[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]

                       MEDICARE REIMBURSEMENT OF




                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                             JULY 13, 2006


                           Serial No. 109-83


         Printed for the use of the Committee on Ways and Means


30-451 PDF                  WASHINGTON : 2006
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
MELISSA A. HART, Pennsylvania
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel


                         SUBCOMMITTEE ON HEALTH

                NANCY L. JOHNSON, Connecticut, Chairman

JIM MCCRERY, Louisiana               FORTNEY PETE STARK, California
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  LLOYD DOGGETT, Texas
JIM RAMSTAD, Minnesota               MIKE THOMPSON, California
PHIL ENGLISH, Pennsylvania           RAHM EMANUEL, Illinois
J.D. HAYWORTH, Arizona

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S



Advisory of July 6, 2006 announcing the hearing..................     2


U.S. Department of Health and Human Services, Herb B. Kuhn, 
  Director, Centers for Medicare and Medicaid Services...........     7
U.S. Department of Health and Human Services, Robert A. Vito, 
  Regional Inspector General for Evaluations and Inspections.....    14
Medicare Payment Advisory Commission, Mark Miller, Ph.D., 
  Executive Director.............................................    20
U.S. Government Accountability Office, Bruce Steinwald, Director, 
  Health Care....................................................    29


Community Oncology Alliance, Frederick M. Schnell................    53
American Society of Clinical Oncology, Alexandria, Virginia, 
  Joseph S. Bailes...............................................    63
Immune Deficiency Foundation, Towson, Maryland, Marcia Boyle.....    68
Bioscrip, Elmsford, New York, Richard Friedman...................    72
Primary Immunodeficiency Disease Committee, American Academy of 
  Allergy, Asthma and Immunology, Philadelphia, Pennsylvania, 
  Jordan S. Orange...............................................    80

                       SUBMISSIONS FOR THE RECORD

AmerisourceBergen Specialty Group, Steven Collis, Addison, TX, 
  letter.........................................................    90
Arlette Holland, Chestnut Hill, MA, statement....................    98
Baker, J., Greenbrier Oncology Clinic, Lewisburg, WV, statement..    90
Blood and Cancer Center of East Texas, Gary Gross, Tyler, TX, 
  statement......................................................    97
Cancer Center of Boston, Donna, Strong, Plymouth, MA, letter.....   104
Collis, Steven, AmerisourceBergen Specialty Group, Addison, TX, 
  letter.........................................................    90
Community Oncology Alliance, Fredrick, Schnell, letter and 
  attachment.....................................................   112
Connecticut Oncology Association, South Windsor, CT, Dawn 
  Holcombe, statement............................................    94
Coplon, Steven, West Clinic, letter..............................    96
Dawn Holcombe, Connecticut Oncology Clinic, South Windsor, CT, 
  statement......................................................    94
Greenbrier Oncology Clinic, J. Baker, Lewisburg, WV, statement...    90
Gross, Gary, Blood and Cancer Center of East Texas, Tyler, TX, 
  statement......................................................    97
Horizon Hematology Oncology, Liza, Owens, Spartanburg, SC, 
  statement and attachment.......................................    99
Holland, Arlette, Chestnut Hill, MA, statement...................    98
Horizon Hematology-Oncology, Spartanburg, SC, Liza Owens, 
  statement and attachment.......................................    99
Hunterdon Hematology Oncology, Luanne, Lange, Flemington, NJ, 
  letter.........................................................   100
Lange, Luanne, Hunterdon Hematology Oncology, Flemington, NJ, 
  letter.........................................................   100
Medical Specialists of Fairfield, Glen, Reznikoff, Fairfield, CT, 
  letter.........................................................   102
Needleman, Samuel, Texas Health Resources, Stephenville, TX, 
  letter.........................................................   101
Physicians of Southeastern Gynecologic Oncology, Flemington, NJ, 
  letter.........................................................   101
Physicians of Southeastern Gynecologic Oncology, statement.......   101
Reznikoff, Glen, Medical Specialists of Fairfield, Fairfield, CT, 
  letter.........................................................   102
Strong, Donna, Cancer Center of Boston, Plymouth, MA, letter.....   103
Talecris Biotherapeutics, Research Triangle Park, NC, statement..   104
Talecris Biotherapeutics, Research Triangle Park, NC, statement..   104
Texas Health Resources, Samuel, Needleman, Stephenville, TX, 
  letter.........................................................   101
U.S. Oncology, Dan Cohen, letter and attachment..................   107
U.S. Oncology, Dan Cohen, letter and attachment..................   107
West Clinic, Steven, Coplon, letter..............................    96
West Michigan Regional Cancer and Blood Center, A. Soliman 
  Behairy, Freesoil, MI, letter and attachment...................   110
West Michigan Regional Cancer and Blood Center, Free Soil, MI, A. 
  Soliman Behairy, letter and attachment.........................   110
Western Washington Medical Group, Julie MacDougall, Everett, WA, 
  letter.........................................................   111
Western Washington Medical Group, Everett, WA, Julie MacDougall, 
  letter.........................................................   111
Schnell, Frederick, Community Oncology Alliance, letter and 
  attachment.....................................................   112

                       MEDICARE REIMBURSEMENT OF



                        THURSDAY, JULY 13, 2006

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 1:08 p.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]



                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
July 06, 2006

                 Johnson Announces Hearing on Medicare

             Reimbursement of Physician-Administered Drugs

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on Medicare reimbursement of 
physician-administered drugs. In addition, the hearing will examine 
physician reimbursement for administration of these drugs. The hearing 
will take place on Thursday, July 13, 2006, in the main Committee 
hearing room, 1100 Longworth House Office Building, beginning at 1:00 
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include representatives from the Centers for Medicare & 
Medicaid Services (CMS), the Office of Inspector General of the 
Department of Health and Human Services, the Medicare Payment Advisory 
Commission, the Government Accountability Office (GAO), and 
representatives from provider and patient groups. However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.


    Under the Medicare program certain categories of physician-
administered outpatient drugs, including drugs used in cancer 
treatment, and certain drugs used with durable medical equipment are 
covered under Part B.
    The Balanced Budget Act of 1997 (P.L. 105-33) specified that 
Medicare payment for covered outpatient drugs would equal 95 percent of 
the average wholesale price (AWP). However, AWPs are not defined by law 
or regulation. The AWP for a product is often far greater than the 
acquisition cost paid by suppliers and physicians. In addition, the 
AWPs do not reflect the discounts, rebates or ``charge backs'' that 
manufacturers and wholesalers offer to providers. In 2001, according to 
the GAO and the CMS, Medicare overpaid for Part B drugs by more than $1 
billion annually.
    As a result, Congress significantly reformed the way Medicare pays 
for physician-administered drugs in the Medicare Prescription Drug, 
Improvement, and Modernization Act (MMA) (P.L. 108-173) from the AWP 
methodology to an average sales price (ASP) methodology plus 6 percent. 
The ASP represents an average of all manufacturers' final sales prices 
in the United States, net of rebates or other discounts and excluding 
certain sales at nominal charges. The ASP is calculated quarterly by 
CMS from data submitted by manufacturers. The Secretary of the 
Department of Health and Human Services has the authority to adjust 
reimbursement for a drug when he finds that the ASP does not reflect 
widely available market prices.
    Physicians can also choose to receive physician-administered drugs 
through a Medicare contractor. The competitive acquisition program 
(CAP) was established through the MMA. Through CAP, physicians write a 
prescription to be filled by a Medicare-contracted supplier that would 
then dispense the product to the doctor on a timely basis. The 
supplier, not the physician, would be reimbursed by Medicare for the 
drug, and the physician is reimbursed for drug administration. The 
supplier would be responsible for collection of the 20 percent 
coinsurance on the drug payment, lowering the bad debt exposure and 
liability of the physician and significantly reducing their paperwork 
    The MMA also significantly increased the physician fee schedule 
payments for oncologists and other specialists by revising and creating 
codes. There were also transitional payments for oncologists and other 
affected specialists for 2004 and 2005. In 2005 and 2006, CMS 
implemented a demonstration program for oncologists in order to assess 
and provide support for the quality of care for patients undergoing 
chemotherapy. Additional payments per encounter were paid to physicians 
who participated in the demonstrations.
    In announcing the hearing, Chairman Johnson stated, ``The AWP 
process was seriously flawed. The revised payment methodology 
fundamentally changes the way Medicare pays for drugs and physicians 
services. Congress should continue its oversight and monitor 
implementation of the law to ensure that patients have access to high-
quality cancer care and that physicians are reimbursed appropriately.''


    Thursday's hearing will focus on implementation of the revised 
payment methodology for reimbursement of physician-administered drugs, 
and examine the effects of this new payment system on providers and 


    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
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for which you would like to submit, and click on the link entitled, 
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July 27, 2006. Finally, please note that due to the change in House 
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encounter technical problems, please call (202) 225-1721.


    The Committee relies on electronic submissions for printing the 
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noted above.


    Chairman JOHNSON OF CONNECTICUT. The hearing will come to 
order. Thank you all for being here.
    I am pleased to Chair the second hearing on the Medicare 
reimbursement for physician-administered drugs. The Medical 
Modernization Act (MMA) (P.L. 108-173) includes very 
complicated and significant changes to reimbursement for these 
drugs and the services required to deliver them. These changes 
were made in order to better align for the reimbursements for 
the cost of acquiring and administering drugs.
    The purpose of this hearing is to evaluate whether or not 
the reimbursement changes have corrected for historic 
overpayments in this area, while at the same time maintaining 
patient access to these drugs, which include treatments for 
oncology, reconstituted human epithelium (rhe), immune 
deficiency disorders and some vaccinations. Prior to the MMA, 
Medicare only covered drugs that were covered incident to 
physician services or administered through covered durable 
medical equipment items. These drugs were covered in Medicare 
and reimbursed 95 percent of the average wholesale price. 
Additionally, Medicare beneficiaries were responsible for 20 
percent coinsurance on the drug payment.
    As recently detailed in an article of USA Today, 
beneficiaries are often held responsible for many thousands of 
dollars of cost sharing for oncology therapies throughout the 
course of cancer treatment. Seniors without secondary insurance 
are simply unable to afford cost sharing of this magnitude. 
Uncollected coinsurance is becoming an increasing financial 
burden on providers, and many have reported that it is 
affecting treatment location decisions for seniors. These 
medications treat life-threatening illness; however, it is 
unclear how Medicare or certain beneficiaries that are 
responsible for coinsurance can be prepared to pay for 
therapies costing $100,000 a year.
    Finally, Congress chose to place a limit on out-of-pocket 
expenditures for any seniors under the Medicare Part D program 
to avoid the financial devastation from illness, and yet, part 
B, does not have any similar kind of limit. It is now unclear 
how to address this issue, and I intend to work with my 
colleagues and Centers for Medicare and Medicaid Services (CMS) 
and others to evaluate policy remedies.
    In addition to changes in Medicare, reimbursement for part 
B drugs, the MMA increased reimbursements for chemotherapy 
administration. Since 2003, Medicare reimbursement has 
fluctuated in this area due to transitional prices which came 
to significant--sorry--transitional increases in payments which 
were phased out in 2006. Despite the absence of these 
transitional payments, the highest volume code, the intravenous 
fusion for first hour is 200 percent more than in 2003.
    The MMA also mandated the evaluation of drug administration 
codes for physicians' services to ensure accurate reporting and 
billing for such services, taking into account complexity and 
resource consumption, and to appropriately adjust the relative 
value units for these codes. I considered this review and 
subsequent changes extremely significant to ensuring that 
providers were adequately reimbursed for the cost of 
administering these drugs and look forward to hearing from 
providers and CMS regarding the outcome of this process, 
because that seems to me, one of the really big issues that we 
need to open up at this hearing outside the claims to 
traditional reimbursement to provide for the cost of drugs.
    The Medicare Modernization Act also included alternative 
methods to purchase and bill for drugs, the Competitive 
Acquisition Program, or CAP program. This program is just 
beginning its support and clinical impacts on treatment and the 
finances of practices that elect to participate.
    The Medicare Modernization Act reforms--the payment system 
first by setting drug reimbursements at 106 percent of the 
average sales price (ASP). We are going to hear a lot of 
testimony on the studying of that average price and its 
strengths and weaknesses and what it does and does not take 
into account, and that is an important aspect of this hearing. 
So, I am going to skip over the details which you are, frankly, 
all familiar with.
    I would rather get on to the controversy, but I am pleased 
to welcome the panel. I am pleased to welcome Herb Kuhn, 
Director of the Center for Medicare and Medicaid Services, to 
testify about the agency's perspective on the adequacy of the 
current payment system and early experiences with competitive 
acquisition price (CAP). I am also interested to hear about 
CMS's efforts to work with providers and oncologists in 
particular to evaluate reports in the field.
    The Medicare Modernization Act required the Department of 
HHS Office of Inspector General (IG) to conduct a study on 
physicians' offices of varying sizes and their ability to 
acquire drugs at 106 percent of ASP. Robert Vito, Inspector 
General for Evaluations and Inspections, will testify on the 
finding of his study.
    Additionally, Mark Miller, Executive Director of the 
Medicare Payment Advisory Commission, MedPAC, will also testify 
regarding the Commission's finding on their January 2006 report 
titled Effects of Medicare Payment Changes on Oncology Service. 
In particular, he will speak to us on the beneficiary access to 
oncology treatment and the adequacy of the 106 of ASP as a 
payment methodology.
    Bruce Steinwald, Director of Health Care at the U.S. 
Government Accountability Office (GAO), will speak to the 
adequacy of reimbursement in the hospital outpatient department 
and CMS's ability to collect data on drug acquisition costs.
    On the second panel, I would like to welcome Dr. Joseph 
Bailes, executive vice president of the American Society of 
Clinical Oncology, which represents 24,000 members worldwide 
and medical oncologists, from Houston, Texas, will testify on 
both reimbursement for drugs and for administrative payments.
    Marcia Boyle, president of the Immune Deficiency Foundation 
and the mother of a son with primary immune deficiency (PID), 
will speak from the patient perspective about the importance 
and accessibility of intravenous immunoglobulin (IVIG) to treat 
    Also, Richard Friedman, chief executive officer of 
BioScrip, will testify about the CAP program. BioScrip was 
recently awarded a contract to be the vender for the CAP 
    Finally, Dr. Jordan Orange, of the Primary Immunodeficiency 
Disease Committee of the American Academy of Allergy, Asthma 
and Immunology, will testify on accessibility and use of IVIG. 
IVIG is a plasma-derived product used to treat PID and is 
indicated by the Food and Drug Administration for five other 
diseases. However, IVIG has been found to be useful treatment 
in many, more non-indicated diseases and ailments. There have 
been numerous reports of patients, physicians and hospitals 
either having difficulty accessing the drug or significant 
shifts inside of care. Dr. Orange has provided research on 
    Dr. Frederick Schnell, an oncologist from Macon, Georgia, 
and the upcoming president on the Community Oncology Alliance, 
will testify on community practices', especially small 
practices' or geographically isolated practices', experiences 
with a new reimbursement system.
    I want to thank all of the witnesses for participating in 
today's hearing. It is of vital importance for Congress and CMS 
to be vigilant in our oversight of the implementation of the 
Medicare Modernization Act and ensure access to vital and life-
saving treatment is maintained.
    Mr. Kuhn, if you will start, please. Excuse me. I yield to 
my colleague Mr. Stark.
    Mr. STARK. Thanks for holding the hearing. I want to 
particularly mention, Madam Chair, that I was pleased to see 
our staffs working together on such a bipartisan way in this 
hearing. While I am not always sure that I want to take credit 
for this, I don't mean to shortchange Bart Miller, but I have a 
hunch that I was one of the first people to raise the question 
of replacing the average wholesale price (AWP) with 
reimbursements that had reflected more accurate acquisition 
costs. The average wholesale price scandal, I think, came to 
light following investigations from some whistleblower cases, 
and we had, I think, such outrageous abuses that would make 
Halliburton blush. That raised questions about inappropriate 
care, perverse financial incentives on the physicians, and 
plain old profiteering at the expense of Medicare and patients 
and taxpayers.
    I introduced the average acquisition price bill in 2002, 
and it was based on the corporate integrity agreements between 
Office of the Inspector General (OIG) and some of the drug 
manufacturers. The MMA average sales price provisions were 
based in large measure on that legislation and those 
agreements. We are going to hear some facts today from our 
distinguished first panel about how this average sales price 
system is working, and I appreciate all the research that all 
of you have done on part B drugs, and I urge CMS to utilize the 
resources, the other resources that tabled as they continue 
working on this program.
    We will hear anecdotes claiming physicians can't afford to 
provide part B-covered drugs, and I appreciate that there may 
be issues with the formula, but I am quite skeptical that the 
claims made by the groups in the second panel in particular are 
groups that are funded largely by drug manufacturers. So, we 
basically have a second panel made up of people showing for the 
drug manufacturers, and I tend to view that with some 
    I have never quite understood why, although they do it in 
Japan, we could do it here, why physicians should be in the 
position of trying to make profits as pharmacists. Perhaps they 
can explain that to us today. The--on the other hand, I think 
that there is no question that physicians should be paid fairly 
and adequately, but I always felt that should be left to them, 
and in programs like the Report Benefit Savings (RBS), Medicare 
Payment Advisory Commission (MedPAC) and others who could tell 
the difference between an oncologist and a carbuncle, which I 
can't do, and I think we need to have people with the 
proficient staff and experience to understand the procedures, 
the complications and how they should be paid.
    I am dubious as to whether paying people to make a profit 
on drugs that they prescribe and administer is in the best 
interest of the free market which we are trying to stimulate 
here. I think it is clear that ASP reimbursement is more 
accurate and, therefore, better than the old wholesale price 
system. I want to take seriously the questions of adequate 
reimbursements of the doctors and the reduced access, and, 
again, I hope that our first panel is prepared to advise us and 
recommend to us changes that should be made. So, I want to 
thank you for the opportunity, Madam Chair, to examine the 
average sales price system and look forward to seeing what we 
can do to make it more fair and equitable for all people 
concerned. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Stark. Mr. 


    Mr. KUHN. Chairman Johnson, Representative Stark, Members 
of the Subcommittee, thank you for the opportunity to discuss 
with you the way Medicare pays for drugs covered under part B. 
As you are aware, the MMA substantially revised Medicare 
payment for part B drugs and their administration. part B 
Medicare covers a limited number of prescription drugs. In 
2005, carriers paid $10 billion for part B drugs, and 
intermediaries paid another $5 billion.
    Prior to the MMA, Medicare paid for these drugs at 5 
percent of the average wholesale prices we heard earlier. This 
methodology, however, created incentives for manufacturers to 
establish a high wholesale price, while at the same time 
selling to physicians at a lower price in order to create a 
profit margin or a spread. This resulted in excessive payments 
by Medicare and our beneficiaries. The MMA, we believe, as a 
large measure successfully addressed this situation, providing 
for more appropriate payment for drugs while at the same time 
addressing concerns about inadequate payments for drug 
    Studies by MedPAC, the U.S. Department of Health and Human 
Services (HHS), OIG and the GAO suggest that oncologists who 
are responsible for the large share of part B drug expenditures 
can purchase drugs for the treatment of cancer at less than the 
Medicare payment amount. These studies indicate that the ASP-
based system is working appropriately.
    In discussions leading up to the passage of the MMA, many 
physicians argued that the excess payment of these medications 
have subsidized inappropriately low fees for their 
administration. Physicians argued that lowering payments for 
drugs required increases in the payments for administering the 
    The MMA significantly revised Medicare payments for 
administrative drugs. MMA made several permanent changes to 
coding in and--I am sorry, in 2004 and 2005, and CMS 
implemented all of these particular provisions. Over all, as a 
result of all of these changes, Medicare payments for drug 
administration in 2006 are 117 percent higher than they were in 
2003. Payment amounts for oncology drug administration codes in 
2006 are more than 200 percent higher than in 2003. In 
addition, payment is 192 percent higher for the Code accounting 
for the most spending. I would note that utilization of part B 
drugs has been increasing very rapidly. In our April 2006 
letter to MedPAC, we pointed out that the volume and intensity 
of part B drugs increased 20 percent per year in 2003, 2004 and 
2005. Growth in the volume and intensity of drugs more than 
offset the 2005 revisions in pricing that occurred when this 
ASP system was implemented in 2005.
    Our preliminary review is that there was an almost 20 
percent increase in total Medicare payments to oncologists. 
This is including both drugs, drug administration, medical 
visits and other services between 2003 and 2005, again, the 
first year of ASP in 2005. I would also point out that on 
Tuesday of this week the administration released the mid-
session review of the budget. Medicare part B expenditures are 
now expected to be significantly higher as a result of rapid 
growth in the use of physician-related services and hospital 
outpatient services, including the volume and intensity of 
    For a moment now I would like to say a few words about 
IVIG, which was raised earlier. CMS and other components of the 
Department of Health and Human Services have heard concerns 
from some providers and the beneficiaries community about the 
adequacy of IVIG supply and Medicare reimbursement. Access to 
care is very important to the Medicare Program, and we are 
very, very concerned about these reports. During the past year 
we have taken several actions to refine Medicare payments rates 
for IVIG that could be accomplished within our existing 
authority. We established, for example, separate payment 
amounts for liquid and powder IVIG in the beginning of April of 
2005. For 2006, we created special preadmission handling fees 
for both physician offices as well as outpatient departments, 
and for the third quarter of 2006, the quarter beginning July 
of this month, the Medicare payment amount increased 11.9 
percent for the powder form and 3.5 percent for the liquid 
    There are a number of other factors that are contributing 
to the IVIG situation. We have also heard, and I know on the 
second panel you will hear from folks about off-label use of 
the product and the surge in that area. Manufacturer 
consolidations and changes in business practices have also been 
occurring in the marketplace. Also, we are seeing and hearing 
many reports about diversion of the product into the secondary 
or resale market where the product is being reportedly sold at 
extremely high markups. To better understand the market for 
IVIG and elevated access and reimbursement concerns for patient 
and physicians, HHS has commissioned an independent expert 
study to assess these factors and others. We want to maintain 
access to IVIG, but it is important to determine the causes of 
the concerns so we can implement appropriate measures to 
achieve this goal. In conclusion, we feel confident that the 
changes to the MMA, the way we reimburse for drugs under part 
B, has done much to ensure the payment both for drugs and the 
administration. The Department plans to continue monitoring 
payments, adequacy and access to care for part B drugs. I look 
forward to your questions.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Kuhn.
    [The prepared statement of Mr. Kuhn follows:]
Statement of Herb B. Kuhn, Director, Centers for Medicare and Medicaid 
         Services, U.S. Department of Health and Human Services
    Chairman Johnson, Representative Stark, distinguished members of 
the Subcommittee, thank you for the opportunity to discuss with you the 
way Medicare pays for drugs covered under Part B. These drugs are not 
covered under the new Part D prescription drug benefit. As you are 
aware, the Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003 (MMA) substantially revised Medicare payment both for Part 
B drugs and their administration. The goals of the MMA changes were to 
have Medicare pay appropriately for both Part B drugs and their 
administration, and to create a choice for physicians about buying and 
billing for Part B drugs or having those drugs furnished to a physician 
upon submission of a prescription order. We believe that those goals 
have largely been accomplished.
Medicare Part B Drugs
    Part B of Medicare covers a limited number of prescription drugs. 
These Part B drugs generally fall into three categories: drugs 
furnished incident to a physician's service; drugs used as a supply to 
durable medical equipment (DME); and certain statutorily covered drugs. 
Medicare Part B drug coverage has not been changed by implementation of 
the new Medicare Part D drug program. Drugs that were covered by 
Medicare Part B before the Part D prescription drug program became 
operational continue to be covered under Medicare Part B.
    Drugs covered under the ``incident to'' benefit are injectable or 
intravenous drugs that are administered as part of or ``incident to'' a 
physician's service. The statute limits Part B coverage to drugs that 
are not usually self-administered unless the physician participates in 
the Competitive Acquisition Program (CAP) for Part B drugs. Under the 
``incident to'' provision, the physician must incur a cost for the 
drug, and must bill for it. Examples include injectable prostate cancer 
drugs (lupron acetate for depot suspension (Lupron & Eligard), 
goserelin acetate implant (Zoladex)), injectable drugs used in 
connection with treatment of cancer (epoetin alpha (Procrit) and 
darbepoetin alfa (Aranesp)), intravenous drugs used to treat cancer 
(paclitaxel (Taxol)) and docetaxel (Taxotere)) and to treat non-
Hodgkin's lymphoma (rituximab (Rituxan)), injectable drugs used to 
treat rheumatoid arthritis (infliximab (Remicade), injectable anti-
emetic drugs used to treat the nausea resulting from chemotherapy, and 
other drugs furnished by physicians, such as intravenous immune 
globulin (IVIG).
    Part B also covers drugs that are administered through a covered 
item of DME such as a nebulizer or pump. Inhalation drugs, such as 
albuterol sulfate and ipratropium bromide, are frequently administered 
through a nebulizer. The Medicare statute requires Part B to cover 
certain other specific drugs, including immunosuppressive drugs for 
beneficiaries with a Medicare covered organ transplant; hemophilia 
blood clotting factor; certain oral anti-cancer drugs; oral anti-emetic 
drugs; pneumococcal, influenza and hepatitis vaccines; antigens; 
erythropoietin for trained home dialysis patients; certain other drugs 
separately billed by end stage renal disease (ESRD) facilities (for 
example, iron dextran, vitamin D injections); osteoporosis drugs; and 
home infusion of intravenous immune globulin for Primary Immune 
    In 2005, the preliminary estimate of allowed charges for the 
approximately 550 drugs paid for by Medicare Part B carriers is $10 
billion. The majority of these expenditures were for drugs administered 
incident to a physician's service and drugs furnished in conjunction 
with DME. Much of the current spending for carrier paid drugs is 
concentrated in relatively few of the approximately 550 covered drugs. 
For example, of the $10 billion for carrier paid drugs, 11 drugs 
account for 50 percent of spending, 27 drugs account for 75 percent of 
spending, and 65 drugs account for 90 percent of spending. The top two 
drugs, darbepoetin alfa (Aranesp) and epoetin alpha (Procrit), account 
for 17 percent of carrier spending. Three prostate cancer drugs, lupron 
acetate for depot suspension (Lupron and Eligard) and goserelin acetate 
implant (Zoladex), account for four percent of carrier spending. 
Infliximab injection (Remicade), for rheumatoid arthritis treatment, 
accounts for five percent of spending. Rituximab (Rituxan), for cancer 
treatment accounts for eight percent of carrier spending. Inhalation 
drugs account for eight percent of carrier paid drugs (not taking into 
account the inhalation drug dispensing fee). Spending of $161 million 
for intravenous immune globulin accounts for 1.6 percent of carrier 
paid drugs; the total for IVIG increases to approximately $378 million 
when preliminary data for hospital outpatient departments are included. 
In 2005, roughly 50 percent of spending for carrier paid drug went to 
oncologists. Another five percent went to urologists and four percent 
went to rheumatologists.
    Intermediaries rather than carriers, process claims from both ESRD 
facilities and hospital outpatient departments including for Part B 
covered drugs. The figures discussed in the previous paragraph do not 
include spending for drugs paid for by intermediaries to hospital 
outpatient departments, or to ESRD facilities for drugs paid outside 
the ESRD composite rate. The preliminary estimate of 2005 allowed 
charges for separately billed Part B covered drugs paid to ESRD 
facilities is $2.9 billion and $2.0 billion for hospital outpatient 
Payment for Medicare Part B Drugs
    Prior to the MMA, Medicare paid 95 percent of the Average Wholesale 
Price (AWP) for Part B drugs as reflected in published compendia. 
Numerous reports by the Office of the Inspector General and the General 
Accountability Office indicated that Medicare's payment was 
significantly higher than physician acquisition costs for the drugs. 
The difference between Medicare's payment and acquisition costs has 
come to be referred to as ``spread.'' Physicians have long indicated 
that they used the spread to cross-subsidize payments for administering 
    The MMA revised the system, changing Medicare's payment both for 
Part B drugs and their administration. The MMA created two choices for 
physicians for payment of Part B drugs. First, a physician may choose 
not to buy and bill Part B drugs, but rather obtain such drugs from a 
competitively selected vendor upon submission of a prescription order 
for specific drugs for a particular beneficiary. This Competitive 
Acquisition Program became operational on July 1, 2006. Second, a 
physician may choose to purchase drugs in the market and bill Medicare 
for them, in which case the MMA specifies that Medicare's payment for 
most Part B drugs be 6 percent above the Average Sales Price (ASP). The 
ASP-based payment rates became effective January 1, 2005.
    The ASP is the average sales price from a manufacturer to all 
entities who purchase the drug from the manufacturer (such as 
wholesalers and distributors), except for certain low price sales. The 
ASP is net of discounts, rebates and other price concessions. The ASP 
is calculated from data submitted by manufacturers on a quarterly 
basis. CMS takes the manufacturer's reported average sales price for 
each specific National Drug Code (NDC) in a billing code (billing 
codes, known as HCPCS codes, frequently include more than one NDC) and 
weights it by the volume of sales to determine the ASP for the billing 
code for a drug. The statute requires that the Medicare payment amounts 
are updated each quarter based on data from the second previous 
quarter. For example, Medicare ASP payments for the quarter beginning 
July 1st are based on manufacturers' average sales prices during the 
January to March quarter submitted by April 30th. After receiving data 
by April 30th, CMS has just a few weeks to compile the data, calculate 
the rates, check potentially erroneous data submissions with 
manufacturers, make corrections, publicize the rates, and load the new 
pricing files into each of the claims processing contractors' systems. 
The ASP system represents the only Medicare payment system where rates 
are updated as frequently as quarterly and this allows the Medicare 
payment rate to more accurately reflect the most current market 
conditions. We continue to work closely with manufacturers to expedite 
data submission and ensure adherence with ASP guidance.
    Comparing the July 2006 and January 2005 quarters for the top 50 
drugs, Medicare payment amounts (ASP plus six percent) are higher for 
36 drugs, lower for 13 and the same for one. Payments for five drugs 
increased by ten percent or more, while payments for six drugs 
decreased by ten percent or more. The biggest decrease, 93 percent, was 
for carboplatin, a drug with many generic entrants since 2004. Two 
competitor drugs, Aranesp and Procrit, experienced decreases in 
payments of 14.6 percent and 11.3 percent respectively. There were 
double digit increases and decreases for a number of inhalation drugs 
(duoneb: -17.5 percent; budesonide: 12.7 percent; levalbuterol: 17.7 
percent; albuterol: 26.2 percent; ipratropium bromide: -27.5 percent). 
Other double digit payment increases occurred for bortezomib injection 
(Velcade) (12.4 percent) used to treat multiple myeloma, and 
epoprostenol injection (Flolan) (12.8 percent) used to treat pulmonary 
hypertension. Milrinone lactate injection, another drug with new 
generic offerings which is used to treat congestive heart failure, was 
the only other drug that experiences a double digit payment decrease 
(-13.9 percent).
    Overall, Medicare payments for drugs did not change substantially 
between January 2005 and July 2006. The weighted average payment change 
was negative-four percent. Payment decreases, both among drugs for 
which there were new generic entrants and among other drugs that had 
direct competitors, accounted for much of this decrease. If recent 
generic drugs carboplatin, paclitaxel, and milrinone are eliminated 
from the total, the weighted average payment change was-1.3 percent. In 
addition, if competitor drugs Procrit and Aranesp are also eliminated 
from the total overall Medicare payments actually increased by two 
percent between January 2005 and July 2006.
    The MMA established an alternative method for physicians to obtain 
many drugs covered under Part B, called the Competitive Acquisition 
Program for Part B drugs. Beginning in July of this year, physicians 
have the option of making an annual election as to whether they wish to 
purchase these drugs on their own, and be paid based on the ASP rate, 
or obtain them from a vendor who will then be responsible for supplying 
the drug to the physician, billing Medicare for the drug, collecting 
the coinsurance from the beneficiary, and coordinating secondary payer 
issues. Participation in CAP is voluntary and physicians who elect into 
CAP must abide by their choice for the year, except for certain rare 
exceptions. The benefit of participating for physicians is that they do 
not incur the expense of purchasing and billing for these medications. 
Nor do they have to concern themselves with the Medicare payment rate 
for these products and trying to acquire them at the best possible 
prices in the market.
    Vendors who bid to participate in CAP must meet certain criteria 
outlined in the statute and CMS regulations. These include among other 
things, issues of: management and operations; experience and 
capabilities; licensure; record of integrity; adequacy of internal 
controls; and financial performance and solvency.
    Potential vendors are required to bid on a particular category of 
drugs within a given geographic region. For the first round of CAP, CMS 
determined through regulation that there would be only one competitive 
acquisition geographic area, which includes all 50 states and 
territories, and one category of drugs comprised of approximately 180 
of the most common physician administered drugs. Potential vendors' 
bids could not exceed the volume weighted average ASP plus six percent 
of the full list of drugs. The actual payment rates under CAP are based 
on the median of the successful bids. For the first round of CAP, CMS 
contracted with BioScrip, Inc. as the CAP vendor.
    The first physician election for CAP began in May and concluded at 
the end of June. Elections are effective either July 1, or August 1, 
depending on when the completed election form was received by the 
physician's local carrier, and extends through the remainder of this 
calendar year. For 2007 and subsequent years, the physician election 
will occur for 45 days in the fall for elections effective for the 
subsequent calendar year.
    Once a physician has elected to participate in CAP, they must 
obtain all drugs on the CAP drug list from their chosen drug vendor 
with exceptions in emergency situations and for prescriptions where the 
physician explicitly requests that it be furnished as written. 
Physicians continue to purchase and bill Medicare under the ASP system 
for those drugs that are not furnished by the physician's CAP vendor.
    CMS has established a number of information sources for physicians 
and other prescribing professionals who have the opportunity to 
participate in the CAP. CMS also conducted outreach to the physician 
community working with national and local organizations and specialty 
societies. On May 11 and again on June 12, CMS hosted national ``Ask 
the Contractor'' conference calls during which providers had the 
opportunity to learn more about the CAP and ask questions about 
participation. Local carriers were also required to provide information 
to physicians in their regions.
    This initial phase of CAP is providing CMS with the opportunity to 
gain valuable experience as a launching pad for future enrollment. We 
look forward to expanding the CAP to more categories of drugs in the 
future and widening the pool of vendors and interested physicians.
Payments for Administration of Drugs
    The MMA required four permanent changes in the data and methodology 
used to determine Medicare payments to physicians for administering 
drugs. These changes, all implemented on January 1, 2004, permanently 
affect Medicare's payment for drug administration services. In addition 
to these permanent changes, MMA also provided for transition payments 
increasing the underlying drug administration payment by 32 percent in 
2004 and 3 percent in 2005.

