Doctors at a Loss in Medicare Reform

For years, Dr. Jack Keech provided chemotherapy treatment for his elderly cancer patients in his Chico, Calif., office. This month, Keech reluctantly began sending many of those patients to nearby Enloe Medical Center.

The reason: A drop in Medicare reimbursements meant Keech would lose money on several intravenous drugs, including Genentech Inc.’s Rituxan.

Physician and patient groups expect other doctors to mirror Keech’s move.

“We think many practices are going to find it difficult to pay for these drugs and may have to send patients to other locations,” said Deborah Kamin of the American Society of Clinical Oncology.

Medicare payments on some widely prescribed chemotherapy drugs are lower than the purchase price of the drug, Kamin said. While Medicare increased reimbursement on physician fees, it does not cover the shortfall in drug payments, she said.

About 80% of chemotherapy treatments are administered in physician’s offices, Kamin said, adding that hospitals cannot accommodate large numbers of additional outpatients.

“We call it the dark side of Medicare reform,” said George Dahlman of the Leukemia and Lymphoma Society, a patient-advocacy group.

Eli Lilly & Co. reduced the price on Gemzar, a chemotherapy drug, a move that narrowed the reimbursement gap, according to the American Society of Oncologists.

However, South San Francisco-based Genentech said it believed most physicians would continue to make a profit on Rituxan, though the gain would be smaller than in 2003. The company said it did not expect the change in reimbursement to affect sales of the drug, which totaled $1.5 billion in 2003 -- 45% of Genentech’s revenue.

Medicare this year slashed payments on most drugs administered in doctors’ offices to 85% of their average wholesale prices, down from 95%. Some drugs took deeper cuts. Reimbursement on Rituxan, a treatment for non-Hodgkin’s lymphoma, was set at 81% of its average wholesale price of $527 per 100 milligrams. A typical patient requires 700 mg per treatment.

The change was driven by evidence that Medicare had been overpaying cancer doctors for some drugs. In 2001, the General Accounting Office found that the federal insurance program for the elderly and disabled overpaid physicians for 18 widely used cancer drugs, including Rituxan. The spread between Medicare reimbursement and the actual price of drugs ranged from 13% to 65%.

The GAO report also noted that many physicians said Medicare reimbursement for the cost of administering the drugs was inadequate and they needed the overpayments on the drugs.

The Medicare reform bill signed by President Bush last year called for the agency to raise reimbursement on charges related to the administration of chemotherapy drugs. On Jan. 1, the agency raised payments to doctors for the first hour of chemotherapy by 260% and increased fees for each subsequent hour by 9%.

Chemotherapy infusions can take from 30 minutes to several hours to administer, depending on the drug.

Keech said the added reimbursement for his services did not cover the shortfall on reimbursement for some drugs, including Rituxan. He said Medicare paid him $427 for a 100-milligram vial of Rituxan that costs him $440. Although the loss may not appear large, over the course of a year it would amount to a nurse’s salary, Keech said.

“It isn’t trivial,” he said.

Keech began sending 22 non-Hodgkin’s lymphoma patients to Enloe, a nonprofit hospital near his office in Chico, a rural community 90 miles from Sacramento. Because Medicare reimburses hospital outpatient clinics at a higher rate -- 88% of a drug’s average wholesale price -- Enloe breaks even on Rituxan, said Nancy Ledoyen, who oversees cancer services at the hospital.

The hospital can accommodate Keech’s patients, Ledoyen said. But the infusion therapy clinic already operates at 95% of its capacity. The hospital would have to make difficult economic decisions -- including whether to extend the clinic’s hours or to increase its staff -- if more patients sought to use the facility, she said.

George Maderos, 70, a retired football coach at Cal State Chico, had been receiving Rituxan in Keech’s office for three years and was sorry to learn he had to go to the hospital.

“It is more convenient in the doctor’s office and the nurses know you,” Maderos said. “In the hospital, everything takes longer.”