Oncology Reimbursement: Where Have the Drug Profits Gone? Part 2

Where is all the money going? In identifying who is making what profit in the oncology drug distribution system, there are four parts to consider in pricing:

Manufacturer cost: the technological cost to produce, shop, or otherwise bring the drug to market. Their profit margin should be transparent – they know the end user’s profit margin is at a maximum 6%.

Distributor cost: includes acquisition costs, storage costs, and a reasonable profit margin. This margin is 2%, considering their cost is only 1% above the manufacturer cost. ASP (average sales price) does not include this 2% shipping, and distribution cost and this is a permitted cost added on to the ASP.

GPO (group purchase organization) cost: commissioned to help medical oncologists in the community purchase drugs at their lowest possible price. The GPO secures a .25% to .75% discount from the distributor, who would negotiate an even better cost with higher volume. The manufacturer does need to know the demand to appropriately staff and manage production.

Acquisition cost (or Oncologists’ cost): should be ASP less 2% as an industry standard, but in reality, it is typically 4% above ASP.

The Million Dollar Questions
Who is taking the 2% to 4% margin?
Are all these costs necessary?

In the end, the oncologist is suffering from this process. It’s way too complicated.

We would like to hear your thoughts on what process should we engage in to eliminate both the GPO and distributor overhead factors. Simply reply on the “comment” button below. You can provide your name or be totally anonymous. You can also email me (Marty Neltner) at mneltner@earthlink.net.

New Codes May Be the Answer to Evidence Based Medicine

The challenge of oncology is to recognize and establish incentives for the cognitive skills of physicians that will create both cost savings and superior outcomes for both patients and payers.

I recently attended a the world conference on health care titled “Leadership Summit on Evidence Based Medicine” in Alexandria, VA. The major speakers at this meeting were medical directors of insurance companies, think tank experts, Gail Walinsky the prior CMS director and the Institute of Medicine. The overarching conclusion is there is no independent measurement of Evidence Based Medicine. The Institute of Medicine (IOM) issued a compelling report suggesting an independent agency (I thought, “Oh great, another agency to measure nothing”) be established to perform this task. The problem is how to fund it. As you know, private industry, insurance companies and the government are trying to develop this process of Evidence Based Medicine. Everyone agreed whoever funds this will have a difficult task of developing a process that is encumbered by special interest.

As you can guess I was one of few representing the physician interest. I might mention that speaker after speaker referenced the disastrous bone marrow transplant failure brought on by the oncology community. My sense is that this group did not have much respect for what oncology does for its patients on a day-by-day basis. After three days of listening I finally had an opportunity to comment. I am always struggling with what to say to convince those attending there are solutions – if only they would listen to us “privates in the trenches”.

My solution is simple: create level six, seven and eight evaluation and management codes for chronically ill patient care. These codes can be utilized by any physicians in any specialty providing chronic care. This would solve the issue surrounding the failed lobbying for oncology treatment planning codes. Treatment planning never happened (even at our urging with a proposal including detailed documentation) as the AMA RUC Committee has stated oncology treatment planning is recognized in the level five services. The AMA has denied requests for treatment planning at least two times. In my opinion, however, the AMA would accept the argument for level six, seven and eight codes for management of chronic illness. These new codes would reduce health care costs; therefore their value would generate the measurement for Evidence Based Medicine.

The compelling excellent outcome evidence is ever present in oncology care. The problem of course, is the oncology community is not engaged in utilizing the Evaluation and Management coding to prove its worth. Instead, they continue to under code and produce documentation that has no real true measurement. The oncology bell curve unfortunately looks like that of Internal Medicine and Family care. The verbiage in the note is full of ROS and exam points that are negative and without real substance offering data about the current condition of the patient, where we started and the goal of therapy. There is no clear evidence of success and outcome. Yet 99.9% of the patients who pass through the daily offices of thousands of oncology offices tell a different story.

So, the challenge of oncology is to “Change the Wheel” and redirect attention to creating the perfect level five note that will show 70% utilization in every oncology practice. Acquiring this data by year-end will be the calling card to support the need for level six, seven and eight coding that will clearly define the outcome measurement of Evidence Based Medicine. So join the Neltner Marines, board the bus and get ready for “Neltner Billing Level Five Boot Camp”. We’ll be posting more about this training that we will conduct. At the end of this training you will have the tools and the confidence to collect what the GAO says you are entitled to. We believe you will be paid for 50% of your value which will lead you to six, seven and eight codes to complete the cycle.

Oncology Reimbursement: Where Have the Drug Profits Gone?

A physician called me recently and said, “I am mad as heck and I am not taking this anymore.” He is not making 6%, he is making 2%. He believes the drug distributors are taking too much of a margin on the drugs. Another issue that is of major concern is why are the GPO’s owned by the distributors? Is this not a conflict of interest? If you note that when you switch, two white shirts show up at your door. One represents the distributor and the other represents the GPO. How can one impose savings if the physician is paying for two salespersons, two distribution systems? It is apparent we need some transparency in the game of drug purchasing.

