Oncologist pay and chemotherapy: Buy and bill needs to stop

Today’s article highlights the lingering problem of physicians buying and selling prescription medications to patients — at a profit.

The medical profession has struggled with this controversial practice  for more than 150 years.

In George Eliot’s 1874 novel “Middlemarch,” an idealistic young doctor named Tertius Lydgate questions the ethics of fellow physicians who make handsome profits prescribing and dispensing their own remedies to the townsfolk. His medical colleagues shun him for it.

Around the same time, the emergence of pharmacists (then called apothecaries) signaled the start of a major advancement in medicine. Pharmacists helped safeguard the delivery of medications to patients. This progress helped communities recognize the inherent conflict in doctors profiting from the medications they dispense.

As a result, medical specialties began abandoning the practice and the conflict. Today, the practice is largely extinct — with a few exceptions. A particularly problematic one: oncology and the in-office provision of chemotherapy.

At present, many oncologists continue the lucrative practice of administering chemotherapy under a “buy and bill” reimbursement scheme.

The origins of buy and bill for cancer drugs

In the 1940s, nitrogen mustard — originally developed as a biological weapon — was discovered to successfully treat Hodgkin’s disease.

Because of the drug’s toxicity, doctors needed special skills and expertise to handle it safely. Cancer specialists quickly learned how to avoid harming patients and themselves during its administration, although the subsequent side effects proved serious.

As manufacturers introduced more chemotherapy drugs, oncologists bought them wholesale. They administered treatments in their offices and billed insurers at higher prices.

In the 1970s, there were still fewer than a dozen chemotherapy agents on the market. Their costs were minimal.

Then, the standard three-drug regimen for breast cancer cost about $250 (roughly $1,000 in today’s money). As a result, the impact of buy and bill on the oncologist’s income was relatively small and the cost to the health care system modest.

By the 1980s and 1990s, however, the number of new cancer drugs increased rapidly. Buy and bill became much more widespread.

Today, not only is there a broad array of agents, but the costs of more recently approved drugs often exceeds $5,000 to $10,000 per month.

Private insurance companies today have little choice but to pay for what is prescribed. As a result, many oncologists have substantially increased their practice income with reimbursements from reselling the drugs they administer to patients.

Medicare has used a different approach to payment, but also enabled physicians to profit from buy and bill.

Unlike commercial insurers, Medicare employed an average wholesale price (AWP) set by manufacturers. They used it as a reference point for what doctors should charge. AWP is akin to a suggested retail price and is typically much higher than the actual price physicians paid to acquire the drugs.

The result of this buy and resell practice contributed to a rapid escalation in cost of cancer care – both to insurers and public payers like Medicare — with minimal changes in cancer survival rates.

Of course, oncologists staunchly defended the markup, arguing that Medicare did not properly reimburse them for their efforts and administrative costs. But when much of one’s income is determined by these clinical decisions, bias was and is inevitable.

Passage of new legislation: A step in the right direction?

Congress attempted to fix the problem with passage of the Medicare Modernization Act (MMA) in 2003.

The new law did not take away physician’s ability to buy chemotherapy drugs, administer them in-office or bill for them. However, it did alter the reimbursement structure.

To bridge the gap between the price physicians pay for drugs and the pay they collect, the MMA developed a reimbursement model based on average sales price (ASP), plus a 6 percent markup and administrative fee.

As part of this legislation, manufacturers are required to report a drug’s ASP to the Centers of Medicare and Medicaid Services (CMS) quarterly to substantiate reimbursements.

This change did not address the problem.

Oncologists maintained their income by altering their practice patterns.

As the reimbursement for established medications decreased, oncologists have chosen to use progressively more expensive chemotherapy drugs with increased frequency of treatment. That’s because under the fee-for-service reimbursement model, each new treatment equals another payment.

It’s difficult, if not impossible, to prove this shift is directly motivated by personal financial gain. But it’s also hard to deny the financial gain that resulted.

Moving away from conflicts of interest

Like other perverse incentives in a fee-for-service scheme, buy and bill creates a conflict between the medical interests of the patient and the economic interests of the physician.

As a nation, we need to move from a buy and bill approach to a system where an oncologist’s income is independent of the drug treatment chosen.

Patients deserve to feel confident in the clinical decisions of their doctors. The drugs an oncologist administers should be determined by,

  1. the type of cancer
  2. the scientific data on the efficacy of treatment
  3. patient preference

For every clinical specialty, the interests of the patient need to come first. A patient’s cancer treatment deserves to be at the top of the list.

Robert Pearl is a physician and CEO, The Permanente Medical Group. This article originally appeared on Forbes.com

Comments are moderated before they are published. Please read the comment policy.

  • Lisa

    I’ve wondered about this topic. My first oncologist recommended I have chemotherapy after it was discovered I had multi-centric breast cancer instead of a single, smallish invasive tumor. He made this recommendation without genomic testing of both tumors. I asked for geonomic testing of both tumors, which indicated chemotherapy would be of little benefit to me. I think my oncologist sounded disappointed when when he called me to give me the news.

  • QQQ

    Great article! Make me wonder of the buy and bill policy!

  • CSmithMD

    This is a big skeleton in the healthcare closet. Glad it’s seeing the light of day. Excellent post.

    • Ed

      Ranks right up there with PSA testing!

      • NPPCP

        Unless, of course, your PSA is 12.0 with complexed values indicative of a greater than 70% chance of prostate cancer…..then you will be selling them door-to-door via personal testimony.

        • JR DNR

          Unless you are the 1/3 patients who doesn’t have prostate cancer and ends up over treated and injured due to further investigations?

          And of course, prostate cancer doesn’t mean death from prostate cancer either. Out of the 2/3 of patients with prostate cancer, how many cancers would never progress to the point they become a problem?

    • NPPCP

      Next up – profits on cars, jewelry and candy bars. I’m tired of paying a 30% markup on a friggin Mars almond bars.

      • Lisa

        I don’t think Mars almond bars can be considered life saving, even if they taste great. And I am sure they don’t have as many harmful side effects as chemo.

  • Markus

    The described situation has already been changed. No question that circa 1990-2004 oncology markups were very profitable. But the Medicare allowables have been racheted back, and since Medicare is so big other insurance plans have followed their guidance. As a result, I know many oncology practices around the country have been sold to 340b institutions. 340b institutions are just about all big healthcare providers with integrated hospitals, insurance programs, employed doctors, and nursing services like VNA and hospice. These organization are allowed to charge more than private providers because they serve underserved communities.
    Many oncologist saw a 30-40% reduction in income when these changes were put in place. IIRC, the current median for oncologist reported by MGMA is $340,000 per year.

    • guest

      270,000/year for me, 4th year out of fellowship, practicing in a large metro area. Most of my former fellows are employed working for big hospital systems. No on really has a clue how much chemo profit they make, most are salaried. I think this article is a little bit behind the times.

      • Patient Kit

        I sure hope this article is behind the times. Cancer is scary enough without having to wonder about this stuff. My GYN ONC is employed by a big hospital system, he has always treated me very well, like my being on Medicaid was a non-issue. And he didn’t push chemo. He took my case to the hospital’s tumor board before he made his final recommendation about chemo (which was, lucky for me, no chemo.)

  • southerndoc1

    “Like other perverse incentives in a fee-for-service scheme, buy and bill creates a conflict between the medical interests of the patient and the economic interests of the physician”

    There’s nothing in the least perverse about FFS: it’s the way every profession in the world has worked for centuries. I’m far more concerned about what one of the most insightful posters here described as:

    “the contractual arrangements of employed physicians, who are operating under a perpetual conflict of interest, particularly when their employer is also a risk bearing entity, such as a payer.”

  • DeceasedMD

    Unfortunate they will lose their credibility if they continue to treat it as a business model. not that that will stop them.

    • SarahJ89

      Here’s the problem I see with this practice. (And it depresses me that so many of the commenting doctors do not.) I have spent many years in and around small businesses and nonprofits. I’m married to a CPA. Fiscal practices come up often in conversation in our house.

      There are certain “generally accepted accounting practices” one should always strive for in setting up a financial structure. The underlying principle in all of these practices is separation. The person who keeps the records should not be the person who writes the checks.The person who writes and signs the checks should not be the person who authorizes the expenditure. Ideally financial operations should be split among three people.

      Can you see how this plays out in an oncology practice? The person who prescribes simply should not be the person who benefits financially from the prescription, either directly (oncologist-owned practice) or indirectly (oncologist owned by the corporation making the profit).

      This is really basic accounting and common sense. I find it distressing to see so many physicians here so caught up in the forest that they cannot see the trees around them.

      • southerndoc1

        No, I think we agree that there is a conflict of interest here.

        But it’s miniscule compared to the enormous, gaping, big enough to drive a truck through conflict that every doc and every patient at KP has to deal with on a daily basis at every appointment, a conflict that the self-righteous OP consistently ignores.

        And then he throws in a holier than thou slam at all FFS!
        That’s why we’re seeing red when he starts preaching ethics to us.

        (And I’d add that if oncologists, like other docs, were paid to talk to their patients, they would be somewhat less motivated to use the sale of drugs as a way of covering overhead, etc. Doesn’t justify it, but that’s always the elephant in the room)

        • Lisa

          It seems to me that my oncologist is paid to talk with me. The vast majority of time I spend with her is spent talking.

          • southerndoc1

            I don’t know the financial arrangements in that office, but my point is that it may be the income from drugs that covers all the overhead that is still being racked up while your doc talks to you, generating minimal or no revenue.

            Without the income from drugs, I bet we’d see a lot more oncologists scheduling patients every 10-12 minutes, as in primary care.

            It’s complicated.

          • Lisa

            I know it is complicated but I still like to think that my oncologist’s recommendations to me are made without regard to how the recommendations will affect her income.

            I’ll have to see what she was paid for my last visit with her, to discuss the results of a bone scan. We talked for 10-12 minutes, but that was plenty of time to discuss what needed to be discussed.

          • Patient Kit

            Mine talks with me too.

  • John C. Key MD

    I have never understood why “buy and bill” is so great in other professions and businesses (often described as “value added services”) yet physicians are interdicted or criticized for same.

    As long as patients receive a valuable good or service at an appropriate markup, how can there be anything wrong with it? Is the pharmacist inherently more noble? I doubt it.

    • Lisa

      Is chemo valuable for every cancer patient? And what is an appropriate price?

      I would rather think my first oncologist made his recommendation that I have chemo after carefully considering my case and that his recommendation was independent of financial considerations. I don’t know if that was the case and I will swear that he sounded a bit disappointed when he told me the testing I requested indicated I would not benefit from chemo.

      • Suzi Q 38

        I told my gyn/surgeon the same thing, but I backed it up with a study that focused on my specific ovarian borderline tumor.
        I flat out told him I wasn’t doing it at this time.
        It was so small when they removed it that I was willing to to the “wait and see.”
        That was 3 1/2 years ago.
        At the time, he was floored that I had the tumor at all.
        During the surgery, he didn’t see it, and the initial pathology report missed it while I was on the table and he was deciding whether or not to take or test my lymph nodes. I told him not to do so, unless it was needed.
        The second pathologist caught the existence of the small tumor.
        The study recommended watchful waiting….and no chemo or radiation.
        He never told me that I should have it, and if he did, I would have to ask him “why?”

  • Patient Kit

    The case of Dr Farid Fata in Michigan, if true, is extremely disturbing. He’s an oncologist who is accused of defrauding Medicare of $35 million dollars (or more) over 2 years by “treating” patients with unnecessary chemotherapy. The millions of dollars stolen is bad enough, but what kind of oncologist would subject many patients to unnecessary highly toxic chemo? That is just almost unimaginable that a doctor would do that. He was arrested a year ago and held in jail without bail because he was considered a risk to flee the country. The last I read, they are supposed to be doing jury selection soon.

    I’m just so grateful for my awesome GYN ONC and his recommendation for me with stage 1A OVCA to not do chemo and the time he took to carefully explain why I shouldn’t do chemo and answer all my questions. I hope most oncologists are like mine.

    I realize there is some grey area about when to do chemo and when not to. But if you read what this doctor is accused of doing, it’s not about medical grey area at all. So disturbing and scary.

    • Suzi Q 38

      Thank you for the reminder about the “loser” Dr. Farid.

      All the more reason to make sure that you need the chemo in the first place.

      Getting two different opinions and then researching articles and information in the Up To Date website wouldn’t be a bad idea.

      People sometimes wonder why we want two opinions or hesitate before treatment…Dr. Farid is a scary example of why.

      • Patient Kit

        I’ll admit that the Dr Fata news flipped me out a little bit. Nobody diagnosed with cancer wants to hear that an oncologist is capable of doing what Dr Fata is accused of doing.
        :-((((((((

  • southerndoc1

    Does KP sell insurance policies at cost?

    • NPPCP

      And that sums it up nicely……comments closed.

  • Patient Kit

    Your last sentence isn’t making me feel any better. :-(((((((

  • disqus_question_everything

    Unfortunately, the economic interests of the medical and pharmaceutical providers trump patients’ health in too many cases. There is way too much over-treatment and harm in the surgical specialties. For example, in gynecology, hysterectomy is grossly overused despite the fact that it causes life-long harm (ovary removal or not) – anatomical, skeletal, hormonal, sexual. Only 2% of hysterectomies are done for a cancer diagnosis. 76% do not meet ACOG criteria. And shockingly, 73% of women lose healthy ovaries (castration) at the time of hysterectomy despite a less than 2% lifetime risk of ovarian cancer. The da Vinci robot is the latest marketing ploy. Another gynecologic surgery – endometrial ablation – has been proven to do more harm than good when done in women under age 46 and even more so in women under age 40. Ablation increases the risk of hysterectomy due to chronic, debilitating pain that too often occurs years post-ablation.

    A few years back, there were major headlines about unnecessary heart bypass surgeries at Redding Medical Center in CA and stent surgeries on the east coast. Where are the headlines about the overuse and harm of hysterectomy?

    • Patient Kit

      The weird thing about hysterectomy is that, despite the alleged widespread overuse of hysterectomy, I know a fair amount of women who are begging their GYNs for a hysterectomy, but their docs are very resistant to the idea. Strange co-existence of these two situations.

      • querywoman

        That’s also true!

  • Lisa

    Under the ACA insurance companies must disclose how much they spend on health care nad how much they spend on administrative costs. If an insurance company spends less than 80% on medical care and efforts to improve the quality of care, they must rebate the portion of premium that exceeds this limit. So there is less incentive for insurnace companies to spend less money on patient care.

    I think the insurance companies desire to minimize the amount they spend on reimbursements for paitent treatments is well balanced by our fee for service medical system. Btw, I tend to like Kaiser, just because they are not fee for service. My sister belongs to Kaiser and she says they work well for both her and her medically complicated son. She has no problem with her mostly routine medical care and with specialist care for her son, who is autistic and has epilepsy. I know many people who have been treated at a Kaiser facility for breast cancer and I never have heard anything that suggests Kaiser is trying to limit the amount spent on their medical care. I would consider using Kaiser but it is not an option due to where I live.

  • Lisa

    Which conflict of interest is better, trying to make money by providing unneeded treatment to a patient or not providing treatment in order to maximize profits?

  • Lisa

    While I don’t think most doctors are greedy and recommend a treatment just to make money, I want to be certain that the treatment is needed. Of course, I am also concerned about the other alternative, not getting appropriate treatment. But my experience leads me to think I am much more likely to be over treated than under treated.

  • Lisa

    I get tired of the analogies comparing cars to people. A car owner is in a much better position to determine what is wrong with his car and to shop around for a better price on any work that needs to be done. A cancer patient is not in the same postion.

    • Khornet

      Really? Then what’s with all the Cancer Centers I see in every town, and all the ads on TV? And you can escalate it up the scale to cancer care or down to groceries, but in all cases a profit must be made or you starve, and buyer and vendor have to take some things on trust, including whether the vendor’s profit is “reasonable.” And if you think your doc is making too much from your care, you go elsewhere……unless of course, a bunch of people who think they know what is a ‘reasonable’ profit have ‘reformed’ healthcare so that you’re stuck in a narrow network,

      • Lisa

        I don’t know what happened to my original response to this post. But quickly, if you think you can compare shopping for a car repair to getting a second opinion regarding proposed cancer treatment you are deluded. If your car breaks down, well you just don’t have a car. You can borrow one, rent one, ride a bike, walk, car pool. You have options. If you have a cancer diagnosis, you are make what could be life and death decisions. If you make the wrong one and suffer permanent harm, including death, you don’t get another chance.

        How does a patient know what a doctor or hospitals conflict of interests are and how those conflicts are affecting treatment recommendations?

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