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Drug costs rise at an alarming rate, as Medicare seeks unpopular solutions

Tonya Sherry, right, goes over paper work with Mary Kay Fink at the MS Center of St. Louis.
Carolina Hidalgo | St. Louis Public Radio
Tonya Sherry, right, goes over paper work with Mary Kay Fink at the MS Center of St. Louis. Sherry previously received monthly infusions of a drug for multiple sclerosis, which can cost $70,000 a year.

A new Medicare proposal would cut the link between the cost of many medications that are given in an outpatient clinic and how much doctors are paid to administer them.

Under current Medicare rules, drugs that have to be administered in an outpatient setting — such as chemotherapy, injections or drugs taken after an organ transplant — are reimbursed for the cost of the drug, plus six percent of the drug's price to pay for storage and handling.

Medicare has proposed cutting the reimbursement rate to 2.5 percent more than the drug's sale price, plus a flat fee of $16.80 per dose. But because of automatic federal budget cuts, for a few years doctors would be reimbursed less.

The measure’s supporters say it may help keep drug prices in check — but many doctors are strongly opposed.

Stuck in the middle are patients like 56-year-old Diane Gossard, of East Alton. In November, doctors diagnosed her with an early stage, but aggressive form of breast cancer. Since then, life has been a whirlwind of medical procedures: a mastectomy in December, and a series of chemo treatments that left her nauseous and fatigued. Still, she’s already back to work as a home health aide for seniors.

“It’s a union job that I have, so it’s based on the hours that you work that you accumulate your insurance benefits,” Gossard said. “I’m always worried it’s going to get to the point where cost of treatments is going to outweigh what I have available.”

So far, her insurance plan is covering the costs. But that doesn't protect Gossard from the anxiety that comes each time she receives an insurance statement in the mail and sees the underlying costs.  Chemotherapy alone for stage 2 breast cancer patients in the United States cost an average of $13,818 in 2010, according to one study. The price of chemo to treat stage 4 was more than double — $35,686.

“You pay what you can,” Gossard said. “They give you an opportunity to apply for financial assistance, and I’ve done that with each facility.”

More people are surviving their cancer diagnoses than ever before, but the cost of the drugs to treat them has soared in the past 15 years. The prices continue to rise, even when new competitors come into the market — the opposite of what one might expect out of the normal economic rules of competition.  

Credit Memorial Sloan Kettering Cancer Center
Cost of one month of treatment for an adult for each new cancer drug approved by the United States Food and Drug Administration, based on Medicare reimbursement rates and by year of drug approval.

There are several forces at play, but officials for Medicare, the federally-run insurance program for people over the age of 65, think they have landed on one practice that may be pushing the price tags even higher: A financial incentive for physicians to prescribe pricier drugs.

Under current Medicare rules, drugs that have to be administered in an outpatient setting — like chemotherapy, injections, or drugs taken after an organ transplant--are reimbursed for the cost of the drug, plus six percent of the drug’s price to pay for storage and handling.

“Whenever you pay a percent on a price, and a doctor or system of care has a choice between two drugs, and one is priced higher, they will make more money if they choose the higher priced drug,” said Steve Pearson, founder and president of the Institute for Clinical and Economic Review, which Medicare cites in the proposal.

Pearson points to a 2010 study of doctors treating lung cancer, which showed a moderate tendency to switch to a more expensive drug when the financial incentive was established in 2005.  

“Doctors, they think mainly about patients, I think we all want them to and I think in general they do, but they’re also human beings, and they do respond to economic incentives, even unconsciously,” Pearson said. Though, he adds—doctors are only one group that’s reimbursed based on a percentage of a drug’s cost.

“Even the hospitals, pharmacy benefit managers, they all take a percent of the list price. And so in a weird way, everybody makes more money. Except for the payers—insurance companies, and ultimately, the patients,” Pearson said.