      One significant change was to require use of data from a 
survey conducted by the American Society of Clinical Oncologists (ASCO) 
on the costs of running a practice. These data are now used in the 
methodology to calculate Medicare payments for drug administration 
services. MMA excluded these increased expenditures from the budget 
neutrality requirement so that these changes did not reduce payments 
for other services under the physician fee schedule.
      Another MMA change required the Secretary to set work 
relative value units for drug administration services at the same level 
as the lowest level office visit billed by a physician.
      Still another MMA change required use of data on 
compensation of oncology nurses from the ASCO survey in the methodology 
to calculate practice expense relative value units for drug 
administration services.
      Finally, MMA required the Secretary to review and make 
appropriate changes in payment for multiple chemotherapy drugs 
furnished on a single day through the push technique.

    In addition to the above changes, in order to ensure that drug 
administration codes accurately reflect services furnished, the MMA 
required prompt evaluation of existing codes used by physicians to bill 
for administering drugs to patients. The MMA also required the 
Secretary to use existing processes and authority to expedite 
consideration of coding changes and new relative value units. Changes 
in expenditures resulting from this review of codes were exempt from 
the budget-neutrality requirement that would otherwise apply. Because 
Medicare uses the American Medical Association's Current Procedural 
Terminology (CPT) system for coding of physicians' services, the CPT 
Editorial Panel undertook an expeditious review of drug administration 
codes. The CPT Editorial Panel adopted some new drug administration 
codes and refined several existing codes. The AMA's Relative Value 
Update Committee (RUC) made recommendations to CMS on the relative 
values for new drug administration codes.
    The new codes made changes to address concerns that physicians had 
raised about the drug administration codes. In particular, a new code 
was established to reflect the higher resource costs associated with 
infusing a second cancer drug on the same day. In addition, oncologists 
and other physicians can now bill Medicare for more than one 
administration of a non-chemotherapy drug as they can do currently for 
chemotherapy drugs.
    These new and refined CPT codes became operational in 2006. 
However, in order to make them operational in 2005, in advance of their 
formal inclusion in the CPT system, we established temporary codes that 
were used during 2005. We used the RUC recommended values for the new 
and refined drug administration codes. The MMA specified that the 
changes in expenditures resulting from this review of codes were exempt 
from the budget-neutrality requirement that would otherwise apply.
    Overall, as a result of all these changes, Medicare payments for 
drug administration in 2006 are 117 percent higher than they were in 
2003. Payment amounts for four oncology drug administration codes in 
2006 are more than 200 percent higher than in 2003. In addition, 
payment is 192 percent higher for the code accounting for the most 
spending--chemotherapy administration, intravenous infusion technique; 
up to one hour, single or initial substance/drug.
Other Changes Affecting Payments to Oncologists
    Concurrent with implementation of the ASP system and increased 
payments for drug administration codes, we also made other changes and 
clarifications affecting oncologists and other physicians. Prior to 
2005, injections furnished on the same day as other physician fee 
schedule services were bundled in to payment for the medical visit and 
not paid separately. Beginning with 2005, Medicare made separate 
payment for injections furnished on the same day as other physician fee 
schedule services.
    Considerable physician effort may be required to monitor and attend 
to patients who develop significant adverse reactions to chemotherapy 
drugs, or otherwise have complications in the course of chemotherapy 
treatment. Some physicians are not aware of their ability to bill for 
these services. We clarified that these services can be billed 
appropriately using existing CPT codes, including, depending on the 
services involved: billing for a physician visit; billing for a higher 
level physician visit; billing using a prolonged service code; and 
billing using a critical care service. Billing for services relating to 
a significant adverse reaction to chemotherapy drugs would be in 
addition to billing normally allowed for the physician's care of a 
cancer patient. We issued coding guidance to assure appropriate billing 
for these services, potentially providing additional revenues for 
practices that had not used these billing codes appropriately in the 
    In order to assess the quality of care for cancer patients 
undergoing chemotherapy, Medicare initiated a one-year nationwide 
demonstration project during 2005. The demonstration collected data on 
three patient assessment elements for each day that chemotherapy was 
administered. We established 12 new billing codes, four in each of 
three patient status categories: (i) nausea and/or vomiting; (ii) pain; 
and (iii) fatigue. Physicians reported one of the four different levels 
in each of these three categories. The demonstration project was open 
to all oncologists. Payment of $130 was made to physicians who 
submitted the three codes in conjunction with each day of chemotherapy 
administration. We are using a contractor to evaluate this 
demonstration and the evaluation is ongoing.
    For 2006, we are conducting a one-year demonstration where 
physicians treating cancer patients are routinely consulting clinical 
practice guidelines, and comparing management of their patients to that 
recommended in the guidelines. As part of this demonstration they are 
also reporting on the patient's disease status, and the focus of their 
visit with the patient--all data not routinely captured in the claims 
processing system. Participating oncologists and hematologists qualify 
for additional payments if they submit data from each of the three 
categories when they bill for an evaluation and management (E&M) visit 
of level 2, 3, 4, or 5 for established patients. Practices reporting 
data on all three categories qualify for an additional payment of $23 
in addition to the E&M visit.
    The evaluation of the 2006 demonstration will use a combination of 
quantitative and qualitative methods to examine the impact of the 
demonstration on: Medicare spending; beneficiary outcomes; physician 
practice adherence to clinical guidelines; and financial status of 
physicians' practice. In addition, through field assessments and 
physician surveys, the evaluation will examine how the demonstration 
impacted the way physicians delivered care to beneficiaries, and the 
types of modifications they needed to make in order to be able to 
report the data. The evaluation will include a validation study of 
physician-reported adherence to guidelines developed by the American 
Society of Clinical Oncology and the National Comprehensive Cancer 
Network. The evaluation of the 2006 demonstration is being managed 
jointly by CMS' Office of Research, Development and Information (ORDI) 
and the National Cancer Institute (NCI). Contractor bids have been 
submitted for the evaluation and an award is expected to be made by 
Fall 2006.
    CMS and other components of the Department of Health and Human 
Services (HHS) have heard concerns from some providers and beneficiary 
groups about the adequacy of the intravenous immune globulin (IVIG) 
supply and Medicare reimbursement for these products. Access to care is 
very important to the Medicare program and we are concerned about these 
    During the past year, we have taken several actions to refine 
Medicare payment rates for IVIG that could be accomplished within our 
existing authorities. We established separate payment amounts for 
liquid and powder IVIG beginning April 2005. For 2006, we created 
special pre-administration handling fees of about $72 for physicians 
and $75 for hospital outpatient departments that administer IVIG. At 
the same time we have continued to work with manufacturers to ensure 
that they accurately calculate the ASPs that they report to us since 
these data are used to determine Medicare's payment amounts. The 
Medicare payment rate for IVIG is updated quarterly based on the most 
recent data reported by manufacturers. For the third quarter of 2006, 
the Medicare payment amount increased 11.9 percent for lyophilized IVIG 
(powdered form) and 3.5 percent for liquid IVIG.
    The current IVIG market involves a complex set of demand, supply 
and other factors. Demand for IVIG has grown significantly in recent 
years, as off-label use of the product has increased. Because IVIG is a 
product derived from human plasma, supply increases require significant 
start-up time. Supply availability for IVIG has historically been 
cyclical. IVIG production capacity contracted somewhat in 2004 but 
increased again in 2005, and manufacturers indicated that they expect 
supply to increase further in 2006. The industry barometer of supply 
adequacy for May 2006 indicates that ``inventory levels are between 2-5 
weeks and supply is still adequate.''
    In addition, there are a number of other factors contributing to 
the complex IVIG situation. Manufacturer consolidations and changes in 
business practices have occurred, such as placing IVIG on allocation. 
Allocation means that a substantial portion of the IVIG distributed in 
the United States is not for sale on the open market, but has been 
obligated for delivery to Group Purchasing Organizations (GPOs), 
distributors, and end-users based on long-term contracts with 
manufacturers. There are also reports of some IVIG product being 
diverted to the secondary (resale) market where product is reportedly 
being sold with extremely high markup.
    A number of components of HHS continue to work together, and with 
manufacturers, providers, patient groups, and stakeholders to 
understand the present situation and to assess potential actions that 
will help to ensure an adequate supply of IVIG and patients receiving 
appropriate and high quality care. To better understand the market for 
IVIG and evaluate access and reimbursement concerns from patients and 
physicians, HHS has commissioned an independent, expert study to assess 
these factors. We want to maintain access to IVIG, but it is important 
to determine the causes of the current concerns so we can implement 
appropriate measures to achieve this goal. We plan to continue to work 
with all stakeholders to understand the forces causing IVIG concerns 
and to help craft effective solutions.
    The intentions of the MMA changes were to rationalize how Medicare 
pays for both Part B drugs and their administration, and also to create 
options for physicians to either buy and bill for Part B drugs, or to 
have those drugs furnished to a physician from a qualified vendor upon 
submission of a prescription order. Payments for drug administration 
codes have increased significantly from levels under the AWP payment 
    Studies by MedPAC, the Office of the Inspector General (OIG) and 
the Government Accountability Office suggest that oncologists can 
generally purchase drugs for the treatment of cancer at less than the 
Medicare payment amount. Furthermore, the OIG study found that this was 
true for both large and small practices. These studies suggest that the 
ASP system has helped Medicare payments for oncology drugs covered 
under Part B move closer to actual market prices. We are hopeful that 
the initial success of the CAP program will encourage additional 
physician enrollment.
    The Department plans to continue monitoring payment for and access 
to Part B drugs. CMS and other agencies within HHS are continuing to 
work with manufacturers, providers, patient groups, and stakeholders to 
ensure that patients receive appropriate and high quality care. I look 
forward to answering any questions you may have.


    Chairman JOHNSON OF CONNECTICUT. Mr. Vito.

                         HUMAN SERVICES

    Mr. VITO. Good afternoon, Madam Chairman. I am Robert Vito, 
Regional Inspector General for Evaluations and Inspections at 
the U.S. Department of Health and Human Services Office of 
Inspector General. I appreciate the opportunity to appear 
before you today to discuss our work regarding Medicare part B 
reimbursement for prescription drugs. In the past, Medicare 
part B reimbursed for most covered drugs based on their average 
wholesale price, or AWP. However, this system was fundamentally 
flawed, causing the Medicare Program and its beneficiaries to 
overpay by hundreds of millions of dollars a year. To help 
bring reimbursement more in line with the actual cost, Congress 
created the average sales price, or ASP, methodology.
    Unlike AWP, ASP is defined by law and based on actual sales 
transactions. Recent data on Medicare expenditures show that 
the move to ASP in January of 2005 has lowered inflated 
reimbursement amounts. As a result, the part B expenditures for 
drugs in 2005 fell by almost 1 billion from the previous year. 
To help monitor the new reimbursement system, the MMA expanded 
the OIG's role. The OIG was required to conduct a study on the 
adequacy of ASP-based reimbursement amounts for cancer drugs as 
well as to perform comparisons of ASP to other pricing points. 
Through this we identified a small number of instances where 
Medicare reimbursement may exceed certain prices in the 
    Our first study on ASP addressed the ability of physician 
practices in three cancer-related specialties to obtain drugs 
at 106 percent of ASP. We found that the average prices paid by 
physicians for 35 of the 39 drugs we reviewed were less than 
the ASP-based reimbursement amounts. Additionally, we found 
that in most cases larger practices purchase drugs for less 
than the smaller practices. The next three studies involved the 
comparison of ASP to average manufacturer prices, or AMPs, and 
ASP to widely available market prices, or WAMP. When the OIG 
finds that the ASP of the drug exceeds the AMP or WAMP by 5 
percent, the MMA gives the Secretary the authority to reduce 
the Medicare reimbursement amount for the drug. In the first of 
these comparisons we found for the first quarter of 2004 some 
Medicare reimbursement for 51 of the 364 drugs included in our 
review had an ASP that exceeded AMP by at least 5 percent. If 
reimbursement for these 51 drugs had been lowered to 103 
percent of AMP, Medicare expenditures would have been reduced 
by an estimated 164 million in 2005.
    Last week my office released a second report on the subject 
finding that, for the second quarter of 2006 Medicare 
reimbursement amounts, ASP exceeded AMP by at least 5 percent 
for 46 of the 341 drugs reviewed. If its reimbursement amount 
for the 46 drugs had been based on 103 percent of AMP, the 
Medicare expenditures would have been reduced by 64 million in 
1 year. The OIG also issued a report comparing ASP to WAMP for 
a small number of drugs that we expected would meet the 
criteria for the price reduction. We found that the prices for 
five of the nine drugs we reviewed did indeed surpass the 
threshold, with ASP exceeding WAMP by 17 percent to 185 
percent. Medicare expenditures would be reduced as much as $67 
million in 2006 if reimbursement amounts for these five codes 
were lowered to the WAMP.
    In addition to the mandated work I have described, we have 
also issued a report on CMS's flawed methodology for 
calculating ASP. This flaw stems from the fact the CMS does not 
consistently weight the number of units of the drugs that were 
sold in its calculation. As a result, in the first quarter of 
2005, reimbursement amounts for 46 percent of the drugs were 
too high, and reimbursement amounts for 13 percent of the drugs 
were too low, leading to 110 million in excessive 
reimbursements that year.
    I want to conclude my testimony by stressing that the new 
ASP system represents a marked improvement over the old AWP 
methodology. Under this new system, we have seen a substantial 
reduction in the reimbursement amounts for many products, 
bringing a decade-long trend of increasing expenditures for 
part B drugs to a halt. However, like any new reimbursement 
system, we realize that its implementation must be continually 
monitored to ensure that the payment levels are appropriate. To 
this end we are committed through our oversight work to 
continue to provide CMS and the Congress with timely 
information on ASP-related issues. This concludes my testimony, 
and I welcome your questions.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Vito.
    [The prepared statement of Mr. Vito follows:]
Statement of Robert A. Vito, Regional Inspector General for Evaluations 
     and Inspections, U.S. Department of Health and Human Services
    Good afternoon, Madam Chairman. I am Robert Vito, Regional 
Inspector General for Evaluation and Inspections in Philadelphia at the 
U.S. Department of Health and Human Services' Office of Inspector 
General (OIG). I appreciate the opportunity to appear before you today 
to discuss OIG's most recent work regarding Medicare Part B 
reimbursement for prescription drugs and the average sales prices (ASP) 
used to set this reimbursement.
    In short, the new system appears to have lowered the previously 
inflated Part B reimbursement amounts and, in turn, reduced overall 
Medicare expenditures for prescription drugs. Even so, OIG's work has 
identified a small number of instances in which the reported ASPs, and 
the resulting Medicare reimbursement amounts, may still be higher than 
certain other prices in the marketplace. We have also identified an 
issue with the method CMS uses to calculate reimbursement amounts.
Flaws in the Previous Reimbursement System
    Prior to 2004, Medicare Part B reimbursed for most covered drugs 
based on the lower of either the billed amount or 95 percent of the 
average wholesale price (AWP) as published in national pricing 
compendia. The AWP is not defined by law or regulation, nor is it 
typically based on actual sales prices. As numerous reports by OIG and 
the Government Accountability Office have illustrated, the AWP-based 
reimbursement amounts for most covered drugs were significantly higher 
than the prices that drug manufacturers, wholesalers, and other similar 
entities actually charged the physicians and suppliers who purchase 
these drugs. Consequently, under this flawed system, the Medicare 
program and its beneficiaries were overpaying by hundreds of millions 
of dollars per year for prescription drugs.
    To help align reimbursement amounts with actual acquisition costs, 
Congress included in the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) provisions to reform Part B drug 
reimbursement. The MMA specified that reimbursement amounts for most 
outpatient prescription drugs furnished in 2004 be set at 85 percent of 
the AWP, until a new methodology could be implemented on January 1, 
2005. This new methodology based reimbursement amounts on manufacturer-
reported ASPs rather than AWPs. Unlike the AWP, an ASP is defined by 
statute and based on actual sales transactions. The MMA defines an ASP 
as a manufacturer's sales of a drug to all nonexempt purchasers in the 
United States in a calendar quarter divided by the total number of 
units of the drug sold by the manufacturer in that same quarter. The 
ASP is net of any price concessions such as volume, prompt pay, and 
cash discounts; free goods contingent on purchase requirements; 
chargebacks; and rebates other than those paid under the Medicaid drug 
rebate program.\1\\,\ \2\ Under this new methodology, Medicare 
reimbursement for most Part B drugs is set at 106 percent of the drugs' 
volume-weighted ASPs.\3\
    \1\ Section 1847A(c) of the Social Security Act, as added by the 
    \2\ Pursuant to section 1847A(c)(2) of the Social Security Act, 
sales that are nominal in amount are exempted from the ASP calculation, 
as are sales excluded from the determination of ``best price'' for 
Medicaid drug rebate purposes.
    \3\ Although manufacturers submit an ASP and sales volume for each 
individual drug product they sell, CMS does not establish a 
reimbursement rate for each specific drug product. CMS uses ASP data 
for individual drug products to calculate an overall ASP for the 
procedure code. The ASP for an individual drug product is weighted by 
the amount of that drug sold during the quarter. This means that the 
ASP for a drug with a high volume of sales should have greater 
influence on the reimbursement amount for a procedure code than an ASP 
for a drug with a low volume of sales.
Impact of ASPs On Medicare Reimbursement
    The Congressional Budget Office estimated that the changes enacted 
by the MMA would save Medicare almost $16 billion over 10 years by 
reducing excessive Medicare reimbursement amounts for Part B-covered 
drugs. Recent data on Medicare reimbursement and expenditures provide 
evidence confirming that the ASP-based reimbursement system has 
substantially lowered reimbursement amounts for numerous drugs. For 
about one-quarter of the drugs covered under Part B, Medicare 
reimbursement amounts have been reduced by at least 50 percent when 
compared to pre-MMA levels. For example, in 2003 \4\ (when 
reimbursement was set at 95 percent of the AWP), Medicare paid almost 
$120 for a month's supply of the inhalation drug albuterol; today, 
Medicare pays $20.\5\ For the cancer drug Zoladex, Medicare paid almost 
$450 per dose in 2003; Medicare currently pays $196 per dose.
    \4\ All data and methods described in the testimony refer to 
calendar years.
    \5\ These figures relate only to reimbursement for the drugs 
themselves. They do not include the dispensing fees paid to the 
    The reductions in the reimbursement amounts for individual drugs 
have had a substantial effect on overall Part B expenditures. Before 
the MMA was enacted, CMS data indicated that Medicare expenditures for 
Part B drugs had increased by at least 20 percent annually every year 
since 1994. By 2004, Medicare was paying almost $11 billion for covered 
drugs, up from $4 billion just 6 years earlier. Due to changes made by 
the MMA, this trend has reversed, with Medicare Part B spending close 
to $1 billion less on covered drugs in 2005 than in 2004. This decrease 
occurred despite rising utilization for the drugs.
OIG Work Involving Medicare Part B Drugs
    Prior to the passage of the MMA, OIG's primary role in Medicare 
drug pricing involved identifying and reporting on flaws in the AWP-
based system that left the program vulnerable to fraud, waste, and 
abuse. In more than a dozen reports, we repeatedly found that Medicare 
paid too much for prescription drugs due to inflated AWPs. In addition, 
working with our many law-enforcement partners, we assisted in 
investigations of pricing issues that resulted in significant civil and 
criminal settlements.
    The MMA established two mandates for OIG that changed and expanded 
our role in monitoring Medicare drug pricing. First, the MMA mandated 
that OIG conduct a study on the adequacy of ASP-based reimbursement 
amounts for certain cancer drugs. Second, the MMA required OIG to 
perform an ongoing monitoring function that compares ASPs to other 
pricing points. As discussed below, we have recently completed studies 
that address both of these mandates.
OIG Work Required by the MMA
Adequacy of ASP-Based Reimbursement for Certain Cancer Drugs
    The MMA required that OIG conduct a study on the ability of 
physician practices of different sizes in the specialties of 
hematology, hematology/oncology, and medical oncology to obtain drugs 
and biologicals at 106 percent of the ASP. This requirement responded 
to concerns that the new reimbursement amounts based on ASPs may be 
lower than the drug acquisition costs for physicians in these 
specialties. OIG completed this study in September 2005.\6\
    \6\ ``Adequacy of Medicare Part B Drug Reimbursement to Physician 
Practices for the Treatment of Cancer Patients,'' A-06-05-00024.
    We compared the average prices paid by physicians for drugs 
represented by 39 procedure codes to Medicare reimbursement amounts and 
concluded that physician practices in the three specialties could 
generally purchase drugs for the treatment of cancer patients at less 
than the MMA-established reimbursement rates (i.e., 106 percent of the 
ASP). Overall, the report found that the average prices paid for 35 of 
the 39 drugs under review were less than the Medicare reimbursement 
amounts. Larger physician practices purchased drugs at greater 
discounts (i.e., at least 15 percent below Medicare reimbursement) for 
more drugs than smaller practices. In addition, we also estimated that 
for 35 of the 39 codes, physician practices could purchase drugs for 
less than the reimbursement amounts during at least half of the months 
OIG Comparisons of ASPs to Other Pricing Points
    The MMA also mandated that OIG conduct studies that determine 
whether the ASP exceeds certain other prices. Specifically, the MMA 
required OIG to compare manufacturer-reported ASPs to both average 
manufacturer prices (AMP) \7\ and widely available market prices 
(WAMP).\8\ In certain situations where the ASP of a drug exceeds the 
AMP or the WAMP by a certain threshold, the MMA gives the Secretary the 
authority to reduce the reimbursement amount for the drug to either 103 
percent of the AMP or 100 percent of the WAMP. Currently, the threshold 
amount is 5 percent, although the Secretary has the authority to raise 
or lower this percentage in the future.
    \7\ AMPs, also reported by drug manufacturers to CMS, are used in 
the determination of rebates in the Medicaid program. As defined in 
section 1927(k)(1) of the Social Security Act, the AMP is the average 
price paid to the manufacturer for the drug in the United States by 
wholesalers for drugs distributed to the retail pharmacy class of 
trade, minus customary prompt pay discounts.
    \8\ Section 1847A(d)(5) of the Social Security Act generally 
defines widely available market price to be the price that a prudent 
physician or supplier would pay for the drug, net of any routinely 
available price concessions.

      Comparisons of ASPs to AMPs. OIG completed the first of 
its studies comparing ASPs to AMPs and issued a report earlier this 
year.\9\ We found that in the third quarter of 2004, 51 of the 364 
procedure codes (14 percent) included in this review had an ASP that 
exceeded the AMP by at least 5 percent. If reimbursement amounts for 
these 51 codes had been lowered to 103 percent of the AMP, Medicare 
expenditures would have been reduced by an estimated $164 million in 
    \9\ ``Monitoring Medicare Part B Drug Prices: A Comparison of 
Average Sales Prices to Average Manufacturer Prices,'' OEI-03-04-00430, 
May 2006.

    In response, CMS stated that the information in the report was 
helpful in its continuing efforts to monitor payment adequacy under the 
ASP methodology. However, CMS noted that OIG's review was conducted 
using data submitted during the initial implementation phase of the ASP 
methodology. Although CMS acknowledged the Secretary's authority to 
adjust ASP payment limits when certain conditions are met, it believed 
that other factors should be considered, including the timing and 
frequency of pricing comparisons, stabilization of ASP reporting, the 
effective date and duration of rate substitution, and the accuracy of 
ASP and AMP data.
    In June 2006, OIG released a second report comparing ASPs to 
AMPs.\10\ We found that for 46 of the 341 procedure codes (13 percent) 
included in this review, ASPs exceeded AMPs by at least 5 percent in 
the fourth quarter of 2005.\11\ Twenty of these codes were identified 
in OIG's previous report as having ASPs that exceeded AMPs by at least 
5 percent in the third quarter of 2004. If reimbursement amounts for 
the 46 codes had been based on 103 percent of the AMP, we estimate that 
Medicare expenditures would have been reduced by $64 million in one 
    \10\ ``Comparison of Fourth Quarter 2005 Average Sales Prices to 
Average Manufacturer Prices: Impact on Medicare Reimbursement for the 
Second Quarter of 2006,'' OEI-03-06-00370.
    \11\ Fourth-quarter 2005 ASPs are used to set second-quarter 2006 
reimbursement amounts.

      Comparison of ASPs to WAMPs. In addition to the 
comparisons of ASPs and AMPs, OIG released a report comparing ASPs to 
WAMPs in June 2006.\12\ For this analysis, we specifically selected a 
purposive sample of nine procedure codes for which we suspected that 
the ASP might exceed the WAMP by at least 5 percent. The purposive 
sample was based on the results of the September 2005 OIG report on 
adequacy of reimbursement for cancer drugs.
    \12\ ``A Comparison of Average Sales Prices to Widely Available 
Market Prices: Fourth Quarter 2005,'' OEI-03-05-00340.

    We found that 5 of the 9 procedure codes included in this review 
met or surpassed the 5-percent threshold defined by the MMA. For these 
5 codes, the ASPs exceeded the WAMPs by a range of 17 to 185 percent. 
We estimate that Medicare expenditures would be reduced by as much as 
$67 million in 2006 if reimbursement amounts were lowered to the WAMPs 
for these 5 codes. In addition, the prices that physicians pay for 
these drugs may be even lower than the WAMPs that were calculated, as 
all of the responding distributors offered price discounts to physician 
customers that were not reflected in the calculation of WAMPs.\13\
    \13\ The most common type of price discount offered to physician 
customers was a prompt pay discount. Three of the five companies that 
responded to our request for information offered this type of 
incentive, with percentage discounts ranging from 1 to 3 percent, 
depending on the time of payment.
Additional OIG Work Involving ASP
CMS's Calculation of ASPs
    For the most part, the Medicare Part B reimbursement amount for a 
drug is now based on a volume-weighted ASP that CMS derives from the 
underlying ASPs for individual drug products reported by manufacturers. 
In the process of conducting the mandated price comparisons, we 
identified a problem with the method CMS uses to calculate volume-
weighted ASPs. We alerted CMS to the problems with its calculation and 
issued a report on this subject in February 2006.\14\ We found that 
CMS's method for calculating a volume-weighted ASP is mathematically 
flawed because CMS does not consistently weight the number of units of 
a drug that were sold throughout its equation. As a result, many 
procedure codes have a reimbursement amount that is higher or lower 
than the amount that would have been calculated if the weighting were 
applied consistently.
    \14\ ``Calculation of Volume-Weighted Average Sales Price for 
Medicare Part B Prescription Drugs,'' OEI-03-05-00310.
    According to OIG's analysis of prices published in the first 
quarter of 2005, the flawed calculation caused 46 percent of procedure 
codes to be reimbursed at amounts that were higher than they should 
have been, resulting in an estimated $115 million in excessive Medicare 
reimbursements in 2005. For 13 percent of procedure codes, CMS's 
reimbursement amount was lower than it should have been, representing 
an estimated $5 million loss to providers in 2005. The flawed 
calculation did not affect reimbursement amounts for the remaining 41 
percent of procedure codes. OIG recommended that CMS change its 
calculation of volume-weighted ASPs. Although CMS stated that it may 
consider altering the ASP methodology in the future, the agency has yet 
to make any changes to its calculation of volume-weighted ASPs.
Drug Manufacturers' Calculations of ASPs
    OIG is currently auditing eight drug manufacturers to evaluate 
their methodologies for calculating ASPs for individual drug products. 
Several more audits are planned in the near future.
Adequacy of Reimbursement for Intravenous Immune Globulin
    This Subcommittee and the House Committee on Energy and Commerce 
Subcommittee on Health requested that OIG evaluate the current state of 
pricing and supply for one specific drug, intravenous immune globulin 
(IVIG). Patient advocacy groups and physicians have repeatedly 
expressed concerns that, under the ASP-based reimbursement methodology, 
the cost for physicians to acquire IVIG exceeds Medicare's 
reimbursement amount. OIG's work in this area is ongoing. A final 
report that addresses Medicare reimbursement for IVIG, provides 
perspectives on the supply and distribution of this unique product, and 
makes any recommendations that are warranted will be issued in the near 
Dispensing Fees for Inhalation Drugs
    In tandem with the reimbursement reductions resulting from the MMA, 
CMS raised the dispensing fee paid by Medicare in 2005 for inhalation 
drugs from $5 to an interim amount of $57 for a 30-day drug supply. It 
did so based in large part on industry statements claiming that 
beneficiaries receive numerous, important services from their 
suppliers. Last year, OIG issued a report that reviewed the nature and 
extent of dispensing services that Medicare beneficiaries received from 
inhalation drug suppliers in 2003. OIG found that the most common 
service beneficiaries received was contact for drug refills. Few 
beneficiaries received more intensive services such as education, care 
plan revision, or a respiratory assessment, and 16 percent of 
beneficiaries received no services at all. The most common way 
beneficiaries received services was by telephone; only 1 in 10 
beneficiaries received a home visit.
    Prior to the passage of the MMA and the implementation of the new 
ASP-based methodology, Medicare reimbursed for many prescription drugs 
at prices that did not reflect actual acquisition costs for physicians 
and suppliers. Under the new system, there has been a substantial 
reduction in reimbursement amounts for many high-dollar products, 
causing the decade-long trend of increasing Part B expenditures for 
prescription drugs to reverse. Building on OIG's existing work that 
identified weaknesses in the old system, we have responded to new 
mandates under the MMA by taking on a more extensive role in helping to 
ensure the appropriateness of Medicare payments under the new 
methodology. As a result, OIG has already identified a few instances 
where the reported ASPs, and the resulting Medicare reimbursement 
amounts, may still be higher than certain other prices in the 
marketplace. In addition, OIG has undertaken nonmandated audits and 
evaluations of issues that we have identified as important to ensuring 
the integrity of Medicare Part B drug payments, such as the methodology 
used by CMS to calculate Medicare reimbursement amounts, and the 
methodologies used by drug manufacturers to calculate ASPs.
    It appears that the new ASP methodology represents a marked 
improvement over the old AWP system. However, like any new 
reimbursement system, we realize that its implementation must be 
continually monitored to ensure that payment levels are appropriate. To 
this end, we are committed through our oversight work to provide CMS 
and Congress with timely information regarding ASPs and other drug 
reimbursement issues.
    This concludes my testimony, and I welcome your questions.


    Chairman JOHNSON OF CONNECTICUT. Dr. Miller.


