The Financial Impact of the Sequester Cut to Medicare Part B Drug Reimbursement in Community Oncology

Editors: note: This article will appear in the October issue of Evidence-Based Oncology.

Medical expenditures for cancer care are estimated to top $158 billion (in 2010 dollars) in 2020, representing nearly a 30% increase compared with 2010.¹

Adequate access to cancer care continues to be a challenge due to the closing of community-based cancer practices in the United States. The 2018 Community Oncology Alliance (COA) Practice Impact Report stated the following facts from the last 10 years: 423 individual clinics have closed, 658 practices have been acquired by hospitals, 359 practices have reported significant financial instability, and nearly 50 practices sent Medicare patients to receive chemotherapy elsewhere.² Causes of cessation of operations of many community-based oncology practices include:

1. Misuse and lack of transparency of the 340B drug discount program by hospital systems. This has led to unfair competition and market control,
2. Application of sequester to Part B drugs,
3. Burden and risks of running a private community practice in a climate of significant regulatory constraints and increased reporting requirements,
4. Lack of adequate site-of-care reimbursement parity between community-based clinics and outpatient hospital settings,
5. Decreased reimbursement for oncology care and treatments over the last decade.³

The Medicare Modernization Act of 2003 established that the rate for payment of Medicare Part B drugs is the average sales price (ASP) of the drug plus 6%.⁴ However, this percentage was affected when the Balanced Budget and Emergency Deficit Control Act of 1985 was amended by the Budget Control Act (BCA) of 2011. BCA required payment reductions in federal expenses through a sequestration order then set by the Office of Management and Budget and subsequently mandated by President Barack Obama on March 1, 2013. On April 1, 2013, a 2% cut was implemented to Part B drug reimbursement. However, the sequester is taken off the top of the 80% paid by Medicare, bringing a drop in the ASP from 6% to 4.3% and a 28.4% drop in reimbursement for cancer medications (chemotherapy, immunotherapy, and supportive intravenous drugs) under Part B reimbursement.⁵

In this study, we report the financial impact of the sequester cuts to Medicare Part B drug reimbursement to community oncology practices of different sizes.

METHODS

Data Source and Sample Selection. An aggregated database of medical claims from practice management systems used by community-based oncology practices was used to conduct this analysis. This deidentified patient information, which required no informed consent or institutional review board, was integrated with the practices’ drug cost and Medicare ASP information at the individual-service-line level. Any services provided to any Medicare patient during the period of January 2016 to March 2018 were included in the analysis.

Statistical Analysis. Practices included in this analysis were categorized based on the number of full-time physicians to adjust for the potential differences associated with patient and treatment volume. The categories were defined as follows: small practices had 1 to 5 physicians; medium practices, 6 to 10 physicians; and large practices, more than 10 physicians.

Patients were summarized by age category, practice size, and geographic region. The portions of Medicare patients per quarter were compared to determine if significant differences existed between practice size categories.

All analyses of reimbursement and costs were conducted for each quarter during the observation period, starting with the first quarter of 2016 and ending March 2018. The full ASP reimbursement and the corresponding sequestration amount were calculated for each service line. The differences were assessed in order to reflect the losses experienced by each service line and the differences among them.

Each practice’s drug-related operating margin was calculated based on the difference between their actual reimbursement and total Part B drug costs per quarter. The drug costs were based on invoice costs. The impact of sequestration was summarized as the percent of drug-related operating margin, which will adjust for potential differences in treatment utilization over time.

RESULTS

This analysis was based on cancer care provided to 396,848 Medicare recipients with an active cancer diagnosis during the 27-month period. These patients were treated at 92 community oncology practices representing 33 states, geographically distributed across the United States over the observation period. There were 54 small, 19 medium, and 19 large practices included within the sample. The percentage of Medicare patients was consistent throughout the observation period for the small and medium-sized practices, ranging from 52% to 54%. However, the large practices saw a 10% increase from the first quarter of 2016 (45%) to the first quarter of 2018 (55%).