I believe it is time for oncologists to demand some transparency and demand a 6% margin on drug purchases. I would think an investigation is needed to identify what margin of profit the distributor takes and what margin of profit the GPO takes. If they are one in the same company then we have a double dip. Instead of simply giving me the best price, the GPO offers many gimmicks and trickery into thinking you are getting the best price.

It is time to eliminate our current drug pricing methodology. Since 2001, our drug distribution system has convinced oncologists that it is okay to accept a 2% margin, or in many cases a 2% negative margin, on the drugs they purchase. Contrary to what should be happening in the industry, drug representatives are still encouraging physicians to use their drug more frequently. And the current drug rebate programs being offered to oncologists (if your volume is high enough) are an abomination that promotes the mentality of “use our drugs and treat like crazy so you get a rebate.” Forget patient care and the best drug for the patient.

Not only are many oncologists tied into the drug distributors and GPO’s for hundreds of thousands of dollars, they are also trapped and are now paying excessive interest for the 75 day hold.

As we consider all this information, it is important to realize that the perception in Congress is that oncologists are still making excess profits on drugs. Where are the needed dollars to provide the excellent care patients demand? Oncologists aren’t seeing them.

Today’s Oncology Drug Procurement: Effective or in Crisis?

Is the drug procurement process for the cancer delivery system in crisis or is it working?

In Economics 101, the law of supply and demand suggests that as demand increases, supply should follow and eventually the price should decrease accordingly. The customer expects to receive the best value for the product or services received at the lowest price.

But this “price drop” is not a term frequently used in the healthcare industry, especially when we look at oncology drugs. When a patient finds out that they are diagnosed with cancer, there is no goal to compare prices for the best deal; the goal is to be cured.

The patient has no incentive to focus on finding the best price for the product they were prescribed. The patient’s focus is on improving and recovering. The question is who becomes the advocate for the patient to ensure their best interests are being met? Who asks for the prices of Taxol versus Taxotere, Procrit versus Aranesp, Neupogen versus Neulasta?

Believe it or not, oncologists and insurance companies share a common problem. The drug distribution system is depleting precious financial resources from Medicare. But the solution is not to hurt the drug industry, but to instead cut out the waste of inappropriate costs that are added by the manufacturer to the end product.

This will enable oncologists to avoid the enormous debts that they are incurring today because of the price of drugs. The distributors gain security because the likelihood of Oncologists filing bankruptcy or repudiating their debts is lessened.

Is your oncology practice incurring debt due to the costs of drug procurement?

Reimbursement of Administering Chemotherapy is at a Low Level

Unfortunately, professional services for medical oncologists and hematologists administering chemotherapy and other infusables are getting reimbursed at a low level.

Oncology infusion codes are still using technical descriptors based on 1985 to 1989 CPT codes, which present their descriptors as a “nurse only” type of service. This does not take into account the knowledge, years of training and experience the physician has. We believe the infusion codes must take this into consideration.

Radiation oncology has treatment planning codes, and medical oncology should as well. Or even better yet, the capability to bill level six, seven and eight codes.

Are you receiving the reimbursement needed to take care of your patients, much less just cover your costs of chemotherapy? What are you experiencing? Share your comments with us. We would like to know.

Persistence Pays Off: A Success Story Worth Discussing

On behalf of a client, we have a great success story to report. One of our oncology clients was having continued denials with a large private pay insurance company. Regarding this particular situation, the oncologist was following AMA coding guidelines, however, the insurance company did not agree. The issue at hand was relative to CPT 96413, used for initial drug infusion, along with CPT 96416, used for chemotherapy administration via IV infusion (when patients are sent home with a pump).

The physicians were doing chemo and charging the administration and chemo fee. The insurance company told them only one charge could be “initial”, and that they would not be able to bill these codes together on the same day for the same patient. This started in October of 2006. They received continued denials. We exhausted the official appeals process for this physician. We then participated in a conference call with the insurance company and their legal department. The results of that call were still negative. We provided them with more information and documentation.

Fast forward a year later. They reversed their decision. We won. The oncologist won. Reimbursements will be made retro to January of 2006. This was a huge win for a solo practitioner. Persistence pays off.

If you have success stories please let us know what they are. We will share them.

Where Does the Money Go?

In response to the comment on our post “Considering Solutions for Oncology Drug Purchasing”, we agree and that is why we are pushing into new directions in this area. The key ingredient we need is for small groups to band together to arrive at a critical mass to break up this price fixing between the distributors. Medical Oncologists were supposed to be able to purchase drugs at ASP and it's not the case. Right or wrong, our government says it is our responsibility to find the solution. With that said, we have three goals:

Goal 1: Attempt to find a way to purchase drugs at ASP,

Goal 2: If that fails, accumulate the data and visit CMS with specific information,

Goal 3: If CMS and government fail to act on the data we accumulate, then we collectively take legal action to prove that price fixing is occurring in the market.

These are the choices in a free market system. Call us and join our effort.