    Mr. MILLER. Chairman Johnson, Ranking Member Stark and 
distinguished Subcommittee Members, I am Mark Miller, Executive 
Director of the Medicare Payment Advisory Commission. I will 
apologize here. I think you are going to hear some things that 
you have already heard. Medicare part B, that pays for--part B 
drugs that are used to treat patients with very serious medical 
conditions such as cancer, hemophilia and rheumatoid arthritis. 
Under Medicare's old system, the AWP, Medicare expenditures 
were growing rapidly at annual rates of 20 and 25 percent. This 
is because AWP was inflationary and paid well above what 
physicians paid to purchase the drug. Physicians argued that 
they needed this spread in order to cover the cost of 
administering these drugs.
    The MMA changed both the way that Medicare pays for the 
drug as well as the way physicians are paid to administer 
drugs. The new system, the ASP, has resulted in substantially 
lower Medicare expenditures. As you have just heard, in 2005 
there was actually a reduction in expenditures. This is because 
Medicare has realized lower prices for these drugs. For 
example, we looked at the volume and mix of drugs provided in 
2004 under the old payment system and determined that if they 
had been paid under the new payment system, Medicare would have 
paid 22 percent less.
    Congress asked MedPAC to examine the impact of these policy 
changes on oncology practices and on Medicare beneficiaries 
receiving cancer treatments. Before I go through these results, 
I want to make one caveat. We were asked to report in January 
of 2006, which we did, but, of course, many of the policy 
changes were still coming into effect. We analyzed national 
claims data. We made several site visits to communities to talk 
to oncology offices, to outpatient departments, hospitals, 
physicians, and we also ran focus groups on beneficiaries. This 
is what we found. The volume of services going to beneficiaries 
continued to increase after the implementation of the policies. 
Between 2004 and 2005, cancer chemotherapy sessions in 
physicians' offices increased by 13 percent. The number of 
beneficiaries receiving cancer chemotherapy sessions increased 
by at least 7\1/2\ percent. As you have already heard 
mentioned, the actual Medicare reimbursements to support the 
administration of the drugs increased significantly over those 
time periods.
    There is also a long-running trend in the provision of 
these services toward the use of the latest drugs in order to 
give patients new options to treat their cancer. These drugs, 
because they are new, are often very expensive. That trend 
continued after the implementation of the policies. So, all of 
these data don't point to the lack of access problem, but there 
is one issue I want to bring to your attention. In a couple of 
the communities that we visited, we found that beneficiaries 
who did not have supplemental insurance were being referred to 
hospital outpatient departments for the infusion of their drug. 
The issue breaks down like this. If the physician gets 
reimbursed for cancer chemotherapy drugs, the physician is 
getting a payment from the program and from the beneficiary. If 
the beneficiary is unable to make that payment, the physician 
may determine that they can't afford to purchase that drug, 
send the patient to the outpatient department for the infusion, 
and bring them back to the office for the remainder of their 
    So, there is no access issue per se. The beneficiary still 
gets the infusion, but there is clearly a convenience issue and 
other issues that attach here, of program payment issues as 
well. Practices were able to purchase most Medicare--most, not 
all--but most Medicare drugs at or below Medicare's payment 
rate. Oncologists did change the organization of their 
practices. They hired staff and engaged in more aggressive 
price negotiation tactics, and also kept lower inventory in 
order for them to take advantage of changes in prices.
    I will conclude my testimony by saying we think that ASP is 
not a perfect payment system, as well as some of the other 
statements that were made here, but we think it is a vast 
improvement over the AWP, and also, like you have heard, we 
believe it needs continued monitoring in order to be sure that 
the prices--prices are tracking the payment, the prices that 
physicians are actually paying to get the drug. I look forward 
to your questions.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Miller.
    [The prepared statement of Mr. Miller follows:]
 Statement of Mark Miller, Ph.D., Executive Director, Medicare Payment 
                          Advisory Commission
    Chairman Johnson, Ranking Member Stark, distinguished Subcommittee 
members. I am Mark Miller, executive director of the Medicare Payment 
Advisory Commission (MedPAC). I appreciate the opportunity to be here 
with you this morning to discuss MedPAC's work on Medicare Part B drugs 
and oncology.
    Before 2006, Medicare covered few outpatient drugs but those 
medications that were covered under Part B were used to treat patients 
with very serious medical conditions like cancer, hemophilia, and 
rheumatoid arthritis. Medicare expenditures for these drugs were 
growing rapidly, rising from $2.8 billion in 1997 to $10.3 billion in 
2003, representing about 4 percent of Medicare spending. Although 
policymakers agreed that payment rates for Part B drugs were too high, 
providers argued that the high rates were necessary to offset drug 
administration fees that were too low to cover the costs of 
administering those drugs to beneficiaries.
    The Medicare Prescription Drug, Improvement, and Modernization Act 
(MMA) changed the way Medicare pays for both drugs and drug 
administration services under the physician fee schedule. As intended 
by the policy, payment rates for drugs were reduced to levels closer to 
the prices providers were paying while payment rates for drug 
administration increased. As a result of the payment changes, Medicare 
spending for Part B drugs declined in 2005 despite increases in the 
volume of drugs used and the substitution of newer drugs for older less 
expensive products.
    The Congress directed MedPAC to study the effect of these changes 
on beneficiary access and quality of care. Our first report, completed 
January 2006, focused on services provided by oncologists. We found 
that, in general, beneficiary access to chemotherapy drugs remained 
good and we found no evidence that quality of care declined. For our 
second mandated report, due in January 2007, we are studying the 
effects of the payment changes on drug administration services provided 
by other specialties, such as urologists and rheumatologists.
    Although no payment system is without drawbacks, the current system 
has resulted in Medicare payments that are closer to the price 
physicians pay and has reversed spending trends for Part B covered 
drugs. However, the Commission believes that it is important for the 
Secretary to continue monitoring physician acquisition costs to test 
the accuracy of Medicare drug payments as the new payment system 
evolves over time.


Chart 1. Medicare spending and annual growth rates for Part B drugs.
Source: MedPAC analysis of CMS data, 1997-2004
    Under Part B, Medicare covers drugs administered in physician 
offices, including drugs used for chemotherapy, drugs used as part of 
durable medical equipment, blood clotting factor, erythropoietin used 
to treat anemia in end-stage renal disease patients and cancer 
patients, and some oral medications such as immunosuppressive drugs 
used following organ transplants. These drugs are not usually purchased 
at retail pharmacies. Providers buy the products and then bill Medicare 
as they administer them to patients. Physician claims account for the 
majority of Medicare expenditures for Part B outpatient drugs. 
Physicians in only two specialties--hematology oncology and medical 
oncology--submitted claims for almost 50 percent of total billing for 
Part B drugs in 2004, not including drugs provided in dialysis 
    Expenditures for Part B drugs increased rapidly, more than 25 
percent every year from 1998 to 2003. One of the most significant 
factors driving spending growth was the payment method. Following the 
Balanced Budget Act (BBA) of 1997, the Medicare payment rate for 
covered drugs was set at 95 percent of the average wholesale price 
(AWP). Despite its name, AWP does not represent the average wholesale 
price. Rather, it can be thought of as a manufacturer's suggested list 
price. It does not have to correspond to any transaction price or 
average transaction price, which often reflect substantial discounts. 
Every drug has its own AWP. Individual AWPs are compiled and reported 
in compendia like the Red Book and First Databank largely on the basis 
of information supplied by the manufacturers. A series of 
investigations by the Department of Health and Human Services Office of 
the Inspector General (OIG) and the Government Accountability Office 
(GAO) showed that Medicare payment rates were well above providers' 
acquisition costs.
    Policymakers discussed a number of ways to reform the payment 
system, including continuing to pay based on AWP but requiring a 
steeper discount, setting payment to a different benchmark tied to 
transaction prices like the average sales price (ASP) or the average 
acquisition price (AAP), or using competitive bidding to lower prices. 
In its June 2003 Report to Congress, the Commission examined these 
policy options.
    Our analysis suggested that continuing to use AWP as a benchmark 
but requiring steeper discounts would lead to limited savings for 
Medicare. In many cases, the additional discount would still result in 
payments substantially higher than acquisition costs. AWP would still 
not correspond to any transaction price and could not be audited. 
Providers would continue to have an incentive to switch to drugs with 
higher AWPs to maximize their profit.
    Next, we examined the potential effects of a payment method based 
on a computed average transaction price such as the average sales price 
(ASP), or the average acquisition price (AAP). Both of these methods 
depend upon calculated average transaction prices for products. 
Although in theory calculations based on ASP and AAP should result in 
the same payment rate, ASP is based on data collected from 
pharmaceutical manufacturers while AAP data is collected from 
physicians and suppliers. Differences might reflect inclusion of the 
wholesalers' fees in AAP and differences in the way manufacturers and 
physicians would report the data. Since manufacturers are already 
reporting average price data to CMS in order to determine Medicaid drug 
payment rates, the data needed to calculate ASP is more readily 
available than the data needed to determine the average acquisition 
    We concluded that a competitive system or use of either benchmark 
(ASP or AAP) would reduce Medicare payments. We recognized that there 
were drawbacks to every proposed reform of the payment system but that 
all options were likely to reduce Medicare payments compared to the AWP 
system then in place.
    All proposals based on these benchmarks anticipated paying 
providers a specified percentage above the calculated price although 
they differed as to how high to set the additional payment. The 
Commission did not recommend that the payment rate be set at any 
specific percentage above the benchmark. We said that beneficiary 
access would not be affected as long as the payment rate was set high 
enough to meet the costs of efficient providers. We also said that 
payments set too high above the benchmark would encourage price 
increases and reduce Medicare savings.
    Following passage of the MMA, Medicare significantly changed the 
way it pays providers for physician-administered drugs and drug 
administration services, generally reducing the payment rate for drugs 
while increasing payments for drug administration services. In 2005, 
Medicare began paying for Part B drugs based on 106 percent of the 
average sales price (ASP). ASP represents the weighted average of 
manufacturers sales prices for each product that falls within a 
Medicare billing code. (Medicare billing codes are used for multiple 
products.) It is based on data submitted quarterly by pharmaceutical 
manufacturers, net of price concessions such as rebates and discounts 
and is limited to sales in the United States. The ASP payment rate is 
set prospectively based on these transaction prices from two quarters 
prior. Thus, if manufacturers raise prices in the succeeding quarters, 
purchasers may have difficulty purchasing products at the Medicare 
payment rate until the ASP ``catches up.'' On the other hand, if prices 
go down, either because of competition between therapeutically 
equivalent branded drugs or because a generic version of a branded drug 
becomes available, purchasers may buy products at prices significantly 
below the payment rate until the ASP ``catches up.''
MedPAC study
    Concerned that the payment changes not affect beneficiary access to 
needed medical care, the Congress directed the Commission to complete 
two studies on the effects of the new payment system on beneficiary 
access, quality of care, and physician practices. Our first report, 
delivered January 2006, analyzed the effect of the payment changes on 
beneficiary access to chemotherapy. We are currently conducting a 
second study on the effect of the payment changes on services provided 
by other specialties including urologists, rheumatologists, and 
infectious disease specialists.
    Because the legislated changes had not yet been fully implemented 
and we only had partial data for 2005, the Commission had limited 
ability to analyze the impact of the changes. We undertook a series of 
qualitative and quantitative analyses to assess beneficiary access and 
quality of care.

      We analyzed expenditures and changes in volume for 
chemotherapy services using Medicare claims data.
      We analyzed a commercial database with prices for drugs 
used by oncologists to see if prices physicians paid were below the 
Medicare payment rates, and we measured the variation in prices 
different physician practices paid.
      We visited community oncologists, hospital outpatient 
departments, and health plans in five markets to discuss the effects of 
payment changes on practices.
      We conducted four focus groups with Medicare 
beneficiaries receiving chemotherapy during 2005 to see how the payment 
changes affected their experiences.
      We interviewed stakeholders to gain their perspective on 
how the payment changes affected the buying and selling of physician-
administered drugs.
      Finally, we reviewed the literature on pricing for Part B 
drugs and studies of quality-of-care indicators for chemotherapy.

    We found that the payment changes did not affect beneficiary access 
to chemotherapy services. Physicians provided more chemotherapy 
services and more Medicare beneficiaries received services in 2005 than 
in 2004. We saw no indication that quality of care was affected, and 
patients continue to be satisfied with the care they are receiving. We 
found no indication of access problems in any region of the country. In 
general, large practices were able to purchase chemotherapy drugs at 
lower prices than small practices, but all could buy most drugs at 
prices below the Medicare payment rate. However, there is one issue to 
report. In some areas, beneficiaries without supplemental insurance 
were receiving chemotherapy in hospital outpatient departments rather 
than physician offices.
Medicare spending on chemotherapy drugs and services
    To measure the impact of the 2005 Medicare payment change to ASP, 
we analyzed carrier claims for the first six months of 2005. We 
compared our results to spending and volume claims for the same period 
in 2003 and 2004. We found that beneficiaries received more drug 
administration services in 2005 than 2004, but that spending remained 
constant. Medicare expenditures for chemotherapy drugs declined in 2005 
because of the change to payment based on ASP. The change to pricing 
based on ASP also narrowed the gap between the prices paid by the 
providers who negotiated the best and worst deals with drug 
    Preliminary estimates by CMS indicate that spending for all Part B 
drugs in 2005 declined by 3 percent. Drug spending is determined by 
volume, drug mix, and the payment rate for the drugs. In the case of 
Part B drugs, volume increases were offset by changes in the payment 
    To demonstrate the effect of pricing changes from 2004 to 2005, we 
estimated what Medicare would have paid if the volume of all the 
specific Part B drugs billed in 2004 were paid according to the 
Medicare payment rates for October 2005. Using this methodology, we 
calculated that expenditures for all Part B drugs used in 2004 would 
have cost 22 percent less in 2005.
    However, the spending decrease was not as great as the decrease in 
prices would have suggested because the mix of drugs used in 2005 was 
different from the mix used in 2004. In a continuation of previous 
trends, physicians substituted newer, more expensive single source 
drugs for older drugs. Many of the new drugs are produced through the 
use of biotechnology. Not only are these products expensive when 
initially marketed, they face only limited competition over time 
because the FDA does not yet have an approval process for generic 
versions of biologicals. Many of these biologicals are used in the 
treatment of cancer. Of the ten drugs that accounted for the largest 
share of Part B drug spending, four received FDA approval in 1996 or 
later. Additionally, spending on injectables too new to have received 
their own payment codes accounted for 3 percent of Part B drug 
    Both the volume and payments for chemotherapy administration 
increased in 2005. We estimate that physicians provided 13 percent more 
chemotherapy sessions in 2005 than in 2004. CMS changed its rules to 
allow physicians to bill more codes for each chemotherapy session, so 
the number of services has increased faster than the number of 
sessions, by 33 percent from 2003 to 2005. In addition, the Congress 
made two, one-year payment increases for drug administration: in 2004 
it increased payments by 32 percent and in 2005 it increased payments 
by 3 percent over what would otherwise be paid under the fee schedule. 
Taken together, the volume and payment increases led spending for 
chemotherapy administration services to rise 182 percent from 2003 to 
    We also compared the number of Medicare beneficiaries receiving 
chemotherapy in physician offices in 2003, 2004, and 2005. We estimate 
that the number of beneficiaries receiving chemotherapy in physician 
offices increased 7.5 percent in 2005, based on the most conservative 
assumption. No matter what set of assumptions we used, Medicare 
beneficiaries received an increasing number of chemotherapy sessions in 
physician offices from 2003 to 2005.
    In 2005, CMS provided another source of payments for chemotherapy 
in physician offices. In addition to paying for drugs and drug 
administration services, CMS implemented a one-year demonstration 
project to evaluate how chemotherapy affects the level of fatigue, 
nausea, and pain experienced by patients. All oncologists were eligible 
to receive $130 per patient per day for asking chemotherapy patients 
three questions about how they had responded to treatment. 
(Beneficiaries were charged $26 copayments for this demonstration.) We 
estimate that this demonstration project increased Medicare 
expenditures by more than $200 million, further increasing drug 
administration payments by more than 70 percent over 2003 levels. (In 
2006, CMS implemented an alternative demonstration project. The agency 
required oncologists to provide information on treatment patterns for 
patients with different cancers at different disease stages. Physicians 
reporting the required data receive $23 per patient visit.) The 
addition of the demonstration project funds complicated MedPAC's 
ability to evaluate fully the effects of the payment changes.
Payment adequacy
    In the course of our site visits, the Commission found that most 
oncologists could purchase most drugs at rates below the Medicare 
payment level, but profit margins on these drugs generally were low, as 
the policy change anticipated. Every practice reported that that they 
could not buy some drugs at the payment rate. A study by the Office of 
Inspector General (OIG) (September 2005) indicated that oncologists 
could still purchase most drugs at rates below the payment level, 
although specific drugs posed a problem for some practices. In general, 
larger practices paid lower prices than smaller practices for the same 
    The Commission analyzed the data presented in the OIG report to 
determine what kinds of drugs provided higher or lower payment margins 
compared to the Medicare payment rates. We found that the highest 
payment margins occurred when generic alternatives, such as carboplatin 
and cisplatin, became available. Purchasers also were able to buy brand 
name drugs at prices well below Medicare payment rates if the drugs had 
therapeutic substitutes available. One example would be dolasetron 
mesylate, one of a number of drugs used to treat nausea in chemotherapy 
    As providers moved to purchase less costly alternatives, 
competition between buyers and sellers resulted in lower Medicare 
payment rates in the following quarters. We found that when the January 
Medicare payment rate for a drug was more than 15 percent higher than 
the average price providers paid, the Medicare payment rate fell 
sharply by October. In particular, payment rates for chemotherapy drugs 
with high margins in January declined by as much as 72 percent in 
    Changes in both pricing and purchasing patterns may affect the 
accuracy of drug payments over time. For this reason, the Commission 
has recommended that the Secretary continue to monitor provider drug 
acquisition costs in both physician offices and dialysis facilities.
Price variation
    Under the ASP method, pharmaceutical manufacturers might narrow the 
range of discounts offered to purchasers to ensure that all physicians 
could purchase their products at the Medicare payment rates. Since the 
market for chemotherapy drugs is limited, manufacturers would want to 
maximize their customer base. To track changes in oncology prices over 
time, the Commission acquired pricing information from a commercial 
data source. (Our contract with the vendor does not allow us to present 
prices for specific drugs.) Prices are net of discounts but do not 
include rebates provided by manufacturers after the sale. The database 
shows variation between the lowest and highest prices the purchaser 
paid. The Commission purchased data on 26 drugs billed by oncologists 
for one month of each of the first three quarters of 2005. Drugs 
include chemotherapy agents and medications used to treat the side 
effects of chemotherapy. Many overlap with the drugs identified in the 
OIG report. The 26 drugs accounted for more than 50 percent of 
physician-administered Part B drug spending in 2004.
    Our analysis of prices paid by physicians showed that price 
variation for our basket of drugs declined between the first and third 
quarters of 2005. Next, we looked to see if the decline in price 
variation was more pronounced for any particular types of drugs. We 
grouped our drugs in two ways. First, we classified them based on 
whether they were single source branded drugs or had generic 
alternatives. Next, we looked at whether the drugs were chemotherapy 
agents or prescribed to treat the side effects of chemotherapy. For all 
four categories, the range, defined as the variation between the best 
and worst price obtained by physicians, narrowed between the first and 
third quarters of 2005. The range for single source chemotherapy 
drugs--small to begin with--narrowed least, falling from 6.9 percent to 
5.2 percent. The biggest change was in the range for drugs used to 
treat the side effects of chemotherapy. That range declined 25.3 
percent in the first quarter to 10.3 percent third quarter (chart 2). 
In other words, for this group of drugs there was a difference of about 
10 percent between the highest and lowest prices available to 
Chart 2. Change in price variation by chemotherapy and non-chemotherapy 
June 2005-December 2004


    Note: Two drugs have been excluded because generic alternatives 
became available during the four quarters. Two others have been 
excluded because of crosswalk problems. The range measures the percent 
of variability among the prices paid by clinics. It is measured by 
subtracting the price paid by the 25th percentile from the price paid 
by the 75th percentile, dividing by the price paid by the 50th 
percentile, and multiplying by 100. MedPAC's contract with IMS Health 
does not allow the prices of drugs be named individually.
    Source: MedPAC analysis of IMS Health data 2004-2005.
Changes in physician practices
    The Congress required the Commission to examine the effect of the 
payment changes on physician practices. During our site visits, we 
asked physicians how they responded to the Medicare payment changes. Of 
course, their answers were subjective. Physicians told us they 
considered the payment changes significant and changed their practices 
to get better drug prices, lower costs, and boost revenue. All 
practices changed their drug purchasing activities. Some also changed 
their use of drugs, office staffing, mix of services offered, and 
patient mix.
    All the physicians we visited reported that they spent more time 
and resources shopping for lower prices for drugs than they did before 
the payment changes. Their choice of ancillary drugs for treating 
chemotherapy side effects was more likely to be based on price. Many 
practice managers reported that they routinely purchased only one drug 
to treat nausea and one erythroid growth factor to treat anemia for all 
the physicians in the practice. Physicians also reported that they kept 
smaller inventories of drugs on hand than previously. This allowed them 
to respond quickly to price changes and avoid tying up large sums of 
    Many offices have hired employees to work with patients when they 
begin treatment to ensure that they can pay their out-of-pocket 
expenses. This financial adviser estimates the beneficiary's potential 
liability based upon the treatment plan. If the beneficiary does not 
have supplemental insurance, the adviser determines whether she 
qualifies for other assistance, including Medicaid and assistance 
programs maintained by individual pharmaceutical manufacturers. The 
beneficiary may be given a payment schedule to make copayments over 
    Practices reported that differences in local coverage policies 
affected their treatment decisions. Physicians were reluctant to use 
expensive new therapies that they thought the local carrier might not 
cover. For example, a carrier might cover a new drug for treatment of 
one cancer while the physician wanted to use it to treat a patient with 
another type of cancer. One practice reported sending a patient to the 
hospital outpatient department for treatment because the local 
intermediary covered a particular drug and the carrier did not. 
Practices reported they were less likely to appeal local coverage 
decisions. They found the appeals process too expensive and time-
consuming and the outcome of the appeal uncertain.
    Physicians took other actions to reduce costs or improve 
efficiency. For example, some practices reduced costs by changing their 
mix of employees, replacing full-time employees with part-time 
employees or replacing nurses with pharmacy technicians. Similarly, 
many practices reported that they reduced health and pension benefits 
for their employees. One practice reported increasing efficiency by 
hiring workers to do the coding for oncology nurses and freed up their 
time for patient care. Several practices reported hiring a pharmacist 
to purchase and mix drugs as well as recommend drugs to the practice 
based on price and clinical effectiveness.
    Some practices tried to increase revenues by providing more 
services in their offices. For example, some physician practices 
purchased positron emission tomography (PET) scanning technology in the 
past few years and increased imaging in their offices. However, this 
was only possible for practices with large facilities. Many practices 
reported they did not have the space or capital to expand in this way.
    No physician or office manager reported that the payment changes 
affected the quality of care in their office. No beneficiary who 
participated in our focus groups reported that she had seen a decline 
in the quality of care she was receiving.
Beneficiaries without supplemental insurance
    While the new Medicare payment system has reduced prices for 
existing drugs, it does not have any mechanism to affect prices for new 
single source branded drugs as they enter the market. New products have 
become increasingly expensive in the past few years. Beneficiary 
copayments for these drugs (20 percent of the total payment) are high, 
and physicians who cannot collect coinsurance from beneficiaries will 
receive only 80 percent of the Medicare payment rate. Medicare has no 
limit on the out-of-pocket costs that beneficiaries may face. Medicare 
beneficiaries without supplemental coverage may be transferred to 
hospital outpatient departments (HOPDs) and face higher copayments 
there. However, if beneficiaries who cannot pay cost sharing in 
physician offices go to HOPDs for chemotherapy infusion, they are 
unlikely to be able to pay the higher cost sharing there. Instead, 
their unpaid bills would become bad debt. Medicare pays 70 percent of 
hospitals' bad debt.
    Although we did not find any cases in which beneficiaries could not 
get chemotherapy services, Medicare beneficiaries without supplemental 
insurance have more limited choices in some areas of the country. These 
individuals are more likely than other beneficiaries to receive 
chemotherapy in HOPDs. In 2004, the Commission found that in some 
markets, oncology practices had stopped treating Medicare patients 
without supplemental insurance in their offices. Patients were sent to 
hospital outpatient departments or safety-net facilities. When we 
returned to these practices in 2005, we found they were sending more 
patients to the HOPD. (Hospitals in these markets also reported they 
were treating more patients with supplemental insurance who required 
expensive new drugs.)
    When patients are sent to the hospital for chemotherapy, the 
physician continues to manage their care. Physicians still provide 
evaluation and management visits, some lab work, and other services in 
the office setting. The patient only receives the chemotherapy infusion 
in the hospital. Although quality of care may be equivalent in 
hospitals and physician offices, beneficiaries face higher copayments 
in HOPDs and treatment usually takes longer. For example, chemotherapy 
drugs must be mixed in the hospital pharmacy, where pharmacists are 
preparing medications for all the other hospital patients. The 
chemotherapy patient will wait longer until the medication is prepared. 
Only a few beneficiaries who participated in our focus groups had been 
referred to the HOPD from physician offices. They emphasized the 
duplication of tests and increased time commitments caused by the 
switch. One individual complained about the higher copayments.
    As the price of new single source cancer drugs continues to rise, 
beneficiaries without supplemental insurance may have an increasingly 
hard time paying their 20 percent coinsurance. Although most physician 
practices have continued to treat all beneficiaries in their offices, 
beneficiary inability to meet cost-sharing requirements creates a 
financial liability for the practices. Many practices have begun to 
counsel beneficiaries on their estimated out-of-pocket liabilities 
before treatment begins. A few practices reported instances in which 
beneficiaries refused treatment because they did not want to travel to 
a hospital or leave her family with debts caused by her out-of-pocket 
    We cannot quantify the number of beneficiaries who need help paying 
their coinsurance for chemotherapy. We have no source of data to 
determine the number of Medicare beneficiaries without supplemental 
insurance who are receiving chemotherapy services. Data on supplemental 
insurance are not captured on Medicare claims. The oncology practices 
we visited estimated between 5 and 20 percent of their Medicare 
patients have no source of supplemental coverage. Estimates varied 
depending on the demographic structure of the market and the 
availability of Medicare Advantage and retiree health insurance. The 
Commission (MedPAC 2005a) estimates that, in general, 9 percent of 
beneficiaries have no source of supplemental coverage. Beneficiaries 
without supplemental coverage are not the only individuals facing high 
copayments. Some cancer patients who participated in beneficiary focus 
groups were concerned that they might exceed lifetime caps on their 
retiree coverage.
    Many pharmaceutical companies offer patient assistance programs to 
help patients with the cost of their medications. In 2003, 
pharmaceutical companies provided patients with medications valued at 
$3.3 million. However, this assistance is not readily available for 
Medicare beneficiaries without supplemental insurance. Most of the 
assistance goes to patients without any insurance. Less aid is 
available for individuals needing help with copayments. Yet this cost 
may be beyond the means of many beneficiaries. For example, one new 
cancer drug costs Medicare an average of $12,000 every two weeks. 
Beneficiaries face copayments of $2,400 monthly for this medication. 
They continue taking the medication until the patient's condition 
    The Commission is concerned about the burden of cost sharing for 
beneficiaries with cancer and other catastrophic conditions. We intend 
to explore the general issue of unlimited beneficiary out-of-pocket 
liability, which can affect cancer patients and patients with other 
illnesses, in future work.
Chemotherapy and quality of care
    The Congress directed the Commission to report whether quality of 
care was affected by Medicare payment changes for chemotherapy 
services. Based on our interviews and site visits, we found no 
indication that quality of care has been affected by the payment 
changes. However, few consensus quality indicators for chemotherapy-
related services exist and data to evaluate indicators that do exist 
are limited.
    We discussed perceptions of differences in quality of care with 
physicians and patients in the course of our site visits and focus 
groups. Not surprisingly, clinicians we interviewed think the quality 
of services they provide is quite high. We found that physicians' 
evaluation of differences in quality across settings was subjective and 
seemed to be dictated by where they practiced. Oncologists in single-
specialty practices felt they had more experience in educating patients 
about their condition and were more likely to hire oncology-certified 
nurses. They felt they provided more continuity of care and greater 
convenience for patients. By contrast, physicians practicing in 
hospital settings pointed to the availability of staff pharmacists to 
mix drugs, maintaining that this resulted in higher quality and fewer 
medical errors. They also pointed to greater use of safety guidelines 
and standard treatment protocols as indicators of higher-quality care.
    Beneficiaries who participated in our focus groups received 
treatment in a variety of settings, including single-specialty oncology 
offices, outpatient departments of community hospitals, outpatient 
departments in university hospital cancer centers, and infusion centers 
of integrated health plans. Almost without exception, beneficiaries 
praised the quality of care they received. (The one exception was a 
beneficiary dually eligible for Medicare and Medicaid who received 
treatment in the HOPD of a safety-net institution.) None experienced 
changes in the quality of care received in the past year. Two focus 
group participants had switched to HOPDs for chemotherapy 
administration from physician offices in 2005. Neither felt quality of 
care suffered, although both felt there was less coordination of care 
and greater out-of-pocket expense in the hospital.
    In general, further work is needed to determine quality 
chemotherapy care. Current public and private initiatives to define and 
measure quality of cancer care can provide the framework for a pay-for-
performance oncology quality initiative. However, there is one instance 
where the Commission finds that CMS can take action now to monitor the 
quality of care beneficiaries are receiving.
    Erythroid growth factors (Erythropoeitin alpha and darbepoeitin 
alpha) are used for the treatment of anemia following chemotherapy as 
well as some other indications. Medicare expenditures for these 
products account for the highest percentage of Medicare Part B drug 
spending. Although the shift to ASP resulted in lower payment rates for 
both products, volume and expenditures continued to increase in 2005. 
At the same time, concerns have been raised about drug safety and 
potential under- and overuse of these products. In 2004, the Food and 
Drug Administration (FDA) responded to safety concerns about the use of 
growth factors by issuing new prescribing information. Although some 
local carriers have attempted to limit the use of erythroid growth 
factor in accordance with FDA regulations and clinical guidelines, 
carriers are hampered by their lack of access to all relevant clinical 
data. In our January 2006 report, the Commission recommended that the 
Secretary require providers to enter patients' hemoglobin level on all 
claims for erythroid growth factors. This data should be used as part 
of Medicare's pay-for-performance initiative.
    Policymakers had long agreed that Medicare did not pay accurately 
for Part B drugs or drug administration services and suggested 
different alternatives. Although the Commission did not recommend any 
particular new payment method, our analysis showed that several of the 
proposed methods would improve the accuracy of the payment system. 
Following passage of the MMA, Congress reduced payments for drugs and 
increased payments for drug administration services. In 2005, Medicare 
began using ASP to set payment rates for Part B drugs. This change 
lowered the payment rate for most drugs and decreased Medicare spending 
for Part B drugs. Payment for drug administration services increased.
    Part B drugs are used to treat patients with very serious medical 
conditions including cancer, hemophilia, and rheumatoid arthritis. The 
Congress directed MedPAC to study the effect of the payment changes to 
ensure that access and quality of care for individuals with these 
illnesses were not harmed. We found that that, in general, beneficiary 
access to chemotherapy services remained good. Physicians provided more 
chemotherapy services to Medicare beneficiaries in 2005 than in 2004.
    The ASP payment method has generally lowered beneficiary cost 
sharing for Part B drugs. However, beneficiaries without supplemental 
insurance may face high out-of-pocket spending, particularly if they 
need new single source drugs. These drugs are expensive and Medicare 
has no limit on the out-of-pocket costs that beneficiaries may face. 
Some physicians are sending individuals without supplemental insurance 
to hospital outpatient departments for chemotherapy infusions where 
they face still higher copayments. The Commission is concerned about 
the burden of cost-sharing faced by beneficiaries with cancer and other 
catastrophic conditions and we intend to explore this issue in future 
    We found no evidence that the quality of care received by Medicare 
beneficiaries has declined. However, we are concerned that the 
continuing increase in use of erythroid growth factor should be 
monitored to make sure that use falls within accepted clinical 
guidelines. The Commission has recommended that the Secretary require 
providers to enter patients' hemoglobin level on all claims for 
erythroid growth factors. This data should be used as part of 
Medicare's pay-for-performance initiative.
    Overall we found that access to care and quality of chemotherapy 
services were not harmed in 2005. However, we recognize that no payment 
system is without flaws. Changes in both pricing and purchasing 
patterns may affect the accuracy of drug payments over time. For this 
reason, we have recommended that the Secretary continue to monitor 
provider drug acquisition costs in both physician offices and dialysis 
    As directed by the Congress, MedPAC is currently studying the 
effect of the Medicare payment changes on services provided by other 
specialties including urologists, rheumatologists, and infectious 
disease specialists. In this report, due January 1, 2007, we will 
analyze if beneficiary access, quality of care, or physician practices 
have been affected following an additional year of experience with the 
new payment system.


    Chairman JOHNSON OF CONNECTICUT. Mr. Steinwald.