The Table summarizes key patient demographics. Fifty-seven percent of patients were between 65 and 75 years of age, and those over 80 accounted for 23%. Leading cancer diagnoses included breast (26%), lung (11%), and lymphoma (9%). Of the top 10 diagnoses, 26% were hematologic malignancies.

During the observation period, these patients generated approximately $4.9 billion in Medicare allowable for medical services rendered. This resulted in a $78 million loss due to sequestration, or an average of more than $847,000 per practice during this timeframe. The average quarterly loss increased from $67,243 to $124,902 per practice from the first quarter of 2016 to the end of 2017, or an 86% increase in lost revenue. Small and medium-sized practices experienced an increase in their losses of approximately 13% while large practices saw more than a doubling of their losses due to sequestration. The latter was largely due to increased patient volume.

Overall, Part B drugs accounted for 68% of the total Medicare allowable generated. However, smaller practices had a slightly higher rate: 76% of total Medicare allowable associated with buy-and-bill drugs compared with medium (62%) and large (67%) practices. The overall growth in quarterly Part B drug reimbursement was 91% from the beginning of 2016 to the end of 2017. The reimbursement for large practices tripled, while it only grew 16% and 9% for small and medium-sized practices, respectively.

In parallel, the total quarterly drug costs increased 9% and 10% for small and medium-sized practices while they almost tripled in the large practices. Over the study period, the average quarterly drug costs to treat Medicare patients increased to approximately $1.9 million, $3.6 million, and $17.1 million per quarter for small, medium, and large practices, respectively.

The Figure displays the percent loss due to sequestration relative to drug-related operating margin. All practices experienced significant impact from sequestration over time. At the beginning of 2016, each practice, on average, experienced an approximate 28% to 31% loss due to sequestration. This remained steady for large practices while the small and medium practices began to experience more impact (38.4% and 34.7%, respectively). The overall average loss was 32% in the first quarter of 2018.

DISCUSSION

In this study, we present data demonstrating the severe financial impact of sequestration applied to Medicare Part B reimbursement in practices of different sizes and geographic distribution, representing 396,848 patients. The drop in reimbursement from ASP+6% to ASP+4.3% has been temporally associated with an increased number of closings and rate of closure of community oncology practices in the United States.

The closure of community oncology practices represents a significant impediment to appropriate access to cancer care. Another negative consequence of the closure of community practices is the shift of site of care from the community setting to outpatient hospital systems. Other research has described the ominous financial impact of the site-of-care shift.^6-13 The cost of cancer in outpatient hospital systems is more expensive—an average of 38% higher costs than community oncology practices—without any evidence of superior quality-related outcomes.¹⁴ More recently, we demonstrated a much higher cost of care in hospital outpatient settings with robust data, including a large number of patients treated with chemotherapy or immunotherapy for different cancer types. In addition, we also demonstrated 28% and 18% less emergency department visits within 72 hours and 10 days post chemotherapy, respectively.¹⁵

As the necessary debate about increasing healthcare costs continues and new proposals are made, including the blueprint to reduce the costs of prescription drugs,¹⁶ it is imperative that Congress and the White House address multiple facets of our healthcare system.

The sequester to the Part B Medicare drug reimbursement program has contributed to the financial distress of community oncology practices, inadvertently contributing to the shift of care from the community setting, which is known to deliver efficient, and less expensive, patient-oriented care compared with other sites of care.

Author Information:

Cass Schaedig is vice president, InfoDive, a part of AmerisourceBergen.

Susan Weidner, MBA, MS, is senior vice president for IntrinsiQ Specialty Solutions, a part of AmerisourceBergen.

For Correspondence:

Susan.Weidner@intrinsiq.com

3101 Gaylord Parkway, Frisco, TX 75034

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Lucio Gordan, MD, is head of Quality and Medical Informatics, Florida Cancer Specialists. Dr Gordan is also a member of the executive committee of the Community Oncology Alliance Board of Directors.