same while the government would like it cut by almost half.  The argument can go both ways to a point.  The true economical benefit would be to cut the Medicare reimbursement and save the $1 billion that we, the taxpayers, overpay oncologists every year.  Oncologists argue that the expense goes to the administering of the drugs, not the cost of them alone.  There is also the payment of nurses, office building and supplies, and all other extra expenses.  Yet oncologists are paid better than most other physicians, including surgeons.  By the year 2006 Congress should have a plan to lower the cost of reimbursing drugs for cancer patients while still paying an adequate amount of money to the oncologists for patient’s office services.  If cancer doctors refuse to accept this new legislation, there could be an overcrowding demand for the hospitals.  It is in good hope for everyone that this does not happen and this issue can be resolved in a proper and timely manner. 

References

            Abelson, R. (2003, January 26). Drug Sales Bring Home Profits, And Scrutiny, to Cancer Doctors. The New York Times, pp. 1.

            Benson, L, (2001, November 7). Reimbursing Cancer Care: Medicare Policies Challenged. Journal of the National Cancer Institute, 93, 1595-1597.

            Cloud, D. (2001, February 27). U.S. Scrutinizes Sales Practices Of Bristol-Myers. Wall Street Journal, pp. A3.

            Green, M. (2003, May). Under Treatment. Life/Health, pp. 74-80.

            Harris, G. (2004, March 11). New Payment System Spurs Talk of Return to Hospital Care and Old Drugs. The New York Times, pp. C1.

            Jarvis, J. (2003, December 14). Oncologists Fret over Medicare Law’s Effect on Clinics. Knight Ridder Tribune Business News, pp1.

            Miller, S. (2000 December 1). A generic poster child; The high-stakes fight between Ivax and Bristol-Myers over the cancer drug Taxol illustrates how patients can lose out to profits. Palm Beach Daily Business Review, pp. A11.

            Piotrowski, J. (2004). US Oncology going private. Modern Healthcare, 34 (13),  8-11.

            Scully, Thomas A. Capital Hill Hearing Testimony. Rev. Ed. Federal Document Clearing House Congressional Testimony, 2002.

            Serb, C. (2002). A Shifting Focus on Cancer. H&HN: Hospitals & Health Networks, 76 (5).

            Sherman, M. (2004). Cancer doctors say proposed cuts in Medicare payments nearly double administration estimates. Business News; Washington Dateline.

            A sick business. (2003). Economist, 367 (8330).