    Mr. STEINWALD. Thank you, Mrs. Johnson, Mr. Stark and other 
Members of the Subcommittee. I am pleased to be here with you 
this afternoon, and I commend you for scheduling this hearing, 
because given the fiscal crisis facing the Medicare Program, it 
is essential that the payments be based on accurate information 
and incentives for providers to operate as efficiently as 
possible. I will skip over the part of my testimony that 
relates to how we got to ASP because that has been covered.
    My remarks this afternoon are based on work that we did in 
response to several MMA requirements related to the study of 
payment for separately billable part B drugs delivered in the 
hospital outpatient setting. Cutting right to the bottom line, 
we found that compared with alternative payment methods, ASP is 
a practical basis for payment for the following reasons.
    First, ASPs are based on actual transaction prices and are 
a better proxy for provider acquisition costs than average 
wholesale prices or provider charges included on claims for 
payment, neither of which is based on real transactions. 
Second, ASPs, which manufacturers update quarterly, offer 
information that is relatively timely for rate setting. In 
comparison, rates for other Medicare payment systems are based 
on data that are not so current. Third, using manufacturers as 
the data source for drug prices is preferable to collecting 
such data from providers, because the manufacturers have data 
systems in place to track prices, whereas providers generally 
do not.
    We learned from our survey of hospitals on how much they 
paid for part B drugs that obtaining price data was very 
burdensome on hospitals, and, by the way, on us as data 
collectors as well, and we recommended against using such 
surveys as a regular data source. So, for these reasons, we 
concluded that ASP is a practical source of data from the 
standpoint of collecting data for rate-setting purposes. 
Practical does not imply perfect or even optimal, as has been 
already suggested.
    When CMS proposed to use ASP for hospital outpatient drugs 
in 2006, we commented that ASP is what we called a ``black 
box'' because of the lack of information on how manufacturers 
calculate average drug prices. For example, the law 
appropriately requires that average prices to be net of 
rebates. Rebates are price concessions granted by manufacturers 
sometime after the purchase and delivery of the drugs. We 
learned from our hospital survey that it is very difficult to 
deduct a rebate amount from an individual drug purchase because 
rebates are often granted for a collection of drugs and other 
products over a period of time.
    While most of the hospitals we surveyed reported receiving 
one or more rebate checks, they were unable to tell us how 
rebates affected the individual drug prices. Some hospitals 
even deposited their rebate checks in non-patient revenue 
accounts along with gift shop and parking lot revenues because 
their accounting systems were unable to accommodate those 
payments elsewhere. Our experience with the hospitals we 
surveyed made us wonder how manufacturers would account for 
rebates when they reported average sales price to CMS, and we 
were concerned to learn that CMS does not provide specific 
guidance to manufacturers on how to account for rebates. Nor do 
they have information to determine whether rebates are handled 
consistently and appropriately across manufacturers and across 
    There are other reasons to want to peer into the ASP black 
box. For example, CMS does not instruct manufacturers to 
provide a breakdown of price and volume data by purchaser type; 
that is, by physicians, hospitals and other health care 
providers, and by wholesalers, which purchase drugs for resale 
to health care providers. As a result, CMS cannot determine how 
well the average price data represent actual acquisition costs 
for different purchaser types. In particular, to the extent 
that some of the sales are to wholesalers that subsequently 
mark up manufacturers' prices in their sales to providers, the 
ASP representation of provider acquisition cost is attenuated.
    Finally, there is the plus factor, the 6 percent add-on to 
ASP. I can't tell you whether the 6 percent is the right amount 
or not, but our experience with hospital outpatient drug prices 
may be instructive. Our survey of hospital acquisition costs 
found that paying for such drugs at ASP plus 6 percent would 
have been excessive in 2006. Although the law requires CMS to 
pay hospitals their average acquisition costs, our survey found 
that hospitals' payments for the drugs were somewhat below ASP 
plus 6 percent. In its final rule, CMS did settle on ASP plus 6 
percent, reasoning that part of the payment was for handling 
costs as opposed to acquisition. Our conclusion from this 
experience, and looking at part B drug payments more generally, 
is that the empirical foundation for plus 6 percent or any 
other percentage add-on is insufficient, and once again we 
believe that a better understanding of the components of ASP 
would be a worthwhile beginning to determine an appropriate 
plus factor. Mrs. Johnson, I will end my remarks with that, and 
I would be happy to answer any of your questions or those of 
other Members of the Subcommittee.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much.
    [The prepared statement of Mr. Steinwald follows:]
 Statement of Bruce Steinwald, Director, Health Care, U.S. Government 
                         Accountability Office
    Madam Chairman and Members of the Subcommittee:
    I am pleased to be here as you discuss Medicare's method of paying 
for outpatient drugs covered under the program's Part B, the part of 
Medicare that covers a broad range of medical services, including 
physician, laboratory, and hospital outpatient department (HOPD) 
services and durable medical equipment (DME). Part B-covered drugs are 
typically administered by a physician or other medical professional 
rather than by patients themselves. In contrast, drugs covered under 
the new prescription drug benefit, known as Part D, are generally self-
administered by patients.\1\ In 2005, Medicare paid more than $9 
billion for Part B drugs furnished in conjunction with physician 
services, HOPD services, dialysis services, and services performed 
using DME, such as nebulizers.\2\\,\\3\
    \1\ Medicare Part A covers inpatient hospital services; Medicare 
Part C, known as Medicare Advantage, covers beneficiaries enrolled in 
managed care plans.
    \2\ In this testimony, we will refer to physicians, hospital 
outpatient services, dialysis services, and durable medical equipment 
suppliers collectively as providers.
    \3\ A nebulizer is a device driven by a compressed air machine. It 
allows the patient to inhale medicine in the form of a mist.
    Until 2005, Medicare's method of paying physicians for Part B drugs 
was based on the drug's average wholesale price (AWP), which, despite 
its name, was neither an average nor what wholesalers charged.\4\ It 
was a price that manufacturers derived using their own criteria; there 
were no requirements or conventions that AWP reflect the price of an 
actual sale of drugs by a manufacturer.\5\ An analysis we conducted in 
2001 on Part B drug prices found that Medicare's AWP-based payments 
often far exceeded market prices that were widely available to health 
care providers.\6\
    \4\ Until 2004, Medicare paid physicians 95 percent of AWP. 
Legislation changed Medicare's payment to 85 percent of AWP in 2004.
    \5\ Manufacturers reported AWPs to organizations that published 
them in drug price compendia, and the Medicare claims administration 
contractors that pay claims for Part B drugs based physicians' payments 
on the published AWPs.
    \6\ GAO, Medicare: Payments for Covered Outpatient Drugs Exceed 
Providers' Costs, GAO-01-1118 (Washington, D.C.: Sept. 21, 2001).
    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) mandated that, beginning in 2005, payments for physician-
administered drugs be based on the drug's average sales price (ASP)--
that is, an average, calculated from price and volume data reported by 
drug manufacturers, of sales to all U.S. purchasers.\7\ The law 
directed that ASPs be net of rebates and other price concessions and 
that 2005 payments to physicians for these drugs be set at 106 percent 
of ASP.\8\
    \7\ Certain prices were excluded, including prices paid to federal 
purchasers and prices for drugs furnished under the Part D program.
    \8\ The term rebates refers to price concessions given to 
purchasers by manufacturers subsequent to receipt of the product.
    The MMA took a different approach to setting rates for a subset of 
Medicare Part B drugs delivered in the HOPD setting. Prior to the MMA, 
Medicare paid HOPDs for Part B drugs based on hospitals' 1996 median 
costs for these drugs. In response to concerns that payments would not 
reflect the cost of newly introduced pharmaceutical products--such as 
those used to treat cancer or rare blood disorders--1999 legislation 
authorized augmented payments for these drugs on a temporary basis.\9\ 
Subsequently, the MMA defined a new payment category for these drugs 
called specified covered outpatient drugs (SCOD). The MMA required the 
Centers for Medicare & Medicaid Services (CMS) in the Department of 
Health and Human Services (HHS) to set rates for this subset of Part B 
drugs. Specifically, it directed CMS to set 2006 payment rates for SCOD 
products equal to hospitals' average acquisition costs--the cost to 
hospitals of acquiring a product, net of rebates. Subsequently, CMS 
selected ASP as the basis to pay for SCODs provided at HOPDs.
    \9\ See the Medicare, Medicaid, and SCHIP Balanced Budget 
Refinement Act of 1999, Pub. L. No. 106-113, app. F,  201 (b), 113 
Stat. 1501A-321, 1501A-337--1501A-339.
    In several related requirements, the MMA directed us to provide 
information on SCOD costs and CMS's proposed rates. Among them was a 
requirement to conduct a survey of a large sample of hospitals to 
obtain data on their acquisition costs for SCODs and provide 
information based on these data to the Secretary of Health and Human 
Services for his consideration in setting 2006 Medicare payment 
rates.\10\ We were also required to evaluate CMS's proposed rates for 
SCODs, comment on their appropriateness in light of the survey we 
conducted, and advise on future data collection efforts by CMS based on 
our survey experience.\11\ We issued reports in 2005 and 2006 in 
response to these requirements, and my remarks about ASP are based on 
that work. Specifically, my remarks today will focus on (1) ASP as a 
practical and timely data source for use in setting Medicare Part B 
drug payment rates and (2) components of ASP that are currently unknown 
and implications for Medicare rate-setting. Our work was conducted in 
accordance with generally accepted government auditing standards.
    \10\ We provided information from this survey in two reports--one 
on drugs and another on radiopharmaceuticals. See GAO, Medicare: Drug 
Purchase Prices for CMS Consideration in Hospital Outpatient Rate 
Setting, GAO-05-581R (Washington, D.C.: June 30, 2005), and GAO, 
Medicare: Radiopharmaceutical Purchase Prices for CMS Consideration in 
Hospital Outpatient Rate Setting, GAO-05-733R (Washington, D.C.: July 
14, 2005). The Secretary of HHS considered the price data we provided 
but elected not to use these data as the basis for 2006 rates.
    \11\ We provided our comments on the proposed rates in GAO, 
Medicare: Comments on CMS Proposed 2006 Rates for Specified Covered 
Outpatient Drugs and Radiopharmaceuticals Used in Hospitals, GAO-06-17R 
(Washington, D.C.: Oct. 31, 2005). We provided information on our data 
collection experience in GAO, Medicare Hospital Pharmaceuticals: Survey 
Shows Price Variation and Highlights Data Collection Lessons and 
Outpatient Rate-Setting Challenges for CMS, GAO-06-372 (Washington, 
D.C.: Apr. 28, 2006).
    In summary, using an ASP-based method to set payment rates for Part 
B drugs is a practical approach compared with methods based on 
alternative data sources, for several reasons. First, ASP is based on 
actual transactions and is a better proxy for health care providers' 
acquisition costs than AWP or health care providers' charges included 
on claims for payment, neither of which is based on transaction data. 
Second, ASPs, which manufacturers update quarterly, offer information 
that is relatively timely for rate-setting purposes. In comparison, 
rates for other Medicare payment systems are based on data that may be 
at least 2 years old. Finally, using manufacturers as the data source 
for prices is preferable to collecting such data from health care 
providers, as the manufacturers have data systems in place to track 
prices, whereas health care providers generally do not have systems 
designed for that purpose.
    Despite these advantages, CMS lacks certain information about the 
composition of ASP that prompted us, in our report commenting on CMS's 
proposed 2006 SCOD rates, to call ASP ``a black box.'' \12\ 
Significantly, CMS lacks sufficient information on how manufacturers 
allocate rebates to individual drugs sold in combination with other 
drugs or other products; this is important, as CMS does not have the 
detail it needs to validate the reasonableness of the data underlying 
the reported prices. In addition, CMS does not instruct manufacturers 
to provide a breakdown of price and volume data by purchaser type--that 
is, by physicians, hospitals, other health care providers, and 
wholesalers, which purchase drugs for resale to health care providers. 
As a result, CMS cannot determine how well average price data represent 
acquisition costs for different purchaser types. In particular, to the 
extent that some of the sales are to wholesalers that may subsequently 
mark up the manufacturer's price in their sales to health care 
providers, the ASP's representation of providers' acquisition costs is 
weakened. Additionally, a sufficient empirical foundation does not 
exist for setting the payment rate for Medicare Part B drugs at 6 
percent above ASP, further complicating efforts to determine the 
appropriateness of the rate. Given these information gaps, CMS is not 
well-positioned to validate the accuracy or appropriateness of its ASP-
based payment rates.
    \12\ GAO-06-17R.
    CMS calculates payment rates for each Part B drug with information 
on price data that manufacturers report quarterly to the agency. In 
reporting their price data to CMS, manufacturers are required to 
account for price concessions, such as discounts and rebates, which can 
affect the amount health care providers actually pay for a drug.
ASP Is a Price Measure Established in Law and Calculated with 
        Manufacturers' Data
    The MMA defined ASP as the average sales price for all U.S. 
purchasers of a drug, net of volume, prompt pay, and cash discounts; 
charge-backs and rebates. Certain prices, including prices paid by 
federal purchasers, are excluded, as are prices for drugs furnished 
under Medicare Part D. CMS instructs pharmaceutical manufacturers to 
report data to CMS--within 30 days after the end of each quarter--on 
the average sale price for each Part B drug sold by the manufacturer. 
For drugs sold at different strengths and package sizes, manufacturers 
are required to report price and volume data for each product, after 
accounting for price concessions. CMS then aggregates the manufacturer-
reported ASPs to calculate a national ASP for each drug category.\13\
    \13\ Manufacturers' reported price data are based on the Food and 
Drug Administration's (FDA) system of National Drug Codes, while the 
ASP that CMS calculates for each drug is based on the agency's 
Healthcare Common Procedure Coding System, which uses categories that 
are broader than the FDA's coding system.
Varying Payment Arrangements Affect the Price Purchasers Pay at the 
        Time of Sale
    Common drug purchasing arrangements can substantially affect the 
amount health care providers actually pay for a drug. Physicians and 
hospitals may belong to group purchasing organizations (GPO) that 
negotiate prices with wholesalers or manufacturers on behalf of GPO 
members. GPOs may negotiate different prices for different purchasers, 
such as physicians, suppliers of DME, or hospitals. In addition, health 
care providers can purchase covered outpatient drugs from general or 
specialty pharmaceutical wholesalers or can have direct purchase 
agreements with manufacturers. In these arrangements, providers may 
benefit from discounts, rebates, and charge-backs that reduce the 
actual costs providers incur. Discounts are applied at the time of 
purchase, while rebates are paid by manufacturers some time after the 
purchase. Rebates may be based on the number of several different 
products purchased over an extended period of time. Under a charge-back 
arrangement, the provider negotiates a price with the manufacturer that 
is lower than the price the wholesaler normally charges for the 
product, and the provider pays the wholesaler the negotiated price. The 
manufacturer then pays the wholesaler the difference between the 
wholesale price and the price negotiated between the manufacturer and 
the provider.
ASP Is a Practical Payment Approach, Given the Limitations of Other 
        Data Sources Available for Rate-Setting
    Using an ASP-based method to set prices for Medicare Part B drugs 
is a practical approach compared with alternative data sources for 
several reasons. First, unlike AWP, ASP is based on actual 
transactions, making it a useful proxy for health care providers' 
acquisition costs. Whereas AWPs were list prices developed by 
manufacturers and not required to be related to market prices that 
health care providers paid for products, ASPs are based on actual sales 
to purchasers. For similar reasons, payments based on ASPs are 
preferable to those based on providers' charges, as charges are made up 
of costs and mark-ups, and mark-ups vary widely across providers, 
making estimates of the average costs of drugs across all providers 
wide-ranging and insufficiently precise. In addition, basing payments 
on charges does not offer any incentives for health care providers to 
minimize their acquisition costs.
    Second, ASPs offer relatively timely information for rate-setting 
purposes. Manufacturers have 30 days following the completion of each 
quarter to report new price data to CMS. Before the end of the quarter 
in which manufacturers report prices, CMS posts the updated Part B drug 
payment rates, to take effect the first day of the next quarter. Thus, 
the rates set are based on data from manufacturers that are, on 
average, about 6 months old. In comparison, rates for other Medicare 
payment systems are based on data that may be at least 2 years old.
    Third, acquiring price data from manufacturers is preferable to 
surveying health care providers, as the manufacturers have data systems 
in place that track prices, whereas the latter generally do not have 
systems designed for that purpose. In our survey of 1,157 hospitals, we 
found that providing data on drug acquisition costs made substantial 
demands on hospitals' information systems and staff. In some cases, 
hospitals had to collect the data manually, provide us with copies of 
paper invoices, or develop new data processing to retrieve the detailed 
price data needed from their automated information systems.\14\ 
Hospital officials told us that, to submit the required price data, 
they had to divert staff from their normal duties, thereby incurring 
additional staff and contractor costs. Officials told us their data 
collection difficulties were particularly pronounced regarding 
information on manufacturers' rebates, which affect a drug's net 
acquisition cost.\15\ In addition, we incurred considerable costs as 
data collectors, signaling the difficulties that CMS would face should 
it implement similar surveys of hospitals in the future.
    \14\ The burden was more taxing for some hospitals than for others. 
Many hospitals were able to rely on price data downloaded from their 
drug wholesalers' information systems.
    \15\ Typically, hospitals did not systematically track all 
manufacturers' rebates on drug purchases, although nearly 60 percent of 
hospitals reported receiving one or more rebates.
CMS Lacks Information on ASP Necessary to Monitor Payment Rate Accuracy 
        and Appropriateness
    Despite its practicality as a data source, ASP remains a ``black 
box.'' That is, CMS lacks detailed information about the components of 
manufacturers' reported price data--namely, methods manufacturers use 
to allocate rebates to individual drugs and the sales prices paid by 
type of purchaser. Furthermore, for all but SCODs provided in the HOPD 
setting, no empirical support exists for setting rates at 6 percent 
above ASP, and questions remain about setting SCOD payment rates at 
ASP+6 percent. These information gaps make it difficult to ensure that 
manufacturers' reported price data are accurate and that Medicare's ASP 
rates developed from this information are appropriate.
    Significantly, CMS has little information about the method a 
manufacturer uses to allocate rebates when calculating an ASP for a 
drug sold with other products. Unlike discounts, which are deducted at 
the point of purchase, rebates are price concessions given by 
manufacturers subsequent to the purchaser's receipt of the product. In 
our survey of hospitals' purchase prices for SCODs, we found that 
hospitals received rebate payments following the receipt of some of 
their drug purchases but often could not determine rebate amounts. 
Calculating a rebate amount is complicated by the fact that, in some 
cases, rebates are based on a purchaser's volume of a set, or bundle, 
of products defined by the manufacturer. This bundle may include more 
than one drug or a mixture of drugs and other products, such as 
bandages and surgical gloves. Given the variation in manufacturers' 
purchasing and rebate arrangements, the allocation of rebates for a 
product is not likely to be the same across all manufacturers. CMS does 
not specifically instruct manufacturers to provide information on their 
rebate allocation methods when they report ASPs. As a result, CMS lacks 
the detail it needs to validate the reasonableness of the data 
underlying the reported prices.
    In addition, CMS does not require manufacturers to report details 
on price data by purchaser type. Because a manufacturer's ASP is a 
composite figure representing prices paid by various purchasers, 
including both health care providers and wholesalers, CMS cannot 
distinguish prices paid by purchaser type--for example, hospitals 
compared with other institutional providers, physicians, and 
wholesalers. In particular, to the extent that some of the sales are to 
wholesalers that may subsequently mark up the manufacturer's price in 
their sales to health care providers, the ASP's representation of 
providers' acquisition costs is weakened. Thus, distinguishing prices 
by purchaser type is important, as a central tenet of Medicare payment 
policy is to pay enough to ensure beneficiary access to services while 
paying pay no more than the cost of providing a service incurred by an 
efficient provider. In our 2005 report on Medicare's proposed 2006 SCOD 
payment rates, we recommended that CMS collect information on price 
data by purchaser type to validate the reasonableness of ASP as a 
measure of hospital acquisition costs.\16\
    \16\ GAO-06-17R.
    Better information on manufacturers' reported prices--for example, 
the extent to which a provider type's acquisition costs vary from the 
CMS-calculated ASP--would help CMS set rates as accurately as possible. 
For most types of providers of Medicare Part B drugs--physicians, 
dialysis facilities, and DME suppliers--no empirical support exists for 
setting rates at 6 percent above ASP. In the case of HOPDs, a rationale 
exists based on an independent data source--our survey of hospital 
prices--but the process of developing rates for SCODs was not simple. 
In commenting on CMS's proposed 2006 rates to pay for SCODs, we raised 
questions about CMS's rationale for proposing rates that were set at 6 
percent above ASP.\17\ CMS stated in its notice of proposed rulemaking 
that purchase prices reported in our survey for the top 53 hospital 
outpatient drugs, ranked by expenditures,\18\ equaled ASP+3 percent on 
average, and these purchase prices did not account for rebates that 
would have lowered the product's actual cost to the hospital.\19\ We 
noted that, logically, for payment rates to equal acquisition costs, 
CMS would need to set rates lower than ASP+3 percent, taking our survey 
data into account. In effect, ASP+3 percent was the upper bound of 
acquisition costs. Consistent with our reasoning, CMS stated in its 
notice of proposed rulemaking that ``Inclusion of . . . rebates and 
price concessions in the GAO data would decrease the GAO prices 
relative to the ASP prices, suggesting that ASP+6 percent may be an 
overestimate of hospitals' average acquisition costs.'' In its final 
rule establishing SCOD payment rates, CMS determined that our survey's 
purchase prices equaled ASP+4 percent, on average, based on an analysis 
of data more recent than CMS had first used to determine the value of 
our purchase prices. CMS set the rate in the final rule at ASP+6 
percent, stating that this rate covered both acquisition costs and 
handling costs.\20\ We have not evaluated the reasonableness of the 
payment rate established in the final rule.
    \17\ GAO-06-17R.
    \18\ These drugs accounted for 95 percent of Medicare spending on 
all SCODs in the first 9 months of 2004.
    \19\ The purchase prices hospitals reported to us took account of 
discounts but not rebates.
    \20\ Handling costs include providers' expenses associated with 
storing, preparing, and disposing of drugs.
    Lacking detail on the components of ASP, CMS is not well-positioned 
to confirm ASP's accuracy. In addition, CMS has no procedures to 
validate the data it obtains from manufacturers by an independent 
source. In our 2006 report on lessons learned from our hospital 
survey,\21\ we noted several options available to CMS to confirm the 
appropriateness of its rates as approximating health care providers' 
drug acquisition costs. Specifically, we noted that CMS could, on an 
occasional basis, conduct a survey of providers, similar to ours but 
streamlined in design; audit manufacturers' price submissions; or 
examine proprietary data the agency considers reliable for validation 
purposes. HHS agreed to consider our recommendation, stating that it 
would continue to analyze the best approach for setting payment rates 
for drugs.
    \21\ GAO-06-372.
Concluding Observations
    Because ASP is based on actual transaction data, is relatively 
timely, and is administratively efficient for CMS and health care 
providers, we affirm the practicality of the ASP-based method for 
setting Part B drug payment rates. However, we remain concerned that 
CMS does not have sufficient information about ASP to ensure the 
accuracy and appropriateness of the rates. To verify the accuracy of 
price data that manufacturers submit to the agency, details are 
needed--such as how manufacturers account for rebates and other price 
concessions and how they identify the purchase prices of products 
acquired through wholesalers. Equally important is the ability to 
evaluate the appropriateness of Medicare's ASP-based rate for all 
providers of Part B drugs over time. As we recommended in our April 
2006 report, CMS should, on an occasional basis, validate ASP against 
an independent source of price data to ensure the appropriateness of 
ASP-based rates.
    Madam Chairman, this concludes my prepared statement. I will be 
happy to answer any questions you or the other Subcommittee Members may 