Medicare's proposal to reduce the payments to doctors would take place as a demonstration project, with clusters of zip codes using the new reimbursement structures and others continuing with the old. By cutting the incentive down to 2.5 percent of the drug's average sale price, plus a flat fee, doctors would make less money on the priciest drugs, but more on the less expensive ones. A second phase of the project would use a handful of other pricing strategies to bring down costs, like creating a standard payment rate for similar drugs.   

Scores of doctors and medical associations criticized the program during a public comment period. Many argue that percentage-based reimbursements are just a small piece of what’s driving runaway drug prices, and that this proposal ignores the root of the problem — that Medicare can’t negotiate drug prices the way insurance companies do.

Dr. Mary Klix, the president of the Missouri Oncology Society, doesn’t dispute that the incentive to prescribe pricier medications exists. But in practice, she said, doctors usually don’t have a choice between the drugs they prescribe, much less the ability to choose a more expensive one.  

“It really cuts the margin substantially. And because of that, over a hundred oncology drugs will now be underwater,” Klix said.  

Dr. Barbara Green poses for a portrait in her exam room at the MS Center of St. Louis.
Credit Carolina Hidalgo | St. Louis Public Radio
Many physicians who prescribe drugs included in the proposal say the changes would affect their practices, including Dr. Barbara Green of the MS Center of St. Louis.

Klix said smaller, independent  clinics have a harder time negotiating with drug companies over the cost of a drug. Because the reimbursement is based on the average sale price of a drug, the clinics that pay more for their drugs may lose money under Medicare’s proposal.  

“So there are going to be people who aren’t able to get the medications that they need, or they’re going to have to travel to another venue to get it," Klix said. "And most of the time that’s a hospital, where it’s much more expensive to administer the drug.” 

The issue is not confined to oncology. Dr. Barbara Green, a neurologist who runs a clinic for 2,300 people with multiple sclerosis in Chesterfield, said the accusation that she would prescribe pricier medications to get more money is ludicrous.

“In the MS world, it doesn’t matter what you prescribe. They’re all equally expensive. We base choices now on what’s safest for the patient, and what we think will be most efficacious for the patient,” Green said.

Like chemotherapy drugs, medications to keep multiple sclerosis at bay have grown exponentially, as much as $70,000 a year. Green said she’s built the center on that 6 percent margin for the one type of drug that has to be given through an IV. The current reimbursement rate is even lower due to automatic federal budget cuts known as sequestration.

“It’s unfortunate that our budget and our financial health rely so heavily on one agent, but that’s the reality that we live with. To have the rug pulled out by Medicare just like that, that’s too big a piece and too fast an adjustment,” Green said.

If the Medicare demonstration project is approved and St. Louis is selected, officials at the MS Center of St. Louis say they'd consider sending Medicare patients to hospital-based infusion centers like those used for chemotherapy.  

Donna Shelker poses for a portrait outside the MS Center of St. Louis, where she is a patient.
Credit Carolina Hidalgo | St. Louis Public Radio
MS Center of St. Louis patient, Donna Shelker, was diagnosed with multiple sclerosis in 2000. "This whole office is my second family," she said.

Donna Shelker, a longtime patient who is covered by Medicare, worries about what that could mean for her care. Shelker visits the MS Center monthly for a drug called Tysabri, which is given through an IV. While she’s there, she can chat with nurses who specialize in MS, meet with a social worker to file paperwork for financial assistance, or swap stories with other MS patients while they wait.  

“We’re on the same schedule, so we get to know each other. It’s like one big family,” Shelker said.

But even Shelker has to deal with the cost of her medication. Medicare Part B, which covers the drugs included in the proposal, typically charges patients 20 percent of the cost after they meet their deductible. So far, she says she’s been able to get financial assistance to pay for the drug itself.  

A final decision on Medicare’s proposal, and where it would take effect, is expected later this year.

Follow Durrie on Twitter: @durrieB

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