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

View 37 Comments >