    Chairman JOHNSON OF CONNECTICUT. Mr. Steinwald, I 
appreciate your comments in regard to the black box of ASP. I 
do think the ASP system is a better system than the AWP system, 
but I am concerned about some of the weaknesses that are 
inherent to it, at least the way we interpret it now.
    What I understand you saying is that we ought to know, at 
least somebody ought to know, what purchasers do to get that 
automatic 2 percent cut in volume purchasing and what payers 
don't. It may be that one of the reasons we are hearing such 
varied comments and the adequacy of this system is that small 
practices have less access to the volume discount that big 
purchasers are able to negotiate. Do you think that may be a 
    Mr. STEINWALD. Yes, ma'am. We don't know at present whether 
those average prices are wide-ranging across different 
purchasers or very tightly distributed. In our survey of 
hospitals, though, we did find that different hospitals were 
paying different amounts for the same drugs. Teaching hospitals 
tend to pay less because they are large purchasers, and the 
manufacturers like to expose their products to doctors in 
training in the hope of building some brand loyalty, and rural 
hospitals tend to pay more because they tend to be more 
isolated and are small purchasers. So, we have that information 
from our survey, but we don't know, as far as I am concerned, 
anything about the variability in prices paid across the 
different kinds of providers whose prices are averaged in the 
    Chairman JOHNSON OF CONNECTICUT. It is an interesting 
thought that you are finding small hospitals pay more, big 
hospitals pay less. If the same is true for small practices 
versus large practices, we ought to at least know it.
    Mr. STEINWALD. Yes, ma'am.
    Chairman JOHNSON OF CONNECTICUT. Dr. Miller, in the work 
that MedPAC has done on this issue, you concluded in one of 
your reports that pharmacy handling costs were about 25 
percent, 28 percent, as I recall.
    Mr. MILLER. I don't recall the exact percent. What I do 
recall concluding is that we thought there was a substantial 
cost there because of the way hospitals had chosen to do their 
accounting and charging practices. It was hard to tease out of 
the data precisely what those costs were, and we made a 
recommendation that we move toward a fee schedule that attaches 
a handling fee to how complex it is to administer a drug, an 
oral drug obviously a lot less than a radiopharmacy drug.
    Chairman JOHNSON OF CONNECTICUT. Did you look at that issue 
in community practices?
    Mr. MILLER. In community practices? I am sorry, the study 
was about hospital outpatient.
    Chairman JOHNSON OF CONNECTICUT. Because that same issue is 
there in community practices where they have to handle the 
drugs where they have to buy them, store them, so on and so 
forth. The U.S. Department of Labor Occupational Safety and 
Health Organization (OSHA) required a $25,000 investment last 
year because they wanted a different kind of hood, yet that 
isn't taken into account in the coding. We worked hard during 
the coding process to get that taken into account, but it 
explicitly wasn't. May that have some effect on whether or not 
small practices are doing well under this system?
    Mr. MILLER. It may have an effect. I know that several 
steps were taken to change the rules and the coding that 
allowed physicians in their practices to more comprehensively 
bill for the administration of services; for example, when 
multiple chemotherapy agents are introduced into the patient, 
the ability to bill separately for each of those infusions. The 
only thing I can speak to directly is in our work we did not 
find that there was a loss of access in a physician's office. 
We were finding the administration of those drugs were 
increasing even after the implementation of the policy.
    Chairman JOHNSON OF CONNECTICUT. You do find a difference 
in access for those who had no insurance?
    Mr. MILLER. Absolutely. I tried to be very on point on 
that. If you don't have supplemental insurance, a Medigap 
policy or employer wraparound, in some communities those 
patients were being sent to the hospital outpatient.
    Chairman JOHNSON OF CONNECTICUT. It is also very important 
to note for the record that in some communities there is no 
alternative. You can't send patients to the hospital. There 
isn't one nearby. So, the fact that patients who don't have 
coinsurance and can't afford the coinsurance get moved to 
settings where it is less of a problem, that is a real thing 
that is happening, and it is a real problem that is developing 
in communities where there is no other place to refer those 
patients. Wouldn't you guess that is a growing problem in those 
    Mr. MILLER. In those instances if we are talking about 
rural areas, patients will have to travel.
    Chairman JOHNSON OF CONNECTICUT. Mr. Kuhn, in discussing 
the coding situation, you know, originally we said ASP would be 
this and that. We would adjust the administration payments to 
oncologists to take into account the legitimate cost of 
delivering the drug, which had, before the reform, been paid 
through the drug price itself. We were very careful instructing 
that coding process because I personally had arranged for 
whatever costs came out of it to be allowed and not to be held 
to the budget-neutral standard, because we were saving the 
money in the drug pricing, and we wanted it to go into coding.
    It was very discouraging to me that we allow radiologists, 
radiology oncologists, a management fee, and we don't allow 
radiology--I mean, chemotherapy oncologists a management fee, 
but we lost that. We also lost any recognition of these 
pharmacy costs. We did get--but we did get some adjustments 
through the coding system, but they were put into temporary D 
codes. Now, several times I have sent over to your office and 
personally handed to Dr. McClellan analyses that have been done 
in the last few months of what has happened to those G codes as 
they got merged the next year into C codes, and some of them, 
while they were supposed to get increases, actually then began 
to get decreases. So, knowing how hard it is to look for any--
at any one thing, I had them accommodate it, group things by 
    I would think we all really do have to take seriously that 
the combined codes that you would--that you would bill to treat 
breast cancer or colorectal cancer or lung cancer, that the 
group of codes--and, for example, colorectal cancer has 
declined from 2004 to 2006, very significantly down 36 percent. 
That reflects--I mean, that really is concerning to me. If you 
go through all of the chart that you will see in every area and 
then anecdotally from individuals' practices, you see some of 
these same things affirmed. So, when you begin to hear then 
that since January 1, 2006 oncology offices are closing 
satellite offices, that is another aspect. If you can move 
people to the hospital, that is an aspect of strain on the 
system. Closing satellite offices is something that is of 
concern to me, because in rural areas that has made access to 
cancer care--very great in Medicare, greater in our country 
than in any other country--and as you close those satellite 
offices, you do contract access. Then depending on what kinds 
of cancer you treat--and so therefore, whether you are using 
drugs on which there is a loss or drugs which there is a 
profit, we are hearing more and more about cancer practices 
that are reducing their--the number of Medicare patients they 
can afford to take and so on. That anecdotal evidence, it is 
very strong now.
    I am very concerned that my personal office has not been 
contacted about how you explain this kind of thing and how you 
explain the clear evidence. When I say clear evidence, you 
know, I am not talking the studies and the general stuff that 
we do from Washington. I am talking decoders. People who do 
this for a living, and who struggle with this across the 
country, and who, when they try to code for the same treatment, 
are coming out with a lower payment. Now, we expected some 
lowering from the first year because we had that demonstration 
project that plugged $300 million into the system, but I 
wouldn't have expected to lose it all. I wouldn't have expected 
to lose it all plus the transition payment. I wouldn't have 
expected to actually go from G codes to a lower code payment. 
That is what we seem to be seeing.
    I think--I hope that you and your staff will look carefully 
at the testimony and Exhibit A under the Code testimony because 
we have got to get this right. If we don't get the 
administrative payments right--and I appreciate all of your 
big-sounding percentages, but remember, that is a percentage 
increase from an administrative payment that was never intended 
to cover the costs of 6 hours of monitoring--of delivering a 
highly toxic substance into someone's body. So, we don't know 
whether it is adequate just because it sounds big. If we don't 
get this right, we will lose the access to cancer care that we 
have developed to a greater extent than any other Nation, and 
with it we will lose the ability to do clinical trials and 
research that has kept us at the cutting edge of cancer care. 
This isn't just about big money fleeing someplace. This is 
about little people having access to care, and oncologists who 
have been creative enough and willing to put themselves out to 
have satellite offices to reach elderly out in rural areas 
being able to continue to do.
    I am not pleased that I have never had--this has been 
months, you know. Never had anyone come and sit down and 
explain to me why this isn't logical, when this is what people 
who are living, are saying they are living. I think when you 
look back at MedPAC's analysis of its true hospital delivery of 
chemotherapy, they saw big pharmacy costs, and these individual 
practices are handling those pharmacy costs, struggling under 
nonpayment of copayments by those who don't have coverage and 
so on. We don't have time to go into all of the problems here, 
but I thank Mr. Steinwald for his testimony because that may 
begin, if we begin to look--if you begin to look at the 
reported prices in terms of volume buyers and non-volume 
buyers, maybe we can find out what the problems are. If we look 
honestly at pharmacy management, we might be able to look at--
we might be able to find that aspect of the problem.
    I am going to turn now to Mr. Stark, but I did want to get 
clearly on the record that there are issues being raised by 
practitioners who are honest, hard-working folk out there that 
we are unable to answer from our general studies, but which 
some of the work that is being done does suggest that there are 
problems in the system that could be lethal to small 
practitioners, and they are crucial to access to care for our 
seniors. Mr. Stark.
    Mr. STARK. Thank you, Madam Chair. Dr. Miller, I thought 
that in your testimony you indicated that while most drugs 
could be purchased by physician offices regardless of size at 
or below the reimbursement rate, there may be some that cannot. 
Now, it also sounds like that may be some single-source, brand-
name drugs, but maybe I am reading something into your 
testimony that doesn't exist. Could you--perhaps you could do 
this later in letter. Could you codify as best you can how many 
of these drugs fall below the reimbursement rate and whether 
that is a disproportionate share of the demand of utilization? 
I think there is--that your answer may determine how radical a 
change we need.
    I wanted to ask also at the same time that whether you or 
any of the others know how the prices that we pay in Medicare 
for these drugs compare with the Federal fee schedule. Does the 
Veterans Affairs (VA) get them for half what we are paying, 
roughly? Does anybody know?
    Mr. KUHN. I don't think we have ever done a cross-walk on 
that so I couldn't answer that question.
    Mr. STARK. You want to make a guess?
    Mr. KUHN. I wouldn't even hazard a guess.
    Mr. STARK. Anybody know? Okay. That would be interesting. 
We seem to--the VA seems to pay half of what everybody else in 
the world pays. I would presume they are also getting the same 
break on these. I won't tell you where that leads me to go. 
What about the small practitioners who may not be able to get 
some drugs?
    Mr. MILLER. So, I think that the question was along the 
lines of can you quantify, be a little bit more precise, about 
this statement of who can buy and who can't buy. You know, 
first thing just by way of caveat to keep in mind here is, you 
know, we haven't done a national study. We went out and visited 
some seven-some-odd communities, and this is what we are 
bringing back. So, I can't truly quantify it. The types of 
examples that we found out there were things like this. Oddly 
enough, you know, your instinct would take you to a single-
source drug, but sometimes it was old generics because the fee 
of purchasing it from a wholesaler exceeded the price of the 
drug. So, you know, you found anomalous situations like that.
    You also find situations where a drug may be extremely 
expensive, and now you might be over here in the sole-source 
situation, and let us say a provider wants to buy it, but wants 
to get the prompt pay discount. That may literally create cash 
flow issues, and so they may choose to not purchase the drug 
under that circumstance. Those were the kinds of things when we 
were sitting around with the oncology offices and talking to 
the nurses and so forth and the managers, the types of things 
that arose there, but I don't have a quantification of this.
    Mr. STARK. Could I just follow on and talk about the other 
side of this equation? The adequacy of the rates for physician 
administration. Your testimony, Mr. Kuhn, indicates that 
reimbursement has gone up considerably since the drug payment 
changes. I assume that still holds even after they lose the 130 
bucks per patient that they got for the so-called 
demonstration. I don't know what it demonstrated except that 
they were happy to take the 103 bucks per visit.
    Do--can you comment, and I hope you can--now, what do you 
need to be able to recommend to us, because it is basically 
MedPAC that recommends. OIG, they would rather have their 
tongues fall out than make a recommendation. They might tell us 
what exists, but they are very careful about not recommending 
and CMS is 50-50. Dr. Miller, we depend on to bring us the 
technical expertise of his panel. Do you have enough 
information to tell us about the adequacy of the rates for 
physicians? If not, what do you need to get that, and can we 
look forward to it?
    Mr. MILLER. I think there is probably a couple of things, 
and I am sorry that this is coming so much to me, because I 
can't give you exactly an answer on this. I mean, one caveat, 
again, is that the demonstration was still in play when we were 
looking at things, so giving you a definitive answer is hard. I 
think one key thing that you need to keep--that we all need to 
keep track of, and we can keep track of this as well, is 
whether the access to the services, are you seeing it. One 
place you can look is to continue to look at the claims data to 
see whether the services are being provided in the physician's 
office. We found that that continued to increase. They 
continued to buy the most expensive and the latest drugs, and 
that it seems to be, at least so far, adequate payment.
    I think those trends need to continue to be tracked, 
because if that turns around, you will start to see it in the 
data. I think also--I mean, ideally what you want here is to 
know the cost of what the practice is incurring and how 
carefully that is tracking, you know, both the administration 
of the drug. Frankly, that data doesn't exist in the Medicare 
system that I am aware of--the ability to look at the 
physician's specific cost for the administration of the drugs 
and compare that to Medicare's payment.
    Mr. STARK. Would it help if the physicians submitted it? 
They are the ones that are asking for more money. I think it 
would be incumbent to give the data you need.
    Mr. MILLER. I think the issue there is defining the data 
that you want and the Medicare Program wants, and then the 
burden that it would produce in order to generate that data, 
and then, of course, the lag in collecting it before it could 
be analyzed. Sort of the usual problems.
    Mr. STARK. Are you going to try that?
    Mr. MILLER. What we are doing right now is we have another 
report due to you in January, I believe on January 1st of 2007, 
in which we are going to be looking at other specialties as 
well to ask the same questions that we asked oncology. We will 
be taking another look, looking at the flow of data to have 
some more information on where the major access problems have 
appeared. We have not specifically contemplated the notion of 
collecting cost data from physicians.
    Mr. STARK. My time is up. I will come back.
    Chairman JOHNSON OF CONNECTICUT. Mr. McCrery.
    Mr. MCCRERY. Mr. Kuhn, you mentioned that HHS is 
undertaking an independent study of the IVIG issue. Is that 
different from the OIG's office study that they are doing?
    Mr. KUHN. That is correct, Mr. McCrery.
    Mr. MCCRERY. Who is doing that?
    Mr. KUHN. The Assistant Secretary for Planning Evaluation, 
also known as ASPE, is taking that on. We are going to look at 
three principal activities here when they go forward in this. 
One, they want to do a supply analysis, really kind of 
understand what the supply looks like. Are there indeed ample 
product in the marketplace? Are there shortages? Because we 
have had some contractions in this industry in the past. They 
also want to do a demand analysys and understand that much 
better. Including that, they want to look at our reimbursement 
levels and the way we calculate reimbursement in this area. 
They want to look at product differentiation, and they want to 
look at access issues thoughtfully. Finally, they want to 
conduct a serious of public meetings as well to make sure that 
the public understands and participates fully in this process, 
with the target, as I understand right, now to report out 
sometime this fall.
    Mr. MCCRERY. This fall?
    Mr. KUHN. That is the current target.
    Mr. MCCRERY. Now, Mr. Vito, the OIG report, your testimony, 
you say on IVIG it should be out soon. Can you give me a little 
sharper definition of soon?
    Mr. VITO. Yes. This Committee, along with the Commerce 
Committee, asked us to look at IVIG for access and pricing. We 
delivered the first phase to this Committee and the Commerce 
Committee in June of this year. We are in the second phase, 
which is looking at the Government Pension Offsets (GPOs) and 
the distributors to find out what they are paying for the 
product. We have completed our data collection. We are in the 
analysis and report writing section of our work now. We hope to 
have that to you within the next month or two. As far as 
getting the information from the physicians, we have surveyed 
the physicians. We are requesting that they provide the 
information to us. We have been working hard to get a good 
response rate and have gone back on at least a number of 
occasions to get the information from the physicians. So, that 
is a little bit longer out, but we do hope to have the next 
phase to you shortly.
    Mr. MCCRERY. I appreciate that. I do appreciate your 
getting the first phase of that report to us on the 
manufacturers. We don't have any manufacturers here today, 
Madam Chairman. That is unfortunate, I wish we could have had 
some manufacturers here. Before I get to that, Mr. Kuhn, you 
said in your testimony that CMS has taken steps to try to 
assure that there is supply in the market and that patients 
have access, and that providers can get adequate reimbursement 
for providing and administrating this life-saving drug. Just so 
everybody here knows, if a severe immunodeficient patient does 
not get this drug, he will die. That is how important this is. 
It is not a matter of it is better than some other drug or 
makes his quality of life better. He will die if he does not 
get this. So, this is a critical, critical question for all of 
us to make sure we get it right.
    You mentioned, Mr. Kuhn, that you have taken steps to try 
to ensure that access. One of those steps will expire at the 
end of this year. It is the add-on pre-administrative fee that 
you call it. Are you waiting until the OIG report and your 
independent study before you decide to extend that? Or have you 
thought of some interim steps to take prior to getting the 
results that you are looking for?
    Mr. KUHN. We are currently evaluating the effectiveness of 
that particular step, whether it really did help both 
physicians as well as hospitals in terms of their search for 
the product, because, again, there has been some reported 
shortages. People have reported to us that they have had 
difficulty finding the product. So, we wanted to enable them 
even more with this step to help them out in that area.
    We are doing evaluation whether it is appropriate to extend 
it in some other form, make other recommendations possibly for 
2007, how we want to go forward. I think our current analysis 
that we are doing right now and the report by ASPE is going to 
help us in making those decisions. The work that the IG is 
doing is going to help us in that as well as our outreach with 
the stakeholder community, because we do want to engage them 
about that and have discussions about that. It is a work in 
progress that hopefully we will have more information soon on 
what kind of recommendations we want to make.
    Mr. MCCRERY. Just very quickly. I know you understand this. 
You understand the critical nature of this question. We just 
can't abide patients not having access to this until we figure 
out why. We have to make sure that they have access. So, I 
appreciate the steps you have taken, Mr. Kuhn--CMS has taken so 
far. I hope you will stay on top of it not at the end of the 
year, but tomorrow, and make sure that we are doing all we can 
to ensure patient access to this drug. I have got some other 
questions later for Dr. Orange about the supply problem, but I 
will talk about that then. Thank you, Madam Chairman.
    Chairman JOHNSON OF CONNECTICUT. Mr. Johnson.
    Mr. JOHNSON of Texas. Thank you, Madam Chairman. Mr. Vito, 
I have a good friend who was diagnosed with an autoimmune 
disease earlier this year, and 2 weeks ago she was give an 
infusion of IVIG. Condition greatly improved, whereas before 
she had weakness affecting eyesight, speech, swallowing and 
others, she is now able to see clearly and speak at length 
without slurring her words. You know, there are hundreds of 
stories like that out there, and it is of critical importance 
that miracle drugs like that remain available to those who 
really don't have anywhere else to turn.
    The OIG, as you know, has been tasked to evaluate the 
current state of pricing and supply for IVIG. Based on 
preliminary results from your study, do you believe the 
administrative changes taken by CMS to increase the 
reimbursement of IVIG have alleviated some of the concerns 
expressed by patient advocacy groups and physicians?
    Mr. VITO. Based on the work that we have done so far, we 
cannot answer that question. As we get more data from the other 
two sources, we might be in a better position to provide some 
information to you.
    Mr. JOHNSON of Texas. You don't have any ideas yourself? 
Let me just ask you, in your opinion, what more can be done to 
ensure that patients receive the treatment in the most cost-
effective setting, that is doc's office or the hospital? Do you 
have a preference, or have you formed an opinion?
    Mr. VITO. I work for the Office of Inspector General. We 
were asked to do specific work for this Committee and the other 
Committee, and we are focusing on that work. I do not have an 
opinion on that. I could tell you that we are trying to get the 
work done in the most expedient manner so that we will have 
some information to help you make decisions on how to move 
    Mr. JOHNSON of Texas. You said that two or three times. In 
other words you don't want to go on the record with your own 
    Mr. VITO. No, sir.
    Mr. JOHNSON of Texas. Do any of you?
    Mr. KUHN. Mr. Johnson, I would just say, Mr. McCrery 
identified one of the actions that we have taken already in 
terms of trying to help with this issue. There has been some 
others that the agency has taken, and obviously we want to look 
further to make sure we do right for these patients, because I 
think your point about the patient and how this product--it is 
a remarkable product that makes all the difference in the world 
for these people in their lives, and we need to make sure that 
there is uninterrupted access to them and to the clinicians for 
getting this product.
    In addition to the pre-administration fee, we have also 
worked closely with, hard with the manufacturers to make sure 
that they are reporting to us as accurately as they possibly 
can on their ASP pricing. We want to make sure when we do the 
quarterly updates, we are on the spot in terms of what the 
pricing is so that there is no deviation whatsoever, to make 
sure that works. Likewise, last year, at the request of the 
stakeholder community, we began splitting the Codes out. Up 
until then we had one code for this product. It comes in two 
different forms, liquid and powder, and we split that apart in 
order to help them differentiate and work in that area as well. 
Also, we are working very hard with the Public Health Service 
and the Food and Drug Administration (FDA). FDA is doing a lot 
of good surveillance in terms of working with the manufacturers 
dealing with supply issues to help them where there might be 
regulatory issues. We have a pretty enterprise-wide action plan 
within the agency to do this. I think the study is going to 
help us understand if there are more things that we ought to be 
doing to make sure that we get this product to the people that 
need it.
    Mr. JOHNSON of Texas. Thank you, sir. Appreciate your 
comments. I yield back the balance of my time.
    Mr. MCCRERY. Would you yield?
    Mr. JOHNSON of Texas. I yield to you.
    Mr. MCCRERY. Just in case you are looking for some other 
tool, you already have one at your disposal, I think. Blood-
derived products you reimburse at 95 percent of AWP, which I 
assume would be higher if you applied that to IVIG, which is a 
plasma-based product you could describe as a blood-derived 
product. I assume that would be a higher reimbursement than the 
current reimbursement rate, wouldn't it?
    Mr. KUHN. That is correct. If blood and blood products are 
currently reimbursed at 95 percent of AWP. The issue with this 
particular product, however, in the MMA Congress did designate 
this product as not a blood and blood product separately from 
that. So, in terms of our discretionary authority to make that 
adjustment, we don't believe we have that authority.
    Mr. MCCRERY. Madam Chairman, maybe that is something we 
need to look at and give CMS the flexibility to make that 
change. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Mr. Ramstad.
    Mr. RAMSTAD. Thank you, Madam Chairman. Thank you also, 
Madam Chairman, for highlighting the fact that one of the key 
areas impacted by recent changes in the Part B drug 
reimbursement certainly has been the practice of oncology. I 
don't think it is hyperbole to state categorically that our 
cancer care delivery system is facing a crisis. Now, I have 
heard concerns expressed here today in the exchanges, heard 
concerns from numerous cancer patients back home, from 
countless oncologists and others that when you analyze this, 
drug administration has dropped by over 20 percent in terms of 
reimbursement just in the last 2 years. At the same time 
reimbursement for acquiring the drugs has decreased by over 30 
    Then when you look at the recent findings of the study done 
by PricewaterhouseCoopers, they estimate that cancer care 
payments will be cut by almost $14 billion 2004 to 2013. 
Congressional Budget Office (CBO) had estimated a $4.2 billion 
reduction in payments over that period. We all know CMS, 
Director Kuhn, has drastically reduced the demonstration 
project that was supposed to make up for shortfalls. Why in the 
world have there been no permanent solutions to maintain 
critical Medicare funding for cancer care? Why not, for 
example, add payment codes for treatment planning as has been 
suggested earlier?
    Mr. KUHN. Those are all good questions, Mr. Ramstad, and 
here is where we are in the sequence, and I would like to walk 
the Committee through these because----
    Mr. RAMSTAD. I want to know why there hasn't been permanent 
solutions for maintaining critical Medicare funding for cancer 
care? That is the question that needs to be broached, needs to 
be answered. Why specifically not add payment codes for 
treatment planning? Please answer those two questions.
    Mr. KUHN. Sure. From 2003 to 2006, administration codes are 
up 117 percent across the board is where we are right now. 
Those are permanent changes over those 3-year periods as we 
move forward. Administrative utilization for cancer care from 
2003 to 2004 is up 21 percent; from 2004 to 2005 it is up 31 
percent. So, we are seeing real increases in this area as we go 
forward. In terms of planning codes, when we went through this 
process, and we did 2 successive years and both 2004 and 2005 
in terms of making changes, and the 2004 changes we used the 
actual data that oncology physicians gave us, their survey 
data, in order to make the permanent changes in the Codes. In 
2005, the changes we made were put to us by the current 
procedural terminology (CPT) editorial Committee, which is run 
by the American Medical Association (AMA). At that particular 
Committee they did not recommend that there be any planning 
code, that that function is already captured in the evaluation 
and management (E&M) codes that are out there. We use used the 
oncologist data, and then we used the regular order in terms of 
the process that exists with existing Committees to drive these 
codes forward, and the results are there: 117 percent increase.
    Mr. RAMSTAD. Well, I am looking at an average per-treatment 
basis, why has Medicare reimbursement decreased by over 20 
percent the past 2 years?
    Mr. KUHN. The data that I have and that I see from 2003 to 
2005 shows that overall payments to oncologists are up 20 
    Chairman JOHNSON OF CONNECTICUT. Would the gentleman yield 
on this?
    Mr. RAMSTAD. I yield to the Chairman.
    Chairman JOHNSON OF CONNECTICUT. When you use those dates, 
you include that big demonstration payment year. Yes, the 
providers were kept whole that year. It is when you withdrew 
the 30-percent increase and the 300 million in demonstration 
and the small transition payment--when you say 117 percent 
increase across the board, that was 117 percent of a little, 
tiny payment that was for administration. It was never intended 
to cover the costs of a whole staff, of pharmacy costs and all 
the other things associated with delivering the care. That was 
never the point of that original administration fee.
    We grew a big cancer care capability because the drug 
companies paid for administration, but they did not have to 
turn to the government. So, that 117 percent does not really 
mean anything. It does not tell us anything. Most of that is 
the result of the fact that we included in the law that you pay 
for oncology nurses when originally you were going to pay the 
average nurse salary. So, his question which he originally 
asked, why are we seeing this decrease, is the question we need 
you guys to answer. That goes for anyone at the table.
    Mr. KUHN. I appreciate that, and I would just say again 
that the 117 percent increase is based on the factual data that 
we got from oncologists in terms of practice experience and 
then the work changes were based on the CPT panels. It sounds 
like information that you all have that you referenced earlier 
in your comments, Mrs. Johnson, and you, Mr. Ramstad, is new 
data that we need to look at to make sure that we can reconcile 
that you as the Committee, as you do your appropriate oversight 
work here, can have apples-to-apples comparisons to make sure 
that you make the decisions that you need to. We will look at 
that and work with your staff on that.
    Mr. RAMSTAD. I thank the Chairwoman--reclaiming my time--
for providing the proper context for that question. We need to 
have further discussions, and certainly within the parameters 
of our 5-minute exchanges here today we did not sufficiently 
cover that. I want to ask one final question, Mr. Kuhn, and 
this really was a MedPAC finding and corroborated, I think, by 
the colloquy that the Chairwoman had with Dr. Miller. MedPAC 
found that pharmacy facility costs are a substantial part of 
total drug costs, and the Chairman verified that in terms of 25 
to 28 percent of total drug costs. My final question, Mr. Kuhn, 
why has no pharmacy facility code been created?
    Mr. KUHN. On the issue of pharmacy handling fee, and the 
physician community has talked a lot of issues about storage, 
waste, you know, managing these complex drugs that are out 
there, but, again, when we looked at the data that the 
oncologists presented themselves to us where they really did 
look at the issues of practice expense, we used the data that 
they provided because it looked at the entire practice expense, 
it brought the issues to the table, and we incorporated those 
to the new relative value units (RVUs) that we have in the 
Code. We believe that we have captured that information already 
in the existing payments without having to create new codes.
    Mr. RAMSTAD. Let me ask you this, a final question, and 
thank you for your indulgence, Madam Chairman. Mr. Kuhn, I hope 
you do sit down with some of the oncologists from Minnesota, 
from the Mayo Clinic, University of Minnesota Hospital, 
Fairview and others, Northwestern. I hope you do have a sit-
down with us and discuss your figures as well as their national 
association. I would like to facilitate that meeting and get 
you on the record as saying you would be happy to meet us.
    Mr. KUHN. Absolutely be happy to meet with you.
    Mr. RAMSTAD. Thank you very much. I yield back.
    Chairman JOHNSON OF CONNECTICUT. I do want the record to 
note that we have sat down with that kind of group with Dr. 
Bark and never gotten any response. I handed the very charts 
that he is referring to Dr. McClellan and others in your 
office, and we have not gotten the response. We do need to 
understand this because your testimony does not correlate with 
our experience as Members of what is happening in our districts 
to cancer care, and this is too important for that divide to be 
    Mr. RAMSTAD. Madam Chairwoman, I promise to invite you to 
the meeting.
    Chairman JOHNSON OF CONNECTICUT. Thank you. Mr. Hulshof.
    Mr. HULSHOF. Thank you, Madam Chair. I also want to 
associate myself with Mrs. Johnson's comments at the beginning. 
We asked you specific things to do in research and reports to 
do, and you have done that. Of course, some of you have gone 
very close to the line in the report, and I can appreciate the 
potential dilemma that you are in. On the other hand, as those 
of us who return to our respective districts every week and we 
hear, and, yes, perhaps anecdotally, but absolutely what Mr. 
Ramstad said and what Ms. Johnson said is the real world. You 
know, we know how we have gotten here. I remember in 1998 under 
the previous administration, HHS--Health and Human Services 
Secretary Shalala was talking about AWP and the abuse of it, so 
there was a move afoot then. So, then we began to come up with 
this formula.
    Let me just say for the record the reason that we have ASP 
plus 6 percent is because of the gentlewoman from Connecticut, 
because there was some discussion about not including the 
practice expense, and it is only because of her tenacity is the 
reason we have the plus 6 percent. Putting that aside, we 
recognize, just as we have with the 1997 Balanced Budget Act 
(BBA), (P.L. 105-33), that well-intentioned ideas sometimes 
have very unintended consequences. That is why I hope you 
aren't feeling, all of you, particularly you, Mr. Kuhn, that 
this intensity from this side--and the record unfortunately 
will not demonstrate the passion and the emotion with which we 
bring these questions to you. It is not an attempt to put any 
of you on the spot or to embarrass, but it is passion that--
because there are some people doing some lifesaving things back 
home, and they want to continue to do it.
    The fact is that 84 percent of cancer patients in this 
country are seen at community clinics. This is not any judgment 
toward those treatments that are done within the hospital 
setting. Again, let me get off my soap box. Some of the 
unintended consequences, for instance, on the prompt pay, the 
community clinics are having to actually carry on their books 
until they get reimbursed. They are required to pay. They don't 
get the negotiated discounts between the manufacturers and the 
wholesalers, and so then they are actually reimbursed for 
something less than what they actually have to pay. So, one of 
the suggestions, I think, from a later witness is to eliminate 
prompt pay discounts from the ASP calculation. You may want to 
comment on that.
    You know, Missouri Cancer Associates in Columbia, Missouri, 
opened their books. I requested they open their books and in 
the month of March of this year, Mr. Kuhn--and I will pick on 
you a little bit. They had a negative cost. Their clinic was in 
the red for the month of March. So, when you project this out 
then, you have retiring oncologists who are going to leave the 
practice early, and then you have incoming residents who aren't 
going to choose the field of oncology because they see the 
current state of affairs, and so it is much more lucrative in 
some other area of expertise. I think we are right on the cusp 
of something that could be dire. So, again, that is my 
editorial comment.
    Let me ask you this specific question, Mr. Kuhn. I think 
Mr. Steinwald in the report--I am not sure that he said it in 
his oral testimony--GAO has expressed concern that CMS does not 
require manufacturers to report ASP information by purchaser 
type. Is it your opinion that CMS has the administrative 
authority to require manufacturers to report this information? 
That is question number one. Question number two: Would it be 
helpful to better assess claims that you stated, that 106 
percent of ASP is insufficient--or perhaps our claims that 106 
percent of ASP is insufficient? Let me go with those two. Do 
you have the administrative authority to require that 
information from manufacturers?
    Mr. KUHN. On that one, I would have to get back to you, Mr. 
Hulshof. I don't know whether we can collect the data in that 
manner or not, but I would like to get back to you for the 
record on that one.
    Mr. HULSHOF. Do you wish to opine this further question as 
far as how much of an administrative----
    Mr. STARK. Would the gentleman yield for a moment?
    Mr. HULSHOF. Sure.
    Mr. STARK. I would like to join you in that. I thought that 
was a question we would like to see that information as well, 
and I commend the question.
    Chairman JOHNSON OF CONNECTICUT. Return that to the whole 
Committee, Mr. Kuhn.
    Mr. KUHN. We would be happy to.
    Mr. HULSHOF. As a quick follow-up along this line, and 
perhaps you could do this in writing, not to put you on the 
spot, I would anticipate that the manufacturers would say, 
well, there is an administrative burden. So, I would like any 
opinions you might have as far as an administrative burden that 
this would represent, given the turnaround time that is 
required. Again, I thank the Chairman for her indulgence.
    Chairman JOHNSON OF CONNECTICUT. I would like to recognize 
Mr. Camp.
    Mr. CAMP. Thank you, Madam Chairman. Mr. Kuhn, in the 
Medicare Modernization Act there was a provision requiring CMS 
to conduct a demonstration project for self-administered drugs 
that were previously available only through a physician's 
office. Congress also directed the department to submit a 
report on the demonstration evaluating patient access to care, 
outcomes, as well as an analysis of any cost savings to the 
Medicare Program attributable to reduced needs for infuse-
related services. Can you tell me if this report has been 
provided yet or when we can expect to receive CMS's evaluation?
    Mr. KUHN. That particular provision was section 641 of the 
MMA, and that report is currently in clearance within the 
department. I wish I could give you a projected date when we 
would have this up to Congress, but it is working through the 
process, and we hope to have it to you very soon.
    Mr. CAMP. At some point it would be interesting to know how 
the agency would use these findings if, in fact, they found 
that the use of self-administered alternatives led to 
improvements in patient health outcomes and cost savings to the 
Medicare Program to improve care for patients as well as 
utilizing the program more efficiently. CMS has implemented a 
new national coverage determination for physician-administered 
drugs under Part B. Once a national coverage determination 
(NCD) has been adopted by CMS, my understanding is that local 
carrier coverage determinations are not relevant. If that is 
the case, there is a carrier that is being permitted to 
circumvent the intent of the NCD for a particular drug, and the 
situation causes undue hardships for those dialysis patients 
that fall within the region in which this carrier operates. 
Does CMS have the authority to enforce NCDs once adopted, or 
can any carrier ignore the intent of the NCD? Can you tell me 
what steps are being taken to correct situations like these? 
Problems--how long will it take to have problems like these 
    Mr. KUHN. I am somewhat familiar with this one, when you 
mentioned that it was an end-stage renal disease (ESRD) 
facility. I think it is a drug called Levocarnitine.
    Mr. CAMP. Yes, it was.
    Mr. KUHN. In 2002 or 2003, we did have an NCD, or national 
coverage determination, on that particular product. My 
understanding is that it is being implemented by our 
contractors as implemented by the NCD. What I also understand 
is that with varying practices' patterns by different ESRD 
facilities, they run into issues in terms of how they come up 
against this NCD. What I think this one takes, and what I 
understand this one to be, there needs to be some further 
education with the carrier, with the systemic autoimmune 
rheumatic diseases (SARD) facilities so they understand exactly 
what the standards are of the NCD, so that they understand how 
it is being implemented as we go forward.
    Two things. One, we will go back and be absolutely sure 
that it is being implemented appropriately in terms of how the 
NCD is put forward; but secondly, and more importantly, that we 
have that communication and education between our contractor 
and ultimately the providers to make sure that they understand 
exactly the appropriate criteria as well.
    Mr. CAMP. I certainly appreciate that because this 
situation has led some beneficiaries in parts of the United 
States to not have access to this particular drug, but also as 
a result makes their dialysis treatments less effective. It is 
very critical care. We have heard a lot about cancer treatment 
which is critical, but dialysis treatment is critical as well.
    Mr. KUHN. We will look at this, and I will also bring this 
to the attention of our chief medical officer at CMS, who also 
happens to be a nephrologist. We will have some first-line 
expertise to look into this for you.
    Chairman JOHNSON OF CONNECTICUT. Mr. Foley.
    Mr. FOLEY. Thank you, Madam Chairman. I appreciate first 
and foremost yours and Mr. McCrery's and other's work on IVIG. 
It is critically important. Critically important. I repeat that 
not only for effect, but for the understanding that this is 
about 2 years old this problem. I am not on the Health 
Subcommittee, and that is why I appreciate the gentlewoman 
giving me a chance, because for a long time I thought the 
failure to respond to some of our inquiries was only because I 
wasn't on the health Committee. So, I am going to suggest, and 
I have heard it repeatedly by members of this panel, that they, 
too, have had trouble getting their calls returned.
    This is an issue where people are dying. I came from a 
Committee hearing with Mr. Camp, and we were talking about the 
esoteric nature of the Tax Code. Nobody is going to die over 
the Tax Code, but people are dying over IVIG. I can't seem to 
get an answer. I keep hearing we are going to have facts from 
manufacturers. We are going to have facts from doctors. I know 
one thing: There is a critical crisis. Hospitals are stopping 
providing it. We get various determinations of price, it is 
this, it is that, but nobody can put their hands on this issue, 
2 years old. Mr. Kuhn, I have a question. Based on your 
discussions with FDA and others in HHS, do you believe there is 
an IVIG product shortage?
    Mr. KUHN. I will tell you, Congressman, an honest answer. 
It will go week to week. FDA feels like there is a sufficient 
supply, and it depends who you talk to last on this issue. I 
will talk to one manufacturer who will say there is plenty of 
supply. I will talk then to a distributor who will say that 
there is insufficient supply. Right now, from what I can tell 
from not only the manufacturing community, their trade 
association, and the information we see from FDA, it looks like 
there is sufficient supply in the marketplace right now, 
though, however. . . .
    Mr. FOLEY. Okay. Given that fact, sufficient supply in the 
market, which would not be a supply/demand concern, why do you 
think providers and distributors are selling their products 40, 
50, 80 percent over ASP?
    Mr. KUHN. This has been one of the most frustrating things 
about this product, different from anything we have seen 
before. What we have is a lot of it is encumbered. It is under 
contract with different distributors who have it under contract 
with various providers that are out there in the community. 
This really seems to have restricted the free flow of product 
within the marketplace, and what you see is the product moving 
to the secondary market as a result of that with enormously 
high markups, and it has created in some situations, some 
inappropriate shortages.
    For example, if a physician has a part of the supply 
himself, and then he or she decides to send his patients over 
to the hospital, and he keeps that supply of the product, he is 
not shipping it with the patients, and we lead to dislocations 
here. Again, what we understand is there is plenty of supply in 
the marketplace. What we really see is this allocation problem 
seems to be getting in the way of free flow of product in the 
marketplace and helping it find its equilibrium so that 
everybody gets the treatment they need and deserve.
    Mr. FOLEY. Let me ask, if the doctor is holding back the 
product in shipping his patient, what benefit is that on the 
    Mr. KUHN. There might be a chance to deliver that product 
to another patient that might have a private payer that might 
pay at a higher rate, for example, might be one of the 
advantages there. We have heard that some manufacturers who 
have done a very good job in terms of trying to make sure that 
the product is getting to people that they have, they have seen 
evidence of some of their products getting into secondary 
markets. When they do, I think they are taking actions to make 
sure that the product goes to patients and not to the secondary 
market so that people can profiteer on this product in one way 
or another.
    Mr. FOLEY. So, let me get this straight. You are suggesting 
that this doctor is shipping his patient to the hospital so 
that they can provide the IVIG, and he is selling it to 
somebody else for more money?
    Mr. KUHN. I am saying there have been instances where this 
has occurred. I would like to believe, and I think the evidence 
is there, that this is truly the exception to the rule. What we 
are seeing is that, as I think you indicated earlier, there are 
a number of factors that are driving to again having this 
product difficulty finding its equilibrium in the marketplace.
    Mr. FOLEY. You mentioned at some point somebody did off-
market use or off-label use?
    Mr. KUHN. Yes. There is a big surge in demand in terms of 
off-label use. In Medicare we saw enormous increase in usage 
between 2002 and 2004, a significant amount of usage. I think 
what has happened is it is a wonderful product, and I think 
others have mentioned that for the people who really need it, 
it is absolutely essential. We are finding, and I think the 
clinical evidence, and you will hear from the second panel, 
there are new opportunities for use of this product that can be 
very important and therapeutic to individuals, so that, too, is 
exacerbating our problems as well.
    Mr. FOLEY. I think you know now by the tone of the 
Committee we are all very, very interested in this, and waiting 
to the fall for answers is getting a little late.
    Mr. KUHN. I hear you loud and clear.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much. As we 
dismiss this panel, I would like to submit for the record and 
call to your attention, Mr. Kuhn, the letter that I am sending 
to Dr. McClellan today asking that CMS analyze claims dated 
from 2003 to 2005 to see if there has been a change in the 
proportion of cancer care provided in physicians' offices 
compared to the hospital outpatient department, and then to do 
the same with 2006 data when it comes in.
    [The letter from Chairman Johnson follows:]

                                                      July 13, 2006
Honorable Mark McClellan
Centers for Medicare and Medicaid Services
Hubert Humphrey Building, Room.314-G
200 Independence Avenue, SW
Washington, DC 20201

    Dear Dr. McClellan,

    The Medicare Modernization Act (MMA) included significant changes 
in Medicare reimbursement for cancer drugs and the costs associated 
with administering these drugs. These changes were the result of 
studies that concluded that the Medicare Program was overpaying for 
cancer drugs. Since this time, there have been numerous c11anges to 
oncology reimbursement including moving to an Average Sales Price (ASP) 
methodology for the payment of drugs, an increase in chemotherapy 
administration reimbursement rates, and two different demonstration 
projects supplementing administration payments.
    All of these changes have resulted in a reimbursement environment 
that is in flux and uneven. I have received impressive reports from 
oncologists that they are shifting the site of care for Medicare 
beneficiaries without secondary insurance from the physician office to 
the hospital outpatient department because there is no longer the 
ability to absorb the 20% copayment loss in the individual practice. 
Congress must know if this is in fact occurring, to what degree, and if 
it is a result of reimbursement changes.
    Consequently, I ask that CMS analyze claims data from 2003 to 2005 
to determine if there has been a change in the proportion of cancer 
care provided in the physician office compared to the hospital 
outpatient department and report to me in writing on the findings. 
Additionally, 2006 has resulted in another round of reimbursement 
changes and I request that CMS also analyze and report the claims on 
the first two quarters of 2006 as soon as this information is 
    I believe that this information is important to assessing the 
appropriateness as well as the cost effectiveness of the current 
reimbursement system and I look forward to reviewing CMS' s analysis of 
the claims data,
            Very truly yours,
                                                   Nancy L. Johnson
                                                 Member of Congress


    Chairman JOHNSON OF CONNECTICUT. So, I think the Committee 
could benefit from having that information in terms of trying 
to find out what really is going on. As Dr. Miller recognized--
noted, those without secondary coverage do appear to be moved 
to hospital settings, and since in some areas those settings 
are not available, we need to understand whether we need to 
take action to deal with this copayment problem. Do you think 
you have the administrative action to deal with the copayment 
issues that are coming forward?
    Mr. KUHN. We do not believe we have the authority now for 
the copayment issues and basically Medicare bad debt. It is 
statutorily defined for hospital skilled nursing facilities. 
There is nothing on the physician's side that gives us the 
authority to do that at this time.
    Chairman JOHNSON OF CONNECTICUT. Do we have the authority 
to deal with the issue of lag, the difference between with when 
prices change? Could you require that price could only be 
changed at certain periods so that there wouldn't be this lag?
    Mr. KUHN. I think we are pretty quick in terms of 
information as it comes forward. Under most of the Medicare 
payment systems, we do updates on an annual basis. On this one 
we are doing it on a quarterly basis. We get the information--
the payment rates that we are using right now under ASP is 
information that--from pricing from January, February, and 
March of this year. So, right now it is pretty quick 
turnaround, and compared to the other payment systems under the 
Medicare Program, this is almost real-time data, at least for 
the Medicare Program.
    Chairman JOHNSON OF CONNECTICUT. Do you think people are 
getting the payment if the price goes up within 3 months?
    Mr. KUHN. We believe that the manufacturers understand how 
to report the ASP data now. We are now into our seventh quarter 
of it, and we think we are getting very accurate information 
from them so that as prices move and change, I think they are 
pretty reflective pretty quick. I think that is evidence in 
terms of current ASP information that is out there. If you look 
at the data, and some people look at it and go, oh, gosh, look 
at the increases that we are seeing in July. Well, that is 
because a lot of people raised prices in January.
    Chairman JOHNSON OF CONNECTICUT. That is not a 3-month lag, 
that is a 6-month lag, and you are absorbing that loss for 6 
months, and if it happens to be one of the high cost and it 
happens to be a high user, we can't just let the statistics 
drive this. If it is a drug that is seldom used, it probably 
does not matter much, but if it is a drug that is used 
frequently, it could matter a lot. I think getting at some of 
the things that Mr. Steinwald raised, but also looking at this 
issue of frequency abuse. Why can't we make it? If we know the 
information after 3 months, why can't we get the payments out 
there in 3 months?
    Mr. KUHN. When we get the reporting information--to give a 
sense of the timetable, January, February, March of this year. 
By the third or fourth week of April. We have the information 
from the manufacturers in terms of reporting for that period of 
time, and within 2 months those prices were posted. So, it is a 
pretty quick turnaround.
    Chairman JOHNSON OF CONNECTICUT. It is a total of 6 months 
lag. We need to look at how you could shrink that down.
    Mr. KUHN. We will look and see----
    Chairman JOHNSON OF CONNECTICUT. You need look at who needs 
to report when to get it shrunk down. Thank you very much. I 
thank the panel for your attention and welcome the second panel 
to testify. We will have votes coming up, so we will go through 
the panel and then have questions. Dr. Frederick Schnell, Dr. 
Joseph Bailes, Marcia Boyle, Richard Friedman, and Dr. Jordan 
Orange. Dr. Schnell, if you would begin as soon as the name 
plates are distributed.

                       ONCOLOGY ALLIANCE

    Dr. SCHNELL. Madam Chairman, Ranking Member Stark and 
distinguished Members of the Ways and Means Subcommittee on 
Health, good afternoon. My name is Fred Schnell, and I am a 
practicing community oncologist from Macon, Georgia, and I 
volunteer as the president of the Community Oncology Alliance 
(COA). We believe that the cancer care delivery system in this 
country is in grave danger of being dismantled. Changes in 
Medicare reimbursement for cancer care brought about by the 
Medicare Modernization Act of 2003 we believe to be too severe. 
Community cancer clinics were shielded from the full impact of 
these changes until 2006. Now reimbursement for both drugs and 
services in many cases is less than our costs.
    COA has reports of patient access problems from 37 States, 
especially among seniors without adequate secondary insurance 
who are unable to pay the 20 percent Medicare coinsurance 
obligation. There are four simple solutions to correcting this 
problem. First, eliminate prompt payment discounts from the 
calculation of average sales price so that ASP is not 
artificially lowered by financial discounts between 
manufacturers and wholesalers. Second, remove the 6-month lag 
in ASP so that community cancer clinics are not unfairly 
subsidizing the Medicare system for such price increases. There 
have already been over 35 price increases this year alone. 
Third, create payment codes for essential services that 
Medicare does not currently reimburse, most specifically for 
treatment planning and pharmacy facilities. Fourth, restore 
appropriate payment for drug administration and deal with the 
reality of bad debt.
    By not addressing the problem with Medicare reimbursement, 
we are jeopardizing the future of cancer care in America and 
threatening to undo all of the notable progress accomplished in 
the war on cancer. The combination of earlier diagnosis, more 
effective therapy, and widely accessible care has contributed 
to the decreasing cancer mortality rate. Today, 84 percent of 
people with cancer are treated in community cancer clinics just 
like ours in Macon. No longer do cancer patients have to travel 
great distances and bear economic hardships to be treated in 
distant institutions. Instead they receive care in their own 
communities close to home, family and friends. Prior to the 
MMA, Medicare payments for cancer care were unbalanced. 
Reimbursement for drugs subsidized a severe underpayment for 
drug administration and essential medical services that cancer 
patients require. However, the current reality with the MMA is 
a significant difference between actual implementation and what 
Congress had intended.
    The CBO estimate for the MMA was a $4.2 billion reduction 
in Medicare payments for cancer care from the year 2004 to 
2013. Earlier this week, PricewaterhouseCoopers released a 
revised analysis that estimates that $13.8 billion will 
actually be cut from cancer care payments over this same time 
period. This far exceeds congressional intent. What then 
explains this sizable discrepancy of actual implementation and 
congressional intent? The answer is threefold. First, Medicare 
reimbursement for drug administration was initially increased 
in 2004, but, as stated, has since actually decreased by a 
factor of over 20 percent. The MMA increased reimbursement for 
drug administration by 110 percent in 2004 as well as mandated 
an additional one year 32 percent transition increase. This 
appears to be a substantial increase; however, it was an 
increase to an extremely low reimbursement rate and paled in 
comparison to the cut in drug reimbursements.
    Unfortunately, CMS did not create any new major payment 
codes for unreimbursed services such as treatment planning. 
What CMS did do was devalue payment for drug administration. 
This devaluation has been compounded by the drastic cut to drug 
reimbursement. Second, certain essential components of cancer 
care are not reimbursed at all. For example, an essential part 
of my day-to-day work involves the development of complex 
treatment plans for my patients. Currently, no Medicare payment 
exists for medical oncology treatment planning, although there 
is reimbursement for treatment planning developed by radiation 
oncologists Another example is that the cost of pharmacy 
facilities are not reimbursed. These include storage, 
inventory, pharmacy operations and waste disposal. These types 
of services are subsidized by drug payments under the old 
Medicare reimbursement system.
    Third, drug reimbursement barely covers drug acquisition 
costs and has decreased over 30 percent. Studies completed by 
the OIG and the GAO on the adequacy of Medicare reimbursement 
for cancer drugs ignore the reality that drug acquisition costs 
is just a portion of total drug costs. In addition to pharmacy 
facility costs, we incur bad debt from patients who lack 
adequate secondary insurance and are unable to pay their 20 
percent Medicare coinsurance. Bad debt, which averages 5.3 
percent nationwide, is a growing reality for community cancer 
clinics, especially as the cost of cancer drugs increases. 
Whereas the patient copay for a high blood pressure medication 
might be $5 or $10, the Medicare copay obligation for cancer 
treatment can easily reach $5,000 to $10,000. We are ignoring 
the fact that approximately 20 to 25 percent of Medicare 
beneficiaries do not have adequate secondary insurance that 
covers the expense of cancer treatment.
    Furthermore, as I previously stated, the inclusion of 
prompt pay discounts artificially lowers ASP, and community 
cancer clinics are subsidizing Medicare for every price 
increase. The Competitive Acquisition Program is not the answer 
to the problems associated with Medicare drug reimbursement. 
The oncology community at large use CAP as an untried and 
untested experiment. We will not expose our patients to the 
risks it presents. CAP will force the creation of individual 
patient inventories, and increase the likelihood of treatment 
errors and delays, and place new and unreimbursed 
administrative burdens on our clinics.
    In conclusion, community cancer clinics cannot operate when 
reimbursement continues to be ratcheted down while operating 
costs are increased by at least 4 percent per year. In 2006, 
the impact of insufficient reimbursement has resulted in more 
patients not being able to be treated because clinics cannot 
afford to provide treatment that is reimbursed less than cost. 
Seventy percent of the clinics from 37 States reporting are not 
able to treat an increasing number of patients. As an example, 
we just received notice from a clinic in Kentucky that is 
unable to treat 25 to 30 patients per month due to, and I 
quote, an overwhelming percentage of 20 percent coinsurance 
turning into bad debt.
    Unfortunately, the local hospital can treat only a very 
limited number of patients, and treatment is being delayed by a 
week or two. Additionally, clinics report closing satellite 
facilities and practices often in underserved communities, 
reducing professional staff, and very unfortunately being 
pressured to factor economic decisions into cancer treatment 
planning. If the situation continues without relief, we will 
lose oncologists to attrition and retirement while seeing 
increased rates of practice closings.
    On behalf of every American with cancer, or caring for 
someone with cancer, I implore the Congress to address the 
growing deficiencies in the Medicare reimbursement for cancer 
care. The problem that community cancer clinics face is 
exacerbated by Medicare artificially setting the bar too low 
and inviting private payers to cut their payments for cancer 
care as well. We are already seeing this happen in my State of 
Georgia. I finish with a question: As a nation, are we willing 
to risk the future of the cancer care delivery system in this 
country for an expense of less than half a penny per day per 
American? Let us work together to finish the promise of 
balanced reform promised in the MMA for cancer patients and the 
community cancer clinics that provide them with the highest 
quality care. Thank you, Madam Chairman, and your Committee for 
allowing me to testify today.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Dr. Schnell.
    [The prepared statement of Dr. Schnell follows:]
          Statement of Frederick M. Schnell, M.D., President,
                      Community Oncology Alliance
    Medicare Part B reimbursement for cancer care is insufficient in 
2006. The implications of insufficient reimbursement are that community 
cancer clinics report sending more patients to the hospital for 
treatment, closing satellite facilities and practices, reducing staff, 
and being pressured to factor economic decisions into the cancer 
treatment plan in order for clinics to continue treating patients. 
Additionally, clinics report considering dropping out of the Medicare 
program. Already, in 2006, there are reports about access problems from 
community cancer clinics in over 37 states.
    The fundamental problem with Medicare Part B reimbursement in 2006 
is that drug administration reimbursement has decreased by over 20% 
since 2004 while drug reimbursement has decreased by over 30%. So, 
during a time period when underlying medical costs are increasing 
approximately 4% per year, reimbursement for both essential services 
and drugs required to treat seniors covered by Medicare Part B 
continues to decrease. Relating to services reimbursement, certain 
services such as cancer treatment planning and pharmacy facilities are 
not reimbursed. Relating to drug reimbursement, Medicare reimbursement 
of Average Sales Price (ASP)+6% appears in cases to cover drug 
acquisition costs. However, reimbursement for most cancer drugs is 
actually less than cost when including the realities of pharmacy 
facilities, prompt pay wholesaler discounts, bad debt, and manufacturer 
price increases. Community cancer clinics, where 84% of the cancer 
patients in the United States are treated, cannot continue to operate 
in an environment where costs are exceeding reimbursement.
    The specific problems with Medicare reimbursement are three-fold.
Problem #1. Medicare payment for drug administration is inadequate and 
        is decreasing.
    The Medicare Modernization Act (MMA) increased drug administration 
payments by 110% starting in 2004. The MMA also created a lump-sum 
transition increase of 32% that further raised drug administration 
payments in 2004. This transition increase decreased to 3% in 2005 and 
was eliminated in 2006. The purpose of this transition increase was for 
the Centers for Medicare & Medicaid Services (CMS) to ascertain the 
adequacy of existing payment codes and to create new codes for un-
reimbursed services, such as treatment planning.
    Unfortunately, in 2004 no new major payment codes were created by 
CMS for 2005; only temporary ``G codes'' were created. Instead, CMS 
developed a chemotherapy demonstration project for 2005 that retained 
at least $300 million in Medicare funding for cancer care. This stopgap 
funding, along with the 3% transition fee and averted cut in the 
physician fee schedule, minimized any impact on community oncology 
during 2005. However, the chemotherapy demonstration project and 
transition increase both expired at the end of 2005, which resulted in 
lower Medicare reimbursement in 2006. Additionally, CMS replaced the 
temporary ``G codes'' with new codes at a lower relative value unit 
(RVU) rate and with no clear ``cross walk'' (i.e., translation) from 
the ``G codes.'' This resulted in an additional decrease in drug 
administration reimbursement. Exhibit A shows a coding analysis 
performed by expert coders from around the country. Analyzing some 
commonly used cancer treatment regimens, it is clear that reimbursement 
for drug administration only (this analysis excludes drug 
reimbursement) on a treatment-by-treatment basis has decreased 
substantially from 2004 to 2006. This decrease is estimated to be in 
excess of 20% overall.
    The graph below illustrates the components of declining drug 
administration for the CHOP/Rituxan treatment regimen presented in 
Exhibit A. The purple portion of the bar in 2004 and 2005 illustrates 
the impact of the transition increases--32% in 2004 and 3% in 2005. The 
blue portion represents the underlying RVU-based payment.


    It is illogical that Medicare drug administration reimbursement has 
decreased over 20% from 2004 to 2006 in light of the fact that medical 
human resource and supply costs have actually increased by 
approximately 4% per year during this period. It must be noted this has 
occurred when drug reimbursement has decreased by over 30% with the 
change from the prior AWP system to the new ASP-based reimbursement 
Problem #2: Certain essential cancer care services and costs are not 
    The prior AWP-based reimbursement system resulted in drug 
reimbursement overpayments that subsidized essential cancer services 
that were either under-reimbursed or not reimbursed. Under the ASP-
based system there is neither a subsidy nor a direct or indirect 
reimbursement for certain essential services. For example, cancer 
treatment planning is not reimbursed as part of any existing Medicare 
payment mechanism. It is ironic that radiation oncology treatment 
planning, which is typically part of the overall cancer treatment plan, 
is reimbursed by Medicare, whereas medical oncology treatment planning 
is not reimbursed. As another example, all of the direct drug costs of 
a pharmacy are not reimbursed. These include storage, inventory, 
pharmacy operations, and waste disposal. In light of increasing 
regulations dealing with chemotherapy and other toxic drug handing, the 
costs of maintaining a pharmacy are increasing. However, these costs 
are not reimbursed directly or indirectly.
    Although some argue that many costs are ``bundled'' in the drug 
administration payment codes, there is no evidence that this is true or 
that these costs are appropriately covered by payment codes. In fact, 
the existing codes for drug administration have not been updated--even 
with the 2004 MMA 110% increase--to reflect the increasing costs of 
simply administering cancer drugs, much less cover any other facets of 
cancer treatment, such as treatment planning.
Problem #3: ASP+6% may only barely cover drug acquisition costs. It 
        does not cover all direct drug costs.
    A clinic's total drug costs are comprised of drug acquisition 
costs, pharmacy costs, billing and overhead, and bad debt. Analyzing a 
clinic's drug acquisition costs in comparison to ASP+6% reimbursement 
and concluding that reimbursement covers cost is a faulty analysis, 
which is the problem with studies completed by the Office of the 
Inspector General (OIG) and the Government Accountability Office (GAO). 
The table below shows both OIG's estimated purchase price by drug 
(column a) along with the corresponding drug reimbursement rate (column 
b). If all of the patient's co-insurance was paid, most of the drug 
acquisition cost is covered by the reimbursement (column c). However, 
factoring in bad debt of 5.3% most of the drug acquisition costs are 
not covered by the reimbursement (column d). On a case-by-case basis, 
the impact of non-payment of the 20% co-insurance is substantial 
(column e). If you factor in bad debt and selected other direct drug 
costs, the result is a further under-reimbursement of drug costs.


    It is unreasonable to simply look at drug acquisition costs in 
isolation without considering all direct drug costs. The stated 
Medicare drug reimbursement rate is ASP+6%. However, factoring in other 
costs, the effective real rate is ASP-3.8%. These include the MMA-
mandated inclusion of prompt payment discounts between the 
pharmaceutical manufacturer and the wholesaler into the ASP 
calculation; the impact of the lag between a manufacturer's price 
increase and inclusion in the drug reimbursement rates; and the bad 
debt factor.

    Stated Medicare Drug Reimbursement Rate               ASP+6%
Less Prompt Pay Discount                                         2.00%
Less Price Increase Lag                                          2.50%
Less Bad Debt                                                    5.30%
Effective Medicare Drug Reimbursement Rate                    ASP-3.8%

    Bad debt is a real cost incurred by community cancer clinics. COA 
estimates bad debt at 5.3% nationally. An estimated 12% of patients 
have no secondary co-insurance and in many states Medicaid--as the 
secondary insurer--does not cover the patient's co-insurance 
obligation. As the cost of cancer drugs escalate, patients are 
increasingly unable to cover co-insurance payments that can run over 
$20,000. Bad debt is a reality of operating a community cancer clinic, 
yet it is ignored as a reality by CMS. Community cancer clinics 
historically have been willing to treat patients rather than turn them 
away or hand them over to a collection agency. However, community 
cancer clinics now are increasingly unable to subsidize cancer care for 
seniors covered by Medicare with no secondary insurance coverage.
    This analysis does not include pharmacy costs. MedPAC estimated 
pharmacy costs at 26-28% of total drug costs in analyzing actual costs 
from outpatient facilities in Maryland. This analysis also does not 
include the cost of capital in purchasing very expensive cancer drugs 
or the costs of billing and overhead. Once again, under the AWP-based 
system these costs were part of drug reimbursement. However, under the 
ASP-based system only acquisition cost is reimbursed.
    Some believe that the Competitive Acquisition Program (CAP) is a 
solution to drug reimbursement problems. However, CMS has struggled to 
find only one CAP vendor--after delaying the program because initially 
there were no vendors--and few if any community cancer clinics will 
trust an unproven, untested system to deliver the correct drugs on time 
to their patients. The CAP will create multiple patient inventories, 
risk treatment errors, and result in treatment delays. Additionally, 
the CAP will actually increase pharmacy and billing costs because of 
the procedures, tracking, and record keeping requirements. Analyzing 
the top reimbursed cancer drugs, COA estimates that Medicare will 
actually pay over 3% more for drugs to the CAP vendor than to community 
cancer clinics.
    These three problems have resulted in Medicare now becoming the 
lowest payer for cancer care services. Medicare, with its considerable 
market clout, has set reimbursement rates artificially low for private 
payers to follow. In many cases, this is exactly what is happening.


    The congressional intent of the MMA was to save Medicare $4.2 
billion from 2004-2013 by changing the reimbursement system for cancer 
care, according to the Congressional Budget Office in a letter dated 
November 20, 2003, to Chairman Thomas. Unfortunately, actual 
implementation by CMS is resulting in substantially more cuts to 
Medicare reimbursement for cancer care. Exhibit B is a report from 
PricewaterhouseCoopers that estimates the cuts to cancer care 
reimbursement to be $13.8 billion, far in excess of the $4.2 billion 
intended by Congress. The graph below shows this discrepancy in 
projected cuts (congressional intent) versus actual implementation by 
CMS. The reasons for this discrepancy are the three problems previously 
outlined in this document.
    There is bipartisan recognition of this problem in both the House 
and the Senate. The entire cancer community supports solutions to this 
problem. There are currently three bills in the House addressing 
aspects of this overall problem, including one with over 70 sponsors 
that was introduced by Congressman Jim Ramstad, a member of the Ways 
and Means Subcommittee on Health. There is an identical Senate bill 
that was introduced by Senator Arlen Specter.
    Some have suggested waiting to see more substantial patient access 
problems before fixing the problems with Medicare Part B reimbursement 
for cancer care. That is simply not acceptable because actual lives of 
Americans are already being negatively impacted. Furthermore, we risk 
dismantling a system of cancer care that has been built during the past 
15-20 years. Rescuing the cancer care delivery system when it is too 
late will not be feasible because the damage will be done. Already, the 
incidence of cancer is increasing while the number of oncologists is 
flattening. Reimbursement problems should not be motivating older 
oncologists to retire, which is starting to happen, or discouraging new 
physicians from pursing a specialty in oncology, which is also 
happening at the medical school and fellowship levels.
    On behalf of community oncology, we ask the Congress to immediately 
fix the problems of insufficient Medicare reimbursement for cancer care 
by at least accomplishing the following:

      Eliminate ``prompt payment'' discounts from 
pharmaceutical manufacturers' calculation of ASP. Prompt payment 
discounts are financing discounts between the manufacturer and the 
wholesaler--these are not incentive purchasing discounts to community 
cancer clinics. Inclusion of these discounts in the ASP calculation 
artificially lowers Medicare drug reimbursement by approximately 2%.
      Immediately increase Medicare reimbursement for those 
drugs increased in price by the manufacturer. Community cancer clinics 
are currently subsidizing Medicare for all drug price increases for 6 
months, on average.
      Create payment mechanisms for un-reimbursed services such 
as treatment planning and pharmacy facilities. Medicare reimbursement 
needs to more realistically cover the essential services provided to 
seniors by community cancer clinics.
      Reevaluate existing drug administration payment codes to 
restore adequate reimbursement that covers the costs of the materials 
and human resources required to administer drugs.
      Address the growing bad debt problem of Medicare patients 
without adequate secondary insurance.

    An independent analysis of the plight facing community oncology 
appeared as a research article in the Journal of the National 
Comprehensive Cancer Network (Surviving the Perfect Storm: An RVU-Based 
Model to Evaluate the Continuing Impact of MMA on the Practice of 
Oncology; Volume 4, Number 1, January 2006). The authors write, ``The 
emotional and financial pressures facing the medical oncologist in 
private practice are enormous, with no relief in sight. The complexity 
of managing private practice oncology rivals that of managing cancer 
care.'' ``Will the planned changes in Medicare reimbursement, 
exacerbated by the loss of operational inefficient medical oncology 
practices, lead to irreparable changes in the oncology delivery system 
(e.g., access, availability, continuity, and quality)?'' Will the 
United States abrogate its leadership in clinical cancer care and 
research and default to a specialty of algorithm followers rather than 
algorithm creators? Are the unintended consequences of changes in 
regulation and reimbursement fully appreciated? And last and most 
importantly, what are the risks to the cancer patient resulting from 
the heuristic approach promulgated by regulators and legislators?''
    Exhibit C presents a sample of quotes received from community 
cancer clinics across the country.

    Exhibit A

Exhibit B
    President Bush signed the Medicare Modernization Act (MMA) on 
December 8, 2003. This legislation made significant changes in payment 
for Part B prescription drugs. Under Section 303 (oncology) of the MMA, 
Part B drugs, which previously were reimbursed at 95 percent of Average 
Wholesale Price (AWP), were reimbursed at 85 percent of AWP in 2004 and 
then, in 2005, reimbursed at a new pricing system called ``Average 
Sales Price'' (ASP), under which reimbursement was set at ASP+6 
percent. Finally, in 2006 and beyond, physicians will have a choice 
between providing the drugs and being reimbursed at ASP+6 percent or 
having these drugs provided by vendors selected in a competitive 
bidding process.
    PricewaterhouseCoopers (PwC), at the request of the Community 
Oncology Alliance, estimated savings to the Medicare program from 
changes in Part B reimbursement rates for covered outpatient oncology 
drugs and oncology-related services under the MMA. Based on the most 
recent information from the Medicare program, we estimate the savings 
of $4.1 billion for the five-year period of 2004-2008 and $13.7 billion 
for the ten-year period of 2004-2013 (as shown in Table 1 below).
    These estimates are considerably higher than those estimated by the 
Congressional Budget Office (CBO) in 2003 at the time of enactment of 
the MMA. CBO estimated savings from Section 303 of the MMA at $0.9 
billion for the 2004-2008 period and $4.2 billion for the 2004-2013 
period, or about one-third PwC's estimate for the same period.\1\ The 
differences in estimates are not surprising. CBO's 2003 estimate was 
based on their best information at that time, which did not include any 
specific information on ASP. In constructing our estimate, we had 
access to actual ASP information for 2005-2006 from the Centers for 
Medicare and Medicaid Services (CMS).\2\
    \1\ Congressional Budget Office. H.R.1 Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003. November 20, 2003.
    \2\ Our savings estimate does not include indirect effects on the 
federal outlays for the Medicare Part B premium, Medicare Advantage, 
and the Medicaid program. CBO did not show these offsets separately for 
individual sections of the MMA but, instead, folded together all the 
offsets of dozens of other programs and reported the overall offset.

 Table 1. Federal Budgetary Cost of the MMA Payment Changes to Oncology Outpatient Drugs and Biologicals (Fiscal
                                         Years 2004-2013, in $ billions)
                                    2004      2005      2006      2007      2008      2004--2008     2004--2013
PwC's 2006 estimate                 0.1     (0.5)     (1.0)     (1.3)     (1.4)     (4.1)          (13.7)
CBO's 2003 estimate                 0.1     (0.1)     (0.2)     (0.3)     (0.3)     (0.9)           (4.2)
Difference                        (0.0)     (0.4)     (0.8)     (0.9)     (1.1)     (3.2)           (9.5)
PricewaterhouseCoopers estimate, July 10, 2006.

    In 2004, Part B oncology drugs were reimbursed at 85 percent of AWP 
under the MMA, compared to 95 percent of AWP in absence of the MMA. To 
calculate the spending after the change in drug pricing, we took the 
drug portion of the baseline and applied the 85 percent in place of the 
previous 95 percent for branded drugs. This reduced drug spending by 
$0.5 billion. However, the reduction in drug payments was offset by the 
increase in payments to physician fee schedules under the MMA. 
Consequently, estimated payments in 2004 were virtually unchanged by 
the MMA.
    In 2005, we estimated the new ASP+6 percent pricing system would 
reduce oncology drug payments by about 30 percent, based on new 
information from CMS. We applied this percentage to the baseline 2005 
drug spending. This price reduction resulted in savings of $1.8 billion 
in drug spending. In the meantime, physician fees spending was 
increased by $0.4 billion. The combined impact of the MMA on oncology 
Part B spending would be gross savings of $1.4 billion. These gross 
savings would result in fiscal year savings of $0.5 billion to the 
Medicare program for 2005 after accounting for behavioral offsets, cost 
sharing, and conversion from calendar year to fiscal year.
    Starting in 2006, physicians will have a choice of whether they 
purchase drugs and receive the ASP pricing system or have the drugs 
distributed by vendors selected through a competitive bidding process. 
We have assumed that all physicians will be reimbursed by the ASP 
pricing system. This is a conservative estimate of potential savings 
because our assumption is that Medicare would pay ASP+6 percent rather 
than the lower competitive amount. In 2006, the reduction in drug 
spending was estimated at about 35 percent, based on the first three 
quarters of ASP+6 percent information. Total impact of the MMA on 
oncology Part B spending was estimated to be gross savings of $2.2 
billion, or $1.0 billion in fiscal year savings to the Medicare program 
after accounting for behavioral offsets and cost sharing.
    In 2007 and thereafter, the reduction in drug spending was assumed 
at 32 percent, the average of that of 2005 and 2006. We have also 
incorporated in our estimate proposed changes by CMS in work relative 
value units (RVUs) and practice expense (PE) RVUs affecting payments to 
physician services. These revisions are proposed to be effective 
starting January 1, 2007. Specifically, CMS estimated that the combined 
impact of work and PE RVUs changes would increase oncology physician 
fee schedules by 3 percent in 2007 (first year of PE transition) and by 
2 percent in 2010 with full PE implementation.
    We estimated the total savings over the five-year period (2004-
2008) to the Medicare program would be about $4.1 billion and the ten-
year period (2004-2013) would be about $13.7 billion, as reported in 
Table 1.
    ``On an average we are sending 25-30 patients to the hospital a 
month for their chemotherapy treatment and growth factor support due to 
an overwhelming percentage of 20% coinsurance turning into bad debt. 
Facilities, however, are providing a very limited number of open chairs 
for patients which means patients are being delayed a week or two 
waiting on an open chair.''
    ``We have only been able to send one patient to our local hospital 
due to the fact that they are refusing to accept Medicare, Medicaid, 
self pay, and managed care Medicaid patients based on the following 
factors: they are not set up for chemotherapy infusion; they do not 
have the staff needed; and last, they are not budgeted for the 
additional financial burden. We are still in negotiations with these 
hospitals and will let you know when/if we have a resolution.''
    ``We have a practice that is unable to take on every referral. Two 
years ago we stopped doing second opinions, and rarely had to turn down 
new patients. This year we have turned down more new patients than ever 
in the history of our 15 years in this town--we no longer do self-
referred patients, and cannot always take on new patients referred by 
physicians. Thus, we do not take any HMO's or any MediCal. Because 
chemotherapy is so expensive, we have stopped taking any dual 
eligibles. Many more patients have been hospitalized for chemo in our 
town than were three years ago, and that clearly is because the drugs 
are unaffordable, both to patients and doctors. If one of five Avastin 
patients fails to pay their 20%, our practice could go out of 
    We are looking toward closing one of our offices. We can no longer 
cover the overhead of the practice due to the inadequate payments of 
ASP+6%. The other reimbursement schedules are grossly inadequate. We 
have already cut staff. Medicare D for oncology patients is a 
catastrophe. Most cannot afford the co-pays on these very expensive 
drugs. They are priced out of effective medications such as the TK 
inhibitors, Revlamid, etc. THERE IS A NEW WRINKLE! Medicare is now not 
denying our claims but ``PENDING'' all claims for Rituxan, Aranesp, and 
Herceptin--thus they delay payment for three to four months. This has 
wiped out all of our money. We cannot purchase any more drugs! We will 
now be sending all patients to the hospital 10 miles away for 
chemotherapy. Does Medicare wish to eliminate the private practice of 
Medical Oncology?
    ``It seems that CMS excluded our specialty number 98 from yet 
another fix in their system. We still have not been paid from the first 
oversight which was the 2006 demonstration project, but to add insult 
to injury, a much worse problem has occurred and it seems that I cannot 
make any progress no matter what I do. Medicare has been pending all of 
our claims that include Aranesp, Procrit or Neulasta charges. They 
request medical records. They pend the entire claim to include any 
chemo drugs that may be included. We have not been paid this entire 
year for these drugs. I have stopped sending my claims for these 
services hoping to prevent this process and hold up on any additional 
    ``We did cost analyses on each chemo protocol based on each drug 
cost and overhead. This was done using our most common secondary 
reimbursements. Based on this, a list was sent to staff indicating 
which protocols were underwater. These are the treatments sent out. 
What was found was that without a secondary, in most cases with 
Medicare, we were underwater with some exceptions.''
    ``We can't afford to treat patients that cannot pay their 20%. 
Right now 26 of 64 drugs we commonly give are underwater at 100% of 
Medicare. Also, the hospitals are seeing more and more patients in 
their outpatient units. We are in a high competition area, and a lot of 
the Oncologists in this area are sending patients to the hospital for 
    ``When we treat patients without secondary coverage we put a 
financial burden on these patients. This is not the time to cause more 
stress; this is the time to allow the patient to heal. One example of 
financial stress is colon cancer; the treatment cost is $8,000 every 
two weeks for 12 treatments. Patient responsibility is 20%, or $1600 
per treatment or $3,200 per month. If they cannot afford secondary 
insurance, how can they afford $3,200 per month for six months 
($19,200)? The clinic is to collect this amount. The clinic is not a 
collection agency. A pharmacist once said to me as I tried to call in a 
drug that cost $1,200, why would I loan the patient a thousand dollars 
while the government decides to pay me? This $19,200 is a loan that 
many times is paid in $50 and $100 installments. Maybe the government 
could loan the money to these patients so we can go back to assisting 
the patient in health care.''
    ``We do see the Medicare only patients for OV and labs but refer 
them to the hospital for any treatment because most of our drugs will 
be in the red if we receive only 80% of the Medicare allowable. Most of 
our patients who only have Medicare do so because they cannot afford a 
secondary/supplemental--thus, cannot afford or will not pay the co-pay. 
We service western Kentucky which has a lot of the ``working poor'' who 
cannot even afford their employer's healthcare premiums and southern 
Illinois that is just poor with a very high percentage of Medicaid.


    Chairman JOHNSON OF CONNECTICUT. Dr. Bailes.


    Dr. BAILES. Thank you. Good afternoon. I am Dr. Joseph 
Bailes, a medical oncologist from Houston, Texas, representing 
the American Society of Clinical Oncology, or ASCO. ASCO is the 
medical society for physicians and other health care 
professionals involved in cancer treatment and research, with 
more than 24,000 members worldwide, a third of whom are 
practicing community oncologists in the United States. ASCO has 
for many years been concerned about imbalance in Medicare 
payment methodology, with emphasis on drug payment and too 
limited emphasis on payment for services. With the passage of 
MMA, Congress moved toward resolving these imbalances, but 
problems remain which are causing disruptions in care, and we 
believe that more needs to be done.
    ASCO believes that the average sales price, or ASP, system 
has the potential to reflect appropriately the cost of 
acquiring drugs. As currently structured, however, the system 
does not ensure that all physicians can purchase chemotherapy 
drugs without suffering financial loss that would threaten the 
access of patients to some therapies. Although last year's 
inspector general report characterized reimbursement as 
generally adequate, the report shows that for about half of the 
drugs reviewed, at least 20 percent of physicians incurred out-
of-pocket loss to obtain the drugs. ASCO believes that this 
shortfall in Medicare payments will create access problems; 
therefore, ASCO supports creating a floor for Medicare payments 
to ensure that it is not lower than the widely available market 
    In addition, ASCO supports excluding prompt pay discounts 
to wholesalers and distributors from the calculation of ASP. 
Including prompt pay discounts received by wholesalers and 
distributors distorts the calculation, and it contributes to 
situations in which individual physicians are unable to obtain 
some chemotherapy drugs at or below the Medicare payment rate. 
It is for these reasons that ASCO strongly supports H.R. 5179, 
introduced by Representative Ralph Hall, as a means of bringing 
Medicare payments into better alignment with market prices and 
thus avoiding access challenges for patients.
    To be complete, reimbursement reform must address not only 
overpayment for drugs, but also underpayment for physician 
services. While MMA made some adjustments to payment for 
services, we believe that further changes are required to 
recognize services not currently reimbursed by Medicare. ASCO 
supports the establishment of a new Medicare service for 
comprehensive care planning and coordination at the time of 
diagnosis, at the end of active treatment, or when there is a 
change in the cancer survivor's condition or care. Such a 
service is supported by a series of recommendations by the 
Institute of Medicine. H.R. 5465, introduced by Representatives 
Davis and Capps, proposes such a service and ASCO is supporting 
that bill as well.
    ASCO continues to be concerned about the CMS methodology 
for determining practice expense relative values. Both the GAO 
and the Lewin Group, a CMS contractor, have issued reports 
concluding that the CMS methodology of allocating practice 
expense relative values for indirect costs is biased against 
services that do not involve physician work. We are also 
concerned by the proposal published by CMS on June 29, 2006, in 
which CMS would disregard certain survey data in determining 
practice expense relative values. We urge the Committee to 
review carefully the CMS proposal and offer guidance to the 
agency regarding alternative approaches that will sustain 
necessary cancer care services.
    The oncology demonstration projects administered by CMS in 
2005 and 2006 provide additional resources for oncology 
practices, but are also yielding data contributing to quality 
improvement efforts, including CMS's development of future pay-
for-performance programs in cancer care. It has been suggested 
by cancer experts and third-party payers that the current 
demonstration project will have value only if it provides 
sufficient longitudinal data to enable meaningful analysis and 
direction for future quality improvement efforts. We urge the 
Committee to support a multiyear extension of the demonstration 
project to enable collection of enough data to guide quality 
enhancement initiatives.
    Patient coinsurance, as you have heard, is an issue for 
Part B drugs. ASCO agrees with MedPAC that the coinsurance 
problem needs to be addressed. The 20 percent coinsurance 
requirement is frequently an unreasonable burden on cancer 
patients who are treated with state-of-the-art medicines. 
Congress should resolve this issue by eliminating, or at least 
significantly reducing, the patient burden of coinsurance for 
Part B drugs. We appreciate the interest of the Committee in 
scheduling the hearing, and we anticipate working with you to 
continue improvements in reimbursement and quality of care for 
the benefit of our patients and enhanced efficiency of the 
Medicare Program. Thank you, Madam Chairman.
    [The prepared statement of Dr. Bailes follows:]
Statement of Joseph S. Bailes, M.D., Executive Vice President, American 
           Society of Clinical Oncology, Alexandria, Virginia
    Good afternoon, I am Dr. Joseph Bailes, Interim Executive Vice 
President and CEO of the American Society of Clinical Oncology, or 
ASCO, and a medical oncologist from Houston, Texas. I am pleased to be 
here on behalf of ASCO to address issues related to Medicare payment 
for Part B drugs and related services.
    ASCO is the medical society for physicians and other health care 
providers involved in cancer treatment and research. With more than 
24,000 members worldwide--and a third of those members in private 
practice in the United States--ASCO is the leading voice of oncology 
professionals on matters of quality cancer care and access.
    The issues under consideration today are familiar to ASCO. We have 
been engaged in the debate over reform of reimbursement for cancer 
therapy for at least 15 years, since around the time that ASCO first 
established a Washington office. We have long been concerned about 
imbalances in payment methodology, with too much emphasis on drug 
payment and too little on payment for services.
    With the passage of the Medicare Modernization Act of 2003, or MMA, 
Congress attempted to resolve those imbalances. However, with a change 
of this magnitude it is not surprising that there are some problems. 
This hearing provides an opportunity to air some of the continuing 
concerns under MMA so that we can work together to assure both quality 
cancer care for our patients and responsible reimbursement policy for 
the federal Medicare program. We are here to share with you our 
thoughts about how to achieve both.
Payment for Drugs
    We appreciate that the ``average wholesale price,'' or AWP, system 
was an unbalanced method of compensating oncologists for cancer care 
under Medicare. As currently structured, however, the system of 
``average sales price,'' or ASP, does not ensure that all physicians 
can purchase chemotherapy drugs without suffering financial loss that 
threatens the access of patients to some therapies.
    In September 2005, the HHS Office of Inspector General (``OIG'') 
issued a report finding that reimbursement for drugs under the ASP 
system was ``generally adequate.'' The report found that, for 35 of the 
39 drug codes analyzed, the average amount paid for drugs was less than 
the Medicare reimbursement amount. For 4 of the 39 drugs, the average 
amount paid for drugs exceeded the reimbursement amount.
    The OIG's conclusion that reimbursement was ``generally adequate'' 
and its analysis based on average drug costs to physicians do not 
appropriately consider the many situations faced by particular 
physicians in which the Medicare payment amount does not cover the cost 
of the drugs. Although the OIG's conclusions did not highlight this 
problem, the report shows that for 17 of the 39 drugs reviewed, at 
least 20 percent of physicians incurred an out-of-pocket loss. Only 3 
of the 39 drugs could be obtained by all physicians at the Medicare 
payment amount or less. The OIG's conclusion fails to acknowledge that 
out-of-pocket losses are incurred by physicians in many circumstances, 
a situation that threatens access to care for some cancer patients. In 
some of those circumstances, practices are referring patients to 
hospital outpatient departments. We have received reports from ASCO 
members that, in some instances hospitals are not accepting those 
patients. This is a particular challenge to patients without secondary 
    To avoid the potential access problems created by this shortfall in 
Medicare payment, ASCO supports legislation that would ensure that the 
Medicare reimbursement amount is sufficient to cover what physicians 
have to pay to obtain drugs. Legislation introduced by Representative 
Ralph Hall, H.R. 5179, would create a floor for Medicare payment to 
ensure that it is not lower than the ``widely available market price.'' 
The Medicare statute is currently asymmetrical in that it allows the 
Centers for Medicare & Medicaid Services (``CMS'') to lower the payment 
rate when it exceeds the widely available market price but does not 
permit raising the payment rate when it is less than the widely 
available market price. This inconsistency should be rectified 
    The statute defines the widely available market price as ``the 
price that a prudent physician or supplier would pay.'' We believe that 
a physician who shops among the distributors of oncology drugs for the 
lowest price is a prudent buyer. If that physician cannot obtain a drug 
for the Medicare payment amount through that process, Medicare needs to 
revise the payment amount.
    H.R. 5179 would also exclude prompt pay discounts to wholesalers 
and distributors from the calculation of ASP. This change is analogous 
to the change in the definition of ``average manufacturer price'' that 
was enacted by section 6001(a)(2) of the Deficit Reduction Act of 2005 
(``DRA''). Under the DRA, average manufacturer price will be used 
beginning in 2007 to set the upper payment limit for reimbursement to 
pharmacies for drugs reimbursed by Medicaid.
    The DRA, however, excluded prompt pay discounts extended to 
wholesalers from the calculation of average manufacturer price of this 
purpose, presumably because pharmacies do not receive those discounts. 
The same principle should apply under Medicare Part B. Including prompt 
pay discounts received by wholesalers and distributors distorts the 
calculation and contributes to situations in which individual 
physicians are unable to obtain some chemotherapy drugs at or below the 
Medicare payment rate.
    We strongly support H.R. 5179 as a means of bringing Medicare 
payment into better alignment with market prices and thus avoiding 
access challenges for patients.
Payment for Related Services
    The MMA made some adjustments to payment for services but they were 
not sufficient to cover the cost of providing the full range of 
services required for comprehensive cancer care. Further legislative 
changes beyond those in MMA are required to recognize services not 
currently reimbursed by Medicare. In addition, CMS must revise the 
manner in which it is calculating the practice expenses associated with 
particular services.
Payment for Coordination of Cancer Care
    One very important payment reform is embodied in legislation 
introduced by Representatives Lois Capps and Tom Davis. Inspired by a 
series of recommendations from the Institute of Medicine (``IOM''), 
H.R. 5465 would establish a new Medicare service for comprehensive 
cancer care planning and coordination at the time of diagnosis, at the 
end of active treatment, or when there is a change in the cancer 
survivor's condition or care.
    The care planning service was recommended by the original IOM 
cancer care quality report in 1999, and the most recent report on adult 
survivorship issues in 2005 underscored the importance of coordination 
of care as the survivor moves from active treatment to a period of 
monitoring side-effects of treatment and possible second cancers. By 
paying oncologists for comprehensive care planning, the quality of 
cancer care will be enhanced, patient satisfaction will be boosted, and 
cancer care resources will be more efficiently utilized.
Practice Expense Relative Value Methodology
    ASCO continues to be concerned about the CMS methodology for 
determining practice expense relative values consistently with MMA. A 
CMS contractor, the Lewin Group, and the Government Accountability 
Office have both issued reports concluding that the CMS methodology of 
allocating practice expense relative values for ``indirect'' costs is 
biased against services that do not involve physician work. We believe 
that drug administration services, which are considered to involve 
little or no physician work, are adversely affected by the current 
methodology. CMS, however, has not revised its method of calculating 
practice expense relative values to remedy this bias.
    Our concern about the calculation of practice expense relative 
values has been heightened by the proposal published by CMS on June 29, 
2006. The MMA required CMS to use the supplemental survey of 
oncologists' expenses sponsored by ASCO to determine practice expense 
relative values. However, under CMS's proposal, surveys would no longer 
be used to determine the practice expense relative values attributed to 
the ``direct'' costs of clinical staff, supplies, and significant 
equipment. In addition, CMS is proposing to change the method of 
determining the practice expense relative values attributable to the 
``indirect'' costs of administrative staff and overhead. We do not 
believe that CMS has discretion to discount or disregard this survey 
data in determining practice expense relative values for drug 
administration services performed by oncologists.
    ASCO has just begun its analysis of CMS's proposed changes, but we 
are concerned about proposed decreases in payments for many drug 
administration services. For example, the practice expense relative 
value units assigned to the key service of a chemotherapy infusion 
(first hour) would decline by 13 percent. It is important that the CMS 
methodology result in appropriate payment amounts for drug 
administration services that are adequate to support the services and 
consistent with the intent of Congress in MMA. We urge this Committee 
to review carefully the CMS proposal and offer guidance to the agency 
regarding alternative approaches that will sustain necessary cancer 
care services.
Demonstration Projects and Quality Cancer Care
    The oncology demonstration projects administered by CMS in 2005 and 
2006 have provided additional resources to permit oncology practices to 
provide high quality cancer care. In addition, these projects have 
yielded useful data for assessing the quality of cancer care and 
contributing to quality improvement efforts. The current demonstration 
project assesses compliance with cancer guidelines, an initiative that 
holds promise not only for enhancing cancer care quality this year but 
also in guiding the development of future ``pay-for-performance'' in 
cancer care.
    ASCO is collaborating with CMS, other government agencies, patient 
advocates, and third-party payers in the Cancer Quality Alliance, a 
voluntary alliance that addresses issues of quality care in oncology. 
In this setting, it has been suggested by experts that the 
demonstration project will have value only if it provides sufficient 
longitudinal data to enable meaningful analysis and direction for 
future quality improvement efforts. We would urge the Committee's 
support for a multi-year extension of the demonstration project to 
enable collection of enough data to support well-informed quality 
enhancement initiatives.
Competitive Acquisition Program
    The MMA also enacted a Competitive Acquisition Program (``CAP'') 
under which physicians can obtain drugs from a Medicare contractor for 
specific patients, and the contractor is responsible for billing the 
Medicare program and the patient. One purpose of the CAP was to meet 
the needs of individual physician practices that, for whatever reason, 
find themselves unable to purchase drugs through traditional channels 
at acceptable prices. We believe there may be a legitimate role for the 
CAP, but as currently configured, there are still significant issues 
that need to be addressed with the program.
    A primary concern is the fact that the rules permit CAP vendors to 
terminate access to drugs for patients who fail to pay their 
coinsurance within 45 days. This provision is an unexpected and 
unwelcome burden for cancer patients. Oncologists in practice 
frequently face the necessity to deal with unpaid coinsurance, 
sometimes absorbing the loss, sometimes extending payment terms, and 
sometimes referring patients to charitable organizations. All these 
options are open to CAP vendors, and they should not be absolved from 
those options any more than oncologists. Arguably, one of the reasons 
oncologists may avoid CAP is the potential harm to their patients from 
this provision, which should be revisited without delay.
    Another potentially inhibiting factor for oncologists is the 
failure of CAP to reimburse practices for the administrative costs 
associated with the program. Our members tell us that there would be a 
significant new administrative burden in dealing with the CAP 
contractor. Since there would be no additional reimbursement to cover 
these costs, that factor may be discouraging for practices as they 
decide whether to enroll in the program.
    Other issues of concern include the rule that a physician may not 
transport CAP drugs from one practice location to another. This rule 
can interfere with the operation of practices with multiple offices. 
Also, the CAP rules establish a vague negotiation process for the 
physician and the CAP vendor to work out the disposition of unused 
drug. It would probably encourage enrollment in the CAP if this process 
were clearer.
Patient Coinsurance
    Patient coinsurance is an issue not just in CAP but also in Part B 
generally. Cancer drugs can be very expensive, and the 20 percent 
coinsurance can amount to many thousands of dollars for a course of 
treatment. Patients who lack secondary or supplemental insurance are 
often hard pressed to pay the coinsurance involved.
    In a report issued by the Medicare Payment Advisory Commission 
(``MedPAC'') in January 2006, however, MedPAC noted that patients who 
are unable to cover their coinsurance are increasingly being referred 
to hospitals. Medicare pays 70 percent of the bad debt incurred by 
hospitals. MedPAC also stated that it plans to study long-term 
solutions to this problem.
    ASCO agrees with MedPAC that this problem needs to be addressed. 
Although the 20 percent coinsurance requirement is appropriate for many 
types of services covered by Medicare, it is frequently an unreasonable 
burden on cancer patients who are treated with state-of-the-art 
medicines. Congress should resolve this issue by eliminating, or at 
least significantly reducing, the patient burden of coinsurance for 
Part B drugs.

                               * * * * *

    As the issues raised in this hearing amply reflect, Medicare 
reimbursement for cancer care is as complex and challenging as ever. 
ASCO has provided its members a wide range of tools and services to 
help them adjust to this rapidly changing environment. Among these are 
the Quality Practice Oncology Initiative, practice management 
workshops, practice guidelines, and a hotline for Medicare policy 
questions. We are happy to share information about these and other 
similar efforts at a later time.
    There remain many potential pitfalls before we achieve a 
reimbursement system that ensures comprehensive quality cancer care. We 
appreciate the Committee's interest in scheduling this hearing and are 
committed to working with you to continue improvements in reimbursement 
and quality of care for the benefit of our patients.


    Chairman JOHNSON OF CONNECTICUT. Thank you. Ms. Boyle.


    Ms. BOYLE. Chairwoman Johnson, Ranking Member Stark and 
Members of the Subcommittee, thank you for inviting me today to 
testify on behalf of patients who depend on intravenous 
immunoglobulin, or IVIG, for their very lives. I would like to 
especially thank Congressman McCrery for his long-time support 
of our patient community. As president of the Immune Deficiency 
Foundation, I represent approximately 50,000 patients across 
America who need IVIG as their only lifesaving therapy. 
However, today, I am speaking on behalf of all patients who 
need IVIG.
    My son John is one of those patients. He was born without 
the ability to produce antibodies. Fortunately, he receives 
IVIG, a plasma-derived therapy, every 3 weeks to replace this 
essential component of his immune system. How good is this 
treatment? At 28 years old, with regular infusions of IVIG, he 
is married, has a demanding career and is a healthy and 
productive member of society. Meeting him and others like him, 
you would never know there was a problem. Without this therapy, 
he would probably not be alive or he would be severely 
disabled. IVIG prevents infections in the immune-compromised, 
and there is no alternative therapy. The thought of his not 
having access to IVIG is a nightmare. Unfortunately, patients 
have been living this nightmare and are in despair. When the 
new ASP formula went into effect on January 1, 2005, my office 
started hearing from several thousand Medicare patients and 
physicians who could no longer receive or administer IVIG 
because physicians could not afford to continue treating at the 
reduced Medicare rates.
    During 2005, many of the Medicare patients were shifted to 
hospitals, away from their physicians, their trained nurses and 
their usual brand of IVIG, and many suffered serious reactions 
to different brands. Some were hospitalized and many had 
increased infections. When you think about it, the worst place 
for an immune-compromised outpatient is in the hospital exposed 
to infections. In fact, I believe it is the most expensive site 
of therapy. Patients who were not successfully transferred to 
hospitals were denied access to IVIG altogether, particularly 
those without Medigap or secondary insurance. We don't even 
know what has become of many of these patients. Those that we 
do know of have been seriously ill.
    Working with other concerned groups last year, we advocated 
for access in all sites of care and begged Congress and CMS to 
not reduce the reimbursement rates for the hospitals to the 
levels of the physician outpatient setting because that would 
remove the last site of care. However, on January 1, 2006, 
hospitals were also switched from the AWP to the ASP formula. 
Although we hoped our predictions would not be true, many 
hospital outpatient clinics have stopped treating with IVIG 
because it is too costly to continue treating. Patients in some 
States have been particularly devastated, particularly those in 
Texas, Nebraska and Florida, where few hospitals remain that 
treat with IVIG. The impact of Medicare reimbursement doesn't 
stop with Medicare patients. In recent months, we have heard of 
more private insurance carriers reducing their rates to those 
of Medicare, now endangering the lives of children. While the 
medical details are different, the medical outcome is the same 
as taking chemotherapy away from a cancer patient or insulin 
away from a diabetic.
    The HHS Blood Safety Advisory Committee in May of 2005 
recommended that the Secretary declare a public health 
emergency to restore access to IVIG. He did not. Sadly, Pam 
Way, one of the patients who testified about losing access to 
IVIG and literally begged for her life, has died as a result of 
this situation. In September of 2005, the advisory Committee 
once again recommended that the Secretary declare a public 
health emergency. In response to the two recommendations, 28 
Members of Congress sent a letter to Secretary Leavitt 
requesting that he declare a public health emergency. Once 
again, IVIG access was not restored.
    A few weeks ago, 58 Members of Congress sent a letter to 
Secretary Leavitt requesting that he declare a public health 
emergency. I thank Congressmen McCrery and Foley for their 
leadership in this effort, as well as the Members of the 
Subcommittee who signed onto this letter. It is truly a 
national disgrace that this problem has persisted for more than 
a year and a half and government has done nothing to restore 
access to our patients. Members of this Committee, how many 
more patients have to suffer, how many more patients have to 
die, for the government to recognize this public health 
emergency? I implore the Committee to take emergency action 
today to restore access to IVIG in all sites of care. Please 
end the nightmare that has devastated our community. Once 
again, thank you for including the problem of IVIG in today's 
    [The prepared statement of Ms. Boyle follows:]
  Statement of Marcia Boyle, President, Immune Deficiency Foundation, 
                            Towson, Maryland
    Chairwoman Johnson and Members of the Subcommittee, thank you for 
inviting me to testify on behalf of patients who need Intravenous 
Immunoglobulin replacement in order to stay alive. I would like to 
specially thank Congressman McCrery for his long-time support in 
helping to improve the lives of patients with primary immune deficiency 
diseases. Please know that although I represent the primary immune 
deficiency community, today I am speaking on behalf of all patients who 
require IVIG as their lifesaving therapy.
    As president of the Immune Deficiency Foundation, I represent more 
than 50,000 patients across America who need IVIG as their only 
lifesaving therapy. My son is one of these patients. Like other PID 
patients, he was born without the ability to produce antibodies. He 
receives IVIG every three weeks to replace this essential component of 
his immune system. How good is the treatment? At 28 years old, with 
regular infusions of IVIG, he is married, has a demanding career, and 
is a healthy and productive member of society. Without this plasma-
derived therapy, he would not be alive, or would be kept alive through 
antibiotics fighting infection after infection, and be severely 
disabled with a poor quality of life. IVIG prevents infections in the 
immune-compromised. There is no alternative therapy. The thought of his 
not having access to IVIG would be an unacceptable nightmare.
    Unfortunately, many patients have been living this nightmare. Since 
January 2005, IDF has received thousands of calls, emails and letters 
from Medicare patients and physicians, who have not been able to 
receive their IVIG infusions at their physicians' offices, outpatient 
infusion suites, home care settings and hospitals. About 20% of our 
patients are on Medicare. During 2005, many of the Medicare patients 
were shifted to hospitals where many were admitted for 23 hours and 
most were not receiving the most appropriate brand of IVIG, but rather, 
the brand the hospital had accessible. Patients who had not been 
successfully transferred to hospitals, especially those who did not 
have Medigap or secondary health insurance policies, were denied access 
to IVIG altogether. Here is a quote from a physician in New York the 
sums up the flavor of our calls in 2005: ``I cancelled all of my 
Medicare patients. The price of IVIG has increased and I can no longer 
sustain the loss. I do not know what to do and I am in total despair.''
    We received a call from a patient in Missouri, typical of many 
others, who said: ``I am an 81 year old Medicare PID patient--I am sick 
all the time, and am not sure if I will be able to live long enough to 
get my next infusion. I had an infusion scheduled at the hospital. As I 
was leaving for the hospital, they called to cancel my appointment. 
They told me that they will not be able to infuse me. Can you help 
    It does not make sense to move a primary immune deficient patient 
out of a closely monitored infusion suite, physician's office, or home 
care environment--with nurses who are trained in the administration of 
IVIG--to a hospital where an immune-compromised patient can be exposed 
to an opportunistic infection. I cannot believe it was any 
policymaker's intention to shift all patients to hospitals, which is, 
in fact, the most expensive site of care.
    IDF and other groups spent a great deal of time communicating to 
Congress and CMS the devastating impact of Medicare Reimbursement 
reductions on our community. IDF conducted a national survey of 
Medicare patients, which provided quantitative data on the impact of 
the reimbursement changes. 39% of these patients had problems because 
of reimbursement, and 40% of these patients suffered negative health 
outcomes as a result of reimbursement.
    We begged that the reimbursement rates for the hospitals not be 
reduced as dramatically as they had for the physician outpatient 
    However, on January 1, 2006, hospitals were also switched from the 
AWP to the ASP formula. Even faster than expected, many outpatient 
hospital clinics eliminated IVIG infusions to patients because it was 
too costly to continue treating at the current reimbursement rates. CMS 
did implement a temporary preadministration fee for the physician's 
office and hospital, but it was not enough to offset the reduction in 
reimbursement from the ASP formula and the reduced administration fees.
    Patients in some states have been devastated. For example, the 
state of Nebraska has only one hospital treating on an outpatient basis 
with IVIG; the state of Florida has a handful of hospitals left, and in 
the state of Texas, most Medicare patients in Dallas, Houston and 
Irving cannot receive IVIG in a hospital. We have reports of patients 
not receiving IVIG since last November. Without IVIG they will 
eventually become disabled and die prematurely.
    The impact of Medicare reimbursement does not stop with Medicare 
patients. During the past year, we have heard of more private insurance 
carriers reducing their reimbursement rates to those of Medicare--with 
even children being denied therapy! Our patient community has always 
dealt with an unusual burden of insurance problems because of the 
nature of their chronic illness and the cost of the expensive 
therapies--but the recent changes are unnecessarily devastating.
    While the medical details are different, the medical outcome is the 
same as taking chemotherapy away from a cancer patient or insulin away 
from a from a diabetic. IVIG has been taken away from patients who will 
die without it. Are these patients not important to our society?
    I am going to share a story of a patient who was personally 
affected by the changes to reimbursement after being denied access to 
IVIG. Her name is Pam Way. I met Pam at the Department of Health and 
Human Services Advisory Committee on Blood Safety and Availability 
meeting last May 2005. Pam had Chronic Inflammatory Demyelinating 
Polyneuropathy (CIDP) and Myositis, disorders for which IVIG is 
recognized as medically indicated. When Pam was treated with IVIG, she 
was walking and fairly healthy. But when the Medicare Modernization 
bill was enacted, she was shifted from her doctor's office to the 
hospital. At the hospital, she was unable to get the brand of IVIG that 
she required. In addition, she could not receive her infusions on a 
regular basis.
    Patients with immune problems require brand-specific IVIG, because 
each product is different. Patients treated with brands their bodies 
don't tolerate can suffer life-threatening anaphylactic reactions. I 
once saw my son collapse after receiving a new product. Product choice 
for IVIG is critical for patients.
    Congress understood this and exempted IVIG from the competitive 
acquisition program. Although it was Congress' intent to ensure that 
patients have access to all brands of IVIG, the opposite has occurred, 
because the reimbursement rate for IVIG is too low.
    Due to the changes in reimbursement, Pam stopped receiving her IVIG 
infusions on a regular basis and her health deteriorated to the point 
that she was becoming nonfunctioning. Eventually, it took all the 
strength she had, when she appeared in a wheelchair to speak before the 
Advisory Committee in May of 2005. She literally begged for her life. 
The Committee recommended that the Secretary declare a public health 
emergency. Pam was one of thousands of patients across the country that 
was too sick to fight for themselves, but she tried.
    Although the Committee tried to help, Secretary Leavitt did not 
take action. Last year, a letter signed by 28 Members of Congress was 
sent to Secretary Leavitt requesting that he declare a public health 
emergency. Once again, nothing happened. A few weeks ago, 58 Members of 
Congress sent a letter to Secretary Leavitt requesting that he declare 
a public health emergency. I would like to thank Congressman McCrery 
and Foley for their leadership on this effort, as well as the Members 
of this Subcommittee who signed on to this letter, which include: 
Congressman Camp, Congressman Ramstad, Congressman English and 
Congressman Hayworth.
    In the meantime, the public health emergency has not been declared, 
reimbursement remains inadequate and Pam never got the continuity of 
treatment she needed. Pam was only able to receive IVIG when she was 
admitted to the intensive care unit and it was too late. Pam died in 
April of this year. And we will have more deaths while the government 
continues to study the problems of the marketplace and supply.
    When will someone say that the lives of these patients are 
important? We continue to share stories of patients suffering, but no 
one takes action to restore access to IVIG.
    Even with the newest reimbursement rate increases effective July 1, 
only one immune globulin brand will become affordable and available to 
some patients.
    It is a national disgrace that this problem has persisted since 
January 2005, and nothing has been done to help save these patients 
lives. The long-term effects to patients who were already on disability 
or elderly are immeasurable.
    Chairwoman Johnson, how many more patients have to suffer, how many 
more patients have to die to acknowledge the public health emergency 
that has been allowed to continue since January 2005?
    I implore of the Subcommittee today, to take emergency action to 
restore access to IVIG.
    Once again, thank you for including the IVIG patient community in 
today's hearing.


    Chairman JOHNSON OF CONNECTICUT. Thank you, Ms. Boyle. Mr. 

                       ELMSFORD, NEW YORK

    Ms. FRIEDMAN. Chairman Johnson, Representative Stark and 
distinguished Members of the Subcommittee, I am Richard 
Friedman, Chairman and CEO of BioScrip. Thank you for the 
opportunity to testify today on the Medicare part B Competitive 
Acquisition Program. As the sole vendor for this program, we 
believe that BioScrip's testimony will provide the Subcommittee 
with insight into the CAP program.
    My testimony today will focus on CAP implementation and 
structural barriers to physician election and proposed 
solutions. BioScrip provides pharmaceutical care solutions with 
a primary focus on specialty medication distribution and 
clinical management services. Our specialty medication 
distribution services include condition-specific clinical 
management programs to improve the care of individuals with 
complex health conditions such as HIV/AIDS, cancer, Hep-C, 
rheumatoid arthritis, hemophilia, MS, transplantation or 
conditions requiring immunosuppressive medications.
    Through our National mail order facility and 31 community 
pharmacies in 26 U.S. cities, BioScrip provides local specialty 
pharmacy and infusion support to patients and prescribers. We 
partner with healthcare payers, pharmaceutical manufacturers, 
government agencies and physicians to manage patient outcomes 
and control costs. Since the CAP began, BioScrip has shipped 
354 drug orders to 41 physicians throughout the United States. 
We have made a significant initial investment in new 
infrastructure and physician education initiatives and have 
been closely working with CMS. We have created a list of drug 
assistance programs and foundations to support Medicare 
beneficiaries who cannot afford the 20 percent copayment.
    Since being announced as a sole CAP vendor, BioScrip has 
been working hard to make sure the transition is smooth for 
both physicians and beneficiaries. The July 1, 2006, 
operational startup was successful. However, there are several 
structural challenges that we believe is part of the reason for 
which physicians have not enrolled. In March 2006, BioScrip, 
along with other vendors, were offered the CAP contract. 
BioScrip believed, based on our expertise in management and 
distribution of specialty medications, the CAP program was a 
good fit. BioScrip was already involved in similar programs in 
the private sector.
    BioScrip's bid was less than ASP plus 6 percent and a final 
rate of ASP plus 4.4 percent was offered to BioScrip by CMS 
based upon the competitive pricing process. To prepare for the 
CAP implementation, BioScrip made significant investments. We 
retained 90 new dedicated people in operations to support an 
estimated 2,000 physician practices. We recovered accruement 
fees for these hires. We utilized 55 sales professionals to 
educate physicians across the United States. We developed 
educational support, including print and media, and we invested 
in facility upgrades.
    We believe that many physicians still have unanswered 
questions regarding the benefits of the CAP. Educational 
outreach needs to continue by CMS, Noridian and BioScrip. 
BioScrip has made physician education and outreach a priority 
in its implementation strategy. To date, we have contacted 265 
national, regional and State associations and related 
organizations and 19,182 physicians. We have faxed 34,000 
physician practices and e-mailed 25,000 physicians. We met with 
45 pharmaceutical manufacturers, either in person or by phone, 
and established a toll-free BioScrip CAP information specialist 
call center. We developed a dedicated CAP page on BioScrip's 
Web site. We hosted two audio conferences to present a program 
to 400 physicians and we continue to provide ongoing physician 
support for election and operational issues.
    Chairman JOHNSON OF CONNECTICUT. Mr. Friedman, I neglected 
to say your entire statement will be submitted for the record, 
but the opening statements are 5 minutes. If you could kind of 
move more rapidly through your last couple of pages.
    Ms. FRIEDMAN. Sure. To go through what we believe are the 
barriers and the solutions for them, first is a lack of on-site 
inventory. The physician orders for CAP drugs are patient-
specific and have to be made in advance. Physicians complain 
that this system allows for limited flexibility to adjust 
treatment to shifting disease states or accommodate 
unanticipated therapeutic needs. Our solution is to supply 
physicians' offices with limited inventory to meet emergency 
therapy changes.
    The second barrier is the requirement to ship to the site 
of drug administration. Our solution is to permit shipments to 
multiple locations designated by the physician.
    The third barrier is the added billing requirements for the 
physician. Our solution is to simplify the physician billing 
practice. Physicians would bill for the administrative fee only 
and not have to change their billing systems, and we could 
monitor that program.
    The fourth barrier is the physician concern over co-pay. 
Our solution is to give physicians the option to support the 
copay for non-paying beneficiaries on a patient-specific basis.
    Finally, the last barrier is physician education as to the 
benefit of the CAP program within the limited election period. 
Our solution is to continue the education and allow for an open 
enrollment period for physicians.
    In closing, BioScrip would like to once again thank the 
Subcommittee for this opportunity to testify. We have made a 
significant financial investment to ensure the success of this 
program. Based upon the small number of physicians that have 
initially enrolled, we will not recognize a return on our 
investment. We firmly believe that CAP can be a successful 
long-term program, as proven in the private sector. I believe 
that in coordination with CMS and Congress, we can make this a 
reality. Thank you for your time.
    [The prepared statement of Mr. Friedman follows:]
      Statement of Richard Friedman, Executive Chairman, Bioscrip,
                           Elmsford, New York
    Chairman Johnson, Representative Stark, distinguished members of 
the Subcommittee, I am Richard Friedman, CEO of BioSCrip, Inc. and my 
esteemed colleague to my right is Russ Corvese, BioScrip's Senior Vice 
President of Operations. We would like to thank you for the opportunity 
to testify today on the Medicare Part B Competitive Acquisition Program 
(CAP). As the sole vendor for this program that was launched just 13 
days ago, BioScrip's testimony will provide the subcommittee with 
insight into the CAP program and some of our early successes and 
    My testimony today will focus on four topics:

      Benefits of the CAP for Medicare beneficiaries and 
      CAP implementation dates and entities involved
      CAP structural barriers to physician election and 
solutions to improve the CAP
      Financial implications to the vendor

    BioScrip, Inc. provides pharmaceutical care solutions with a 
primary focus on specialty medication distribution and clinical 
management services, and pharmacy benefit management services. Its 
specialty medication distribution services include condition-specific 
clinical management programs to improve the care of individuals with 
complex health conditions, such as HIV/AIDS, cancer, hepatitis C, 
rheumatoid arthritis, hemophilia, multiple sclerosis, and 
transplantation, or conditions requiring immunosuppressive medications. 
Through 31 community pharmacies in 26 U.S. cities, BioScrip provides 
local specialty pharmacy and infusion support to patients and 
prescribers. It partners with healthcare payors, pharmaceutical 
manufacturers, government agencies, and physicians to manage and 
control costs.
    We appreciate this opportunity to testify on the Medicare Part B 
CAP and its role in providing savings for the Medicare program and 
beneficiaries, while maintaining access and easing the burden on 
physicians. We applaud Congress for authorizing this important new 
program as part of the Medicare Modernization Act of 2003 (MMA). In 
less than two weeks since the CAP began, BioScrip has already shipped 
113 drug orders to 26 physicians. We made a significant initial 
investment in new infrastructure and physician education initiatives 
and have been closely working with the Centers for Medicare and 
Medicaid Services (CMS) and the designated CAP carrier, Noridian, to 
resolve any technical issues that impact the CAP. We have created a 
list of drug assistance programs and foundations to support Medicare 
beneficiaries who cannot afford the 20% co-payment. Since announced as 
the sole CAP vendor, BioScrip has been working hard to make sure the 
transition is smooth for both physicians and beneficiaries. We believe 
that the July 1, 2006 operational start up was successful; however, 
there are several structural challenges that will need to be addressed 
before developing the CAP into a real alternative to the ``buy and 
bill'' system, as provided by the statute.
    The MMA established a new methodology for Medicare Part B 
reimbursement of most covered drugs. Effective January 1, 2005, 
reimbursement to physician practices for drugs was changed from 95% of 
the average wholesale price (AWP) to 106 percent of the average sales 
price (ASP). The MMA also mandated the implementation in 2006 of a 
competitive acquisition program (CAP) for part B drugs and biologicals, 
as a second step in reducing Medicare overpayments. The program would 
represent an alternative to the ``buy and bill'' system for acquisition 
of drugs administered in physician offices. More specifically, the CAP 
has the potential to:

      Eliminate manufacturer incentives that increase the 
spread between Medicare payments and the physician purchase price
      Eliminate overspending Medicare's limited resources
      Reduce costs for Medicare beneficiaries who are 
responsible for a 20% copayment of the total cost
      Reduce time and resources utilized by physician practices 
for drug acquisition
      Reduce physicians' administrative costs and financial 
liability by moving the responsibility to collect beneficiary 
deductibles and coinsurance from the physician practice to the CAP 
    CMS published the CAP proposed rule in March 2005, followed by the 
interim final rule on July 6, 2006. The initial vendor bidding process 
was cancelled before the scheduled deadline (August 5, 2005) and the 
program start was delayed. On November 21, 2005 CMS published some 
final CAP provisions as part of the final rule on the 2006 physician 
fee schedule. The CAP vendor bidding process closed on December 22, 
2005. In late March 2006, CMS offered CAP contracts to five vendors. On 
April 21, 2006, CMS officially announced BioScrip as the sole CAP 
vendor. The initial physician election period was scheduled for May 8--
June 2, 2006 and subsequently extended through June 30, 2006. BioScrip 
started shipping CAP orders on June 28, 2006, for a July 1, 2006 
program start date.
    The CAP reimbursement rate of 104.4% of average sales price (ASP) 
was driven by competition among the five bidders who were offered CAP 
contracts. However, BioScrip, the only CAP vendor, bore the entire 
burden of program implementation and the lion share of physician 
education and outreach.
    Based upon estimates of 2,000 physicians electing to participate in 
the CAP, we made a significant initial investment in new infrastructure 
and physician education initiatives and have been closely working with 
CMS and Noridian to resolve technical and operational issues. BioScrip 
has created a list of drug assistance programs and foundations to 
support Medicare beneficiaries who cannot afford the Medicare part B 
cost-sharing (deductible and 20% co-payment). Since announced as the 
sole CAP vendor, BioScrip has been working hard to make sure the 
transition is smooth and does not affect beneficiaries' access to 
prescription drugs.
To prepare for the CAP, BioScrip has invested significantly in 
        infrastructure and human resources:

      Retained up to 90 dedicated people in operations to 
support an estimated 2,000 physician practices
      Incurred recruitment fee for 90 individuals
      Invested in technology
      Initiated sales initiatives across the U.S. utilizing 55 
sales professionals
      Developed marketing support including print and media
      Invested in facility upgrades (Columbus facility solely 
for the CAP)
      Expended executive time and travel to organize and 
promote CAP

    BioScrip understands that, given the short time frame allowed for 
physician CAP election, it is essential that physicians are properly 
educated and informed about the program before they decide if the 
program addresses their needs. The initial physician election period 
was restricted to 26 days, and then extended through the month of June, 
2006. BioScrip believes that many physicians and practices still have 
unanswered questions regarding the benefits of the CAP. Despite the 
regulatory mandate, the Medicare part B local carriers have been 
involved in minimal CAP educational activities. The outreach efforts of 
CMS and Noridian, we believe, need to significantly continue. BioScrip 
has made physician education and outreach a priority of its 
implementation strategy.
Physician education activities have been a priority for BioScrip and 

      Outreached and/or presented to 265 national, regional, 
state associations, professional societies and related organizations
      Outreached to 19,182 physicians via phone and/or in-
person meetings
      Faxed 34,000 physician practices
      E-mailed 25,000 physicians
      Met with 45 pharmaceutical manufacturers either in person 
or by phone
      Received over 2,000 Web Hits to BioScrip CAP web page
      Established toll-free BioScrip CAP Information Specialist 
Call Center
      Developed technical language on dedicated page on 
BioScrips web site
      Trained entire sales force/representatives regarding CAP 
and the benefits to physicians
      Created multiple educational materials utilized in 
initial CAP launch and physician outreach education
      Purchased physician list of approximately 40,000 names
      Provided ongoing physician support for election and 
operational issues
      Hosted two audio conferences to present the program to 
400 physicians, to educate on the operational process and answer 
practice questions

    Based on the actual physician election numbers received from CMS 
and Noridian, the physician participation levels came significantly 
below the expected program target of 1,500 to 2,000 physicians. 
BioScrip prepared for 2,000 physicians submitting orders on July 1, 
2006. To date, we have a total of 307 CAP physicians, with 664 practice 
locations. A breakdown of election numbers by specialty is provided in 
Appendix B. Physician specialties with the highest Medicare part B 
allowed charges--see Appendix B--are the least represented among this 
group. Physicians who joined the CAP repeatedly specified that they 
wanted to leave the ``buy and bill'' system and are happy with the 
reduced administrative burden.
    BioScrip appreciates that physician CAP election is essential to 
make CAP a viable alternative to the current ``buy and bill'' system, 
achieve savings for the Medicare program and beneficiaries. From 
discussions with physicians who would consider CAP but have not yet 
elected to participate, BioScrip has found that there are still 
structural barriers that affect physicians' decision to sign up for the 
CAP. Among the most frequently cited barriers are:
A) Lack of On-Site Inventory
    Unlike the ``buy and bill'' system, physician orders for CAP drugs 
are patient-specific and have to be made in advance. Many physicians 
complain that this system allows for limited flexibility to adjust 
treatment to shifting disease states or accommodate unanticipated 
therapeutic needs.
SOLUTION: Supply physicians' offices with limited inventory to meet 
        emergency/therapy changes
    Having an adequate drug inventory stocked in physician offices will 
provide needed flexibility and increase beneficiary access to the 
drugs. BioScrip is already using ``loaned inventory'' practices for its 
commercial side of the business, and could logistically accommodate 
this request. Drug orders will still be submitted for each patient, but 
the physician will use existing CAP drug stock for administration. 
BioScrip will follow-up and replace the drugs used.
    However, from a cash-flow perspective, BioScrip cannot afford to 
maintain this inventory in physicians' offices and wait to be 
reimbursed after the administration of the drug. One option to address 
this issue would be a pre-payment or advanced payment from Medicare 
that will then be periodically reconciled against submitted claims. 
This option would be budget-neutral. Other options include the creation 
of a supply fee that would allow BioScrip to accumulate the necessary 
capital to support this ``loaned'' inventory.
B) Requirement to Ship to Location
    The CAP vendor has a regulatory obligation to ship any CAP drug to 
the location where the drug is administered to the patient. Many 
physician practices have satellite locations opened only one or two 
days each week, to serve patients in rural or remote areas. These 
practices have expressed concern that shipping drugs to those locations 
will require additional resources and coordination to receive drugs and 
maintain inventory at multiple locations. Moreover, BioScrip has heard 
from physicians who have already enrolled in the CAP but did not 
realize they had to sign up for all locations.
    From the vendor's perspective, shipping to multiple locations and 
the need for additional coordination will increase costs. In addition, 
by having to ship and store multiple-use vials to more locations, the 
potential for drug waste--and BioScrip's financial liability--will 
SOLUTION: Drug-shipping to location selected by physician
    To implement the CAP as an equivalent alternative to the current 
``buy and bill'' system and ensure adequate and timely access to the 
drugs for Medicare beneficiaries, a similar process should be adopted 
to deal with physician practices with multiple locations. Thus, drugs 
would be shipped to the location chosen by the physician, including the 
practice central office, and then transported and prepared at the 
location of administration by the physician or other authorized health 
C) Burdensome Claims Processing
    Physicians are required to bill for the administration fee within 
14 days from the drug administration date. The claim would include, in 
addition to information about physician services provided, detailed 
information about the drugs administered (including unique identifiers, 
J-code and NCD code, and dosage) identical to the information submitted 
by the vendor in the parallel claim for the drug. Physicians are 
complaining that this process is increasing rather than reducing 
paperwork and that there is not sufficient time for physician offices 
to change their billing systems to accommodate the new requirements 
before the program start-up.
SOLUTION: Simplifying physician billing process
    One of the stated goals of the CAP is the potential to reduce 
physician practice administrative workload and associated costs. While 
we understand the need to implement upfront checks to allow CMS to 
match drug and physician service claims and eliminate fraud and abuse, 
this complex new process represents a significant burden for physicians 
and a barrier to enrollment in the CAP. Physicians would prefer to 
continue billing for the administration fee only and not have to change 
their billing systems to incorporate new information such as the unique 
identifier. CMS could continue to use audit and compliance programs 
implemented under ``buy and bill'' to ensure accuracy of claims and 
payments to both physicians and the CAP vendor.
D) Beneficiary Co-Pay Collection
    Medicare beneficiaries are, in general, responsible for 20% co-pay 
on part B drugs and biologicals. Under the CAP, responsibility for 
collecting co-pays will shift from physician practices to the CAP 
vendor, BioScrip. The CAP reimbursement rate set through competitive 
bidding results in a net CAP profit estimated at 1% or less. Thus, 
BioScrip will depend on co-pay collection to make sure it can continue 
as a CAP vendor. At the same time, physicians are worried that patients 
who cannot pay the 20% co-pay will be cut-off from the drug supply.
    BioScrip has been partnering with associations, foundations, and 
drug manufacturers to find solutions to help beneficiaries who cannot 
afford the co-pays. However, many physician practices are still 
concerned they will lose patients who are not eligible for these 
assistance programs.
SOLUTION: Physician option to offer cost-sharing support for co-pay for 
        non-paying beneficiaries
    Under the ``buy and bill'' system, many physician practices provide 
financial support for some of the beneficiary cost-sharing (co-pays and 
deductible), particularly for low-income beneficiaries. Under the CAP, 
beneficiaries will have expanded access to prescription assistance 
programs, but would no longer benefit from this support offered by 
their physicians. If co-pays remain unpaid despite access to assistance 
programs and attempts to schedule a payment plan with the beneficiary, 
the CAP vendor is allowed to stop providing CAP drugs for that 
particular beneficiary. Some physicians are worried about these 
situations and would like to see more flexibility in the co-pay 
collection process, such as an option given to the physician to offer 
cost-sharing support for these non-paying beneficiaries, similarly to 
the current practice.
E) Limited Physician Election Period
    The initial CAP enrollment period began May 8, 2006, two weeks 
after the CAP vendor was announced and 3 days before the first CMS 
conference call aimed at educating physicians about the new program. 
The first announcement about the CAP enrollment was sent to CMS 
physician listserv subscribers and posted on the CMS website on May 5, 
2006. CMS extended the initial election period until June 30, 2006, to 
allow more physicians to learn about the CAP and decide if they want to 
    BioScrip has made a significant upfront investment to prepare for 
the CAP implementation, particularly for education and outreach to 
physicians and physicians' practices. BioScrip found that one-on-one 
encounters were the most effective in educating physicians and 
physician groups about program operations and benefits. Since the 
potential pool of CAP physicians is about 40,000, these education and 
outreach efforts will take time and go beyond the extended enrollment 
deadline of June 30, 2006. At the same time, many physicians would 
apparently wait to see how the CAP works in the first month or so 
before making a decision about enrollment. The limited enrollment 
period will not allow these groups to participate in the CAP before 
January 1, 2007.
SOLUTION: Maintain open-enrollment period for physicians
    There is no ?hard' deadline in the statute that would limit the 
physician enrollment period. Adoption of an open enrollment period, at 
least for this first year of CAP implementation, would allow more 
physicians to sign up for the program and more time for education and 
    BioScrip has invested significant financial resources to ensure the 
success of this program. Based upon the number of the physicians that 
have initially enrolled in the program, BioScrip--or any vendor--cannot 
keep investing in the CAP where it will not recognize the return on 
investment. To continue these efforts, particularly physician education 
and outreach, BioScrip needs congressional support to remove barriers 
to physician election and ensure that the CAP is viable.
    In closing--BioScrip would like to once again thank the 
Subcommittee for this opportunity to testify on the newly implemented 
CAP program. We share the subcommittee's desire to eliminate excess 
cost and waste from Medicare and we strongly support the CAP, which we 
believe is a viable program that has the potential to save money while 
maintaining quality of care and beneficiary access to life-saving 
prescription drugs. Although I indicated a number of concerns and 
structural barriers to the CAP program--I believe that in coordination 
with CMS and the U.S. Congress--these current barriers can be 
immediately addressed and resolved. We are very committed to continue 
working with this committee, CMS, and all other germane partners to 
implement a viable CAP.
    If you have questions concerning BioScrip's written or verbal 
testimony, please do not hesitate to contact me or my Washington 
Legislative Counsel, the Dumbarton Group, for additional assistance.
    Thank You.
Appendix a--Important CAP dates

      December 2003--The Medicare Modernization Act (MMA) is 
passed; Provisions referring to the implementation of the CAP for the 
acquisition of part B drugs and biologicals are included in section 303 
      March 4, 2005--CMS releases the CAP proposed rule
      July 6, 2005--CMS releases the CAP interim final rule
      August 2005--Initial CAP bidding process cancelled
      September 6, 2005--CMS releases technical updates to the 
CAP interim final rule that changes the CAP implementation dates
      November 21, 2005--CMS releases some final CAP provisions 
as part of the 2006 physician fee schedule
      November 15--December 22, 2005--CMS accepts vendor bids 
for the CAP program
      March 31, 2006--BioScrip receives CAP award letter from 
      April 7, 2006--BioScrip signs the offered contract
      April 18, 2006--BioScrip is informed of sole vendor 
      April 19-20, 2006--BioScrip meets with CMS and Noridian 
in Baltimore
      April 24, 2006--BioScrip establishes a CAP help desk
      April 28, 2006--BioScrip starts creating CAP educational 
materials, website
      May 4, 2006--BioScrip starts making capital investments 
to prepare for the CAP
      May 5, 2006--Physician election period is announced on 
CMS physician listserv
      May 8, 2008--Initial physician CAP election period starts
      May 11, 2006--First CMS call on CAP for physicians
      May 31, 2006--First BioScrip call on CAP for physicians
      Early June--BioScrip starts one-on-one physician outreach 
      June 1, 2006--The new 90 BioScrip employees for the CAP 
start training
      June 2, 2006--Initial CAP physician election period ends; 
extended election period is announced
      June 2, 2006--BioScrip meets with CMS to discuss CAP 
structural and operational issues
      June 19, 2006--Second CMS call on CAP for physicians
      June 22, 2006--Second BioScrip call on CAP for physicians
      June 22, 2006--BioScrip receives the first physician 
election file (partial data)
      June 23, 2006--BioScrip starts making welcome calls to 
physicians (ongoing process)
      June 28, 2006--BioScrip starts shipping product to 
physicians' offices
      June 29, 2006--BioScrip receives the second physician 
election file
      June 30, 2006--Extended physician election period ends

              Appendix B--Number of CAP physician elections
                Specialty                     Number of CAP physicians
Allergy/Immunology                         69
Cardiology                                 6
Clinic or group practice                   1
Critical care                              5
Dermatology                                1
Endocrinology                              23
Family practice                            1
Geriatrics                                 1
Infectious disease                         4
Maxillofacial surgery                      2
Medical Oncology                           18
Neurological surgery                       19
OBGYN                                      1
Oncology                                   4
Ophthalmology                              77
Optometrist                                1
Orthopedic surgery                         6
ORL                                        27
Pathology                                  11
Plastic surgery                            1
Proctology                                 10
Psychiatry                                 3
Pulmonology                                1
Rheumatology                               14
Source: BioScrip physician election data, valid as of July 10, 2006.

    Medicare part B allowed charges for part B drugs and biologicals
                administered in physicians' offices, 2003
         Specialty group            Number of claims    Allowed charges
Oncology                           7,311,248           $5,647,268,606

Ophthalmology                      169,061             154,720,837
Psychiatry                         43,752              3,626,108
Rheumatology                       952,381             404,027,916
All other specialties              12,034,708          1,369,525,241
Source: CMS claims data, 2003. CAP Interim final rule, July 6, 2005.


    Chairman JOHNSON OF CONNECTICUT. Thank you very much. Dr. 


    Dr. ORANGE. Chairwoman Johnson and Members of the 
Subcommittee, I thank you for inviting me to testify as a 
practicing immunologist with expertise in the safe and 
effective administration of intravenous immunoglobulin, or 
IVIG. I am also currently the Chairman of the Primary 
Immunodeficiency Committee of the American Academy of Allergy, 
Asthma and Immunology, or quad A-I. The quad A-I is our 
country's largest professional organization for allergists and 
immunologists, with over 6,000 members. My clinical practice is 
limited to patients with primary immunodeficiency diseases, or 
    PIDs result from inherent defects in a patient's immune 
defense, leaving gaping holes that make the patient susceptible 
to recurrent, severe and unusual infections. Some of these are 
life threatening and others result in chronic deterioration of 
organ function, leading to disability and premature death. 
Fortunately, treatments have been developed for some PIDs, the 
crown jewel of which is IVIG. IVIG contains antibodies obtained 
from the plasma of thousands of volunteers to assure a broad 
array of protection for patients who have an inability to make 
useful antibodies of their own. The ability to safely and 
effectively provide IVIG to PID patients is essential for their 
survival and well-being.
    Immunologists across our country are deeply concerned that 
current reimbursement processes are endangering our patients. A 
recent membership-wide survey of the quad A-I ascertained that 
95 percent of respondents feel current reimbursement standards 
present risk to the health of patients with PIDs. As a result, 
the quad A-I has been firmly committed to understanding the 
issues underlying the current IVIG debate and working to 
provide physicians the necessary resources to ensure safe and 
effective therapy for their patients. As an example, this 
manuscript published in the Journal of Allergy and Clinical 
Immunology entitled ``Use of IVIG in Human Disease, a Review of 
Evidence By Members of the PID Committee of Quad A-I.'' Herein, 
we review the clinical evidence underlying the six FDA approved 
indications and nearly 100 off-label uses of IVIG. Some are 
supported by clinical evidence of the highest order, while 
others are only anecdotally supported or not supported at all.
    This document, however, is only a review of evidence and 
does not represent a prioritization of indications based upon 
medical necessity or lack of alternative therapies. To contend 
with these issues, my hospital convenes all specialties 
prescribing IVIG to prioritize usage based upon our inventory. 
We have over 30 indications for which we allow IVIG treatment 
and divide these into four categories of priority. These are 
based upon a combination of the clinical evidence underlying 
the indication, the therapeutic alternatives for that 
particular diagnosis and the seriousness and severity of the 
condition. I believe this type of assessment is essential to 
ensure that patients who most desperately require IVIG will 
receive it.
    Our published evidence review also does not comprehensively 
address the utilization of IVIG within specific indications. 
This issue requires careful consideration to prevent waste and 
will benefit from the development of indication-specific 
guidelines. The quad A-I has been addressing this from a PID 
standpoint. The quad A-I has also generated a site of care 
guideline. This effort reflects the complexity of administering 
IVIG to PID patients, which is a feature of it being a 
biological response modifier, or BRM. A BRM is defined by the 
National Library of Medicine as ``a treatment intended to 
stimulate or restore the ability of the immune system to fight 
infection and disease.'' This is exactly what IVIG does for PID 
    As currently the administration of IVIG is viewed as low 
complexity and is reimbursed using non-chemotherapy 
administration codes, as is saline and antibiotics, we fear 
that reformulated reimbursements will no longer support the 
safest and thus the most effective administration of IVIG to 
patients. Finally, as clinical research uncovers new uses for 
IVIG, it appears that utilization is on the rise. Thus, it is 
critical to continually reevaluate the appropriate use of and 
indications for IVIG to ensure that patients who will benefit 
the most from therapy and have the least therapeutic 
alternatives will have access. I speak for the quad A-I to say 
that as academic immunologists, we are grateful for the 
invitation to be heard today and for our opportunities to work 
with HHS. We look forward to working with your Committee and 
with HHS in the future to benefit the patients whose lives 
depend upon IVIG therapy. Thank you.
    [The prepared statement of Dr. Orange follows:]
      Statement of Jordan S. Orange, M.D., Ph.D., Chair, Primary 
Immunodeficiency Disease Committee, American Academy of Allergy, Asthma 
               and Immunology, Philadelphia, Pennsylvania
    Chairwoman Johnson and Members of the Subcommittee, I thank you for 
inviting me to testify as an academic clinical immunologist with 
expertise in the safe and effective administration of intravenous 
immunoglobulin (IVIG). I am a practicing physician scientist at the 
Children's Hospital of Philadelphia with an appointment as Assistant 
Professor of Pediatrics at The University of Pennsylvania School of 
    I am also currently the chairman of the Primary Immunodeficiency 
Committee of the American Academy of Allergy, Asthma and Immunology or 
AAAAI (``quad A-I''). The AAAAI is our country's largest professional 
organization for allergists and immunologists certified by the American 
Board of Allergy and Immunology, a sub-board of the American Board of 
Medical Specialties. The AAAAI has more than 6,000 members and has the 
goals of educating its members and the public to ensure the provision 
of safe and effective care to patients affected by allergic and 
immunologic diseases.
    My clinical practice is limited to patients with disorders of 
immunity and specifically those with primary immunodeficiency 
disorders. These diseases result from inherent defects in a patient's 
immune defenses resulting in gaping holes that leave a patient 
susceptible to recurrent, severe, and unusual infections. Some of these 
infections are life threatening in and of themselves and others result 
in chronic deterioration of organ function leading to disability and 
premature death. Fortunately, medical science has developed treatments 
for some of the primary immunodeficiency diseases, the crown jewel of 
which is IVIG. The criteria for primary immunodeficiency diseases (PID) 
diagnoses as well as the evidence underlying treatment with IVIG have 
been recently published in the Annals of Allergy, Asthma and Immunology 
as the Practice Parameter of the Diagnosis and Management of Primary 
Immunodeficiency, on which I am an author.
    IVIG are antibodies purified from the plasma of thousands of U.S. 
volunteers. I describe antibodies to my patients as unique ``sponges'' 
that float around in the bloodstream having the ability to ``soak up'' 
different types of infections. The large number of plasma donors is 
necessary to insure a broad array of antibody specificity for patients 
who have an inability to make specific antibodies of their own.
    The ability to safely and effectively provide IVIG to patients with 
primary immunodeficiency is essential for their survival and well-
being. Immunologists across our country are deeply concerned that 
current reimbursement processes are endangering our patients. In fact a 
recent membership-wide survey of the AAAAI (completed March 2006) has 
ascertained that 95% of the more than400 respondents feel current 
reimbursement standards present at least some risk to the health of 
patients with primary immunodeficiency diseases and more than half 
estimate this risk as serious or extreme.
    Building upon these concerns, the AAAAI has been firmly committed 
to understanding the issues underlying the current IVIG debate and 
working to provide prescribing physicians the necessary resources to 
ensure safe and effective therapy for their patients. I would like to 
highlight several of these efforts for you.
    The first is a manuscript published as a supplement to the April 
2006 issue of the Journal of Allergy and Clinical Immunology entitled: 
``Use of intravenous immunoglobulin in human disease: A review of 
evidence by members of the primary immunodeficiency committee of the 
AAAAI.'' This document, of which I am the lead author, reviews the 
clinical evidence underlying the six FDA approved indications and 
nearly 100 off-label uses of IVIG. These indications range from 
extremely rare conditions to those that are relatively common. Some 
indications are supported by clinical evidence of the highest order, 
while others are only anecdotally supported, or are not supported at 
all. This document, however, is only a review of published research and 
expert opinion. It does not represent a prioritization of indications 
based upon medical necessity or lack of alternative therapies. For 
example, toxic epidermal necrolysis is a very rare disease that is 
nearly uniformly fatal without IVIG therapy. As a result, high-quality, 
placebo-controlled trials of IVIG in this disease will never be 
possible. For these reasons these diseases will never be able to attain 
the highest strength of recommendation, but the utility of IVIG is the 
standard of care.
    To contend with these issues my hospital regularly convenes all 
medical services prescribing IVIG to prioritize our usage based upon 
our inventory. We have approximately 30 indications for which we will 
allow IVIG treatment and have divided these into 4 categories of 
priority. The prioritization is based upon a combination of: the 
clinical evidence underlying the indication; the therapeutic 
alternatives available for use in that particular diagnosis; and the 
seriousness and severity of the condition. I believe this type of 
assessment is essential to ensure that patients who most desperately 
require IVIG will receive it.
    Our published evidence review also does not comprehensively address 
the utilization of IVIG within specific indications. This issue 
requires careful consideration to prevent waste and will benefit from 
the development of indication-specific guidelines.
    In this light the AAAAI has developed an IVIG ``tool kit'' to 
address the specific use of IVIG in primary immunodeficiency. This 
document includes eight guiding principles for IVIG use. They are 
explained in the document in more detail, but are outlined here in 
    1) Indication--IVIG therapy is indicated as replacement therapy for 
patients with PI characterized by absent or deficient antibody 
production. This is an FDA-approved indication for IVIG, which all 
currently available products are licensed. 2) Diagnoses--There are a 
large number of PI diagnoses for which IVIG is indicated and 
recommended. This includes some with normal or abnormal total levels of 
IgG. 3) Frequency of IVIG treatment- IVIG is indicated as continuous 
replacement therapy for primary immunodeficiency. Treatment should not 
be interrupted once a diagnosis has been established. 4) Dose--IVIG is 
indicated for patients with primary immunodeficiency at a starting dose 
of 400-600mg/kg every 3-4 weeks. Less frequent treatment of use of 
lower doses is not substantiated by clinical data. 5) IgG trough 
levels--IgG trough levels can be useful in some diagnoses to guide care 
but are NOT useful in many and should NOT be a consideration in access 
to IVIG therapy. 6) Site of care--The decision to infuse IVIG in a 
hospital, hospital outpatient, community office, or home based setting 
must be based upon clinical characteristics. 7) Route--Route of 
immunoglobulin administration must be based upon patient 
characteristics. The majority of patients are appropriate for 
intravenous and a subset for subcutaneous therapy. 8) Product--IVIG is 
not a generic drug and IVIG products are not interchangeable. A 
specific IVIG product needs to be matched to patient characteristics to 
insure patient safety.
    Also included in the AAAAI IVIG ``tool kit'' is the IVIG site of 
care guideline. This document outlines certain criteria that should 
justify a patient receiving IVIG in a particular site of care. It was 
designed with primary immunodeficiency diagnoses in mind, but does 
apply to certain other diagnoses for which IVIG is indicated.
    Just as important, this effort also highlights the fact that 
administering IVIG to patients with PI can be a complex process. 
Certain patients require physician supervision during infusion and need 
a sophisticated approach to their treatment. This is an essential 
element of safe and effective clinical care and one that depends upon 
substantial expertise. In part, this relates to the role that IVIG 
serves as a biological response modifier (BRM). A BRM is defined by the 
National Library of Medicine and National Cancer Institute as: ``a 
treatment intended to stimulate or restore the ability of the immune 
system to fight infection and disease.'' IVIG is a BRM for patients 
with PI as it enhances the defective components of immunity to fight 
and protect against infection and complications of infection. In PI, 
and in other indications, IVIG also modifies aberrant immune response 
to protect, maintain and restore normal physiology to prevent disease. 
As is commonplace with BRM therapy, adverse events occur frequently, 
and the risk of severe adverse events (AEs) is real. For example, the 
FDA licensing studies of IVIG for patients with PI (for which all 
currently available IVIG products are licensed), include an occurrence 
of total AEs as high as in 72% of patients. There are also numerous 
severe AEs many of which are acute and include thromboembolism, 
hypotension, seizures, aseptic meningitis syndrome, anaphylaxis, acute 
respiratory distress syndrome (ARDS), pulmonary edema, apnea and 
transfusion associated lung injury (TRALI). All IVIG products also 
include a black box warning regarding acute renal failure. The 
incidence of moderate and severe AEs associated with IGIV infusions is 
not infrequent and is documented for one recently licensed product as 
34% and 8% respectively. If nothing more, this underlines the 
complexity of PID patients specifically who are being treated with 
    A reimbursement-related fear is that the reformulated strategy may 
no longer support the highest quality, safest and most effective 
approach to patients who require IVIG. Currently, administration of 
IVIG is viewed as low complexity and is reimbursed using non-
chemotherapy administrative codes. Given the aforementioned concerns, 
and what we as experts define as the standard of care this policy will 
fail to support proper practice. In fact it will not even meet nursing 
labor expense in many centers. Properly categorizing IVIG, as a high 
complexity administration and reimbursement using the chemotherapy 
administration codes will represent a substantial step in the direction 
of acceptable practice and patient safety. I hope the committee will 
support the comprehensive understanding of the requirements for safe 
and effective infusion to ensure the safety and well-being of our 
    Finally, as clinical research uncovers new uses for IVIG, it 
appears that utilization is on the rise. For these reasons it is 
critical to continually reevaluate the appropriate use of, and 
indications for IVIG to ensure that patients who will benefit the most 
from IVIG therapy and have the least therapeutic alternatives will have 
access. Thus, judicious use must be promoted and practiced now and in 
the future.
    I know I can speak for the AAAAI that as academic physicians we are 
grateful for the invitation to be heard today and for our opportunities 
to have worked with HHS. We look forward to working with your committee 
and with HHS in the future to benefit the patients whose lives depend 
upon IVIG therapy.


    Chairman JOHNSON OF CONNECTICUT. Thank you. Dr. Orange, to 
what extent does the problem reflect the expanded application 
of IVIG to other situations, to other medical problems?
    Dr. ORANGE. Well, it is actually hard to estimate to what 
extent that reflects the problem, because we actually don't 
know how the usage of IVIG is divided in this country. There 
really hasn't been an effective survey of indications and 
numbers vary widely. However, it is certainly very clear from 
the patient organizations that uses in indications that are not 
FDA approved are definitely increasing. Given how labor 
intensive the production of IVIG is, it is a catchup process. 
So, I think this does factor into it.
    Chairman JOHNSON OF CONNECTICUT. We don't track the off-
label uses and whether they are effective or not?
    Dr. ORANGE. We certainly track--there certainly is 
published research whether or not the off-label uses are 
effective. Some of them are extraordinarily effective, as 
proven by meta-analysis data, the highest level of medical 
evidence. What we don't know is how much of the total IVIG pool 
goes to these different indications. That is not in the public 
    Chairman JOHNSON OF CONNECTICUT. You say it is a labor 
intensive production drug. Do you think the supply is the 
    Dr. ORANGE. I think I would refer back to Mr. Kuhn's 
comments, which I think are very well placed, which is it is a 
very delicate balance--the production of the product and the 
distribution of the product. Once again, it is difficult to say 
where the problem lies, but there certainly are patients not 
receiving immunoglobulin who need it.
    Chairman JOHNSON OF CONNECTICUT. I must say, this 
Subcommittee has had repeated briefings on this situation over 
the years. I have never faced anything quite so frustrating. 
Ms. Boyle, it is terribly disappointing to hear that people 
have really died because our reimbursement structure seems to 
be failing. On the other hand, we haven't been able to really 
identify what is the supply problem, what is the payment 
problem and what is the role of these off-label uses. So, we do 
have some very good work going on now, and I hope we will be 
able to move forward. We have a lot of interest on the 
Committee. So, we will press hard. I don't want you to think we 
haven't been paying attention for a year. It has been very 
frustrating. Your testimony has been very helpful.
    Dr. Schnell and Dr. Bailes, Dr. Bailes, your organizations 
have about one-third of its members community oncologists. A 
lot of its members are academic oncologists and have a 
different perspective and a little different access. Do you see 
a difference between your community oncologist members' access 
to drugs at a price that they can afford that is under the 
    Dr. BAILES. Maybe I don't understand your question, Madam 
Chairman. You mean as far as the size of the practice, or the 
price of the drug? In my analysis of the OIG's report, at least 
half of the drugs they reviewed, there were at least 20 percent 
of physicians could not obtain them at the Medicare payment 
rate. We hear that repeatedly.
    Chairman JOHNSON OF CONNECTICUT. What I am asking you, 
since your organization includes a membership that is broader 
in scope, are you hearing from your community practice 
physicians a different concern, a greater concern, a more 
urgent and dire need than from your institutional providers?
    Dr. BAILES. I would say that is correct, but we also hear 
from institutional providers, too. Not to the extent we hear 
from community providers.
    Chairman JOHNSON OF CONNECTICUT. Dr. Schnell, you mentioned 
you have heard from community providers that they are actually 
closing satellite offices, shifting care of some patients that 
don't have coverage to the hospital. Some, I understand, are 
considering no longer caring for Medicare patients. Is this 
information that you are receiving from your members pre-
January of this year, post-January of this year, in the last 3 
months, as people have sort of looked at the system as it is 
developing? What are you giving us, anecdotal evidence that is 
just coming up now?
    Dr. SCHNELL. Madam Chairman, we began tracking this as a 
grassroots organization around the first of the year, so the 
majority of the anecdotes and stories and quotes that we have 
received and reports of these activities have been in 2006. I 
would contend and submit to you that the majority of the 
problems are because of the financial aspects of care that are 
ambient in 2006 and were actually not present last year. We 
lost, in terms of the outpatient treatment clinic income, we 
lost the entire demonstration project at the end of last year, 
plus we lost the 3 percent transition fee that has been already 
reported upon by Members of your Committee, plus factually we 
are seeing reductions, as you alluded to earlier, in services 
in aggregate because of the lack of these replacement codes we 
had anticipated for the last 28 months.
    Chairman JOHNSON OF CONNECTICUT. How do you respond to 
CMS's comment that they used your survey data and your survey 
data included the cost of pharmacy?
    Dr. SCHNELL. We have sent them our data approximately 3 
months ago and have had no response. I gather that is not an 
isolated experience, after sitting through this.
    Chairman JOHNSON OF CONNECTICUT. It is true that they used 
your data, and this was earlier on in the first round. It is 
separate from the coding process. We do need to know the extent 
to which that data did reflect pharmacy costs in the local 
    Dr. SCHNELL. Pharmacy cost data estimates come from an 
analysis of practices that we did internally, but they fit very 
nicely with what was reported in a recent immediate PAC study 
that is in their written testimony that estimates that to be 26 
to 28 percent in the State of Maryland.
    Chairman JOHNSON OF CONNECTICUT. Mr. McCrery.
    Mr. MCCRERY. Dr. Orange, before I get to you, Ms. Boyle, I 
want to say thank you for the work you do on behalf of 
immunodeficient patients. Your organization has certainly been 
at the forefront of bringing attention to this whole issue, 
and, were it not for your efforts, I suspect we wouldn't be 
nearly as far along as we are in addressing the problem. So, 
thank you.
    Ms. BOYLE. Thank you.
    Mr. MCCRERY. Dr. Orange, you seem to me to be particularly 
well situated to provide some insight into this problem, and 
yet your testimony is not very clear. You say, for example, 
that you prioritize; you meet, your staff meets, and you 
prioritize patients, I assume you are talking about from 
neediest to least neediest, and you start at the top I guess 
with your supply, and you give that to number one and number 
two until you run out. Is that basically what you do?
    Dr. ORANGE. It is a matter of prioritizing diagnoses, but, 
yes, exactly.
    Mr. MCCRERY. Why do you run out?
    Dr. ORANGE. Fortunately, we have not. I think that that is 
due to some particularly--first, we are a large institution. 
This is referring to my hospital. We have a good supply of 
immunoglobulin, but we have actually had to suffer some of the 
consequences of the current environment and we have had to 
actually change--my hospital purchases one product to try to 
make ends meet. We have exceptions for patients who need other 
products. We purchase one product in the majority, and we have 
had to change our product that we use twice in the past 12 
months, which requires increased precautions. As one of the 
immune deficient foundation surveys show, 34 percent of the 
adverse reactions that occur during IVIG administration, occur 
during a product change. We have had to go through this process 
with all of our IVIG patients twice in the last year.
    Mr. MCCRERY. Why have you changed products?
    Dr. ORANGE. We don't buy IVIG through a purchasing 
organization, we buy from a distributor. I cannot speak for our 
pharmacy department here--I am not involved with this, but the 
distributor has informed the pharmacy department that an 
adequate supply of the product we are purchasing will not be 
available. So, to make sure we will at least have----
    Mr. MCCRERY. You just buy another kind?
    Dr. ORANGE. Yes.
    Mr. MCCRERY. Well, have you pressed your pharmacy 
department to press your distributor for reasons why the kind 
that you like is not available?
    Dr. ORANGE. I certainly don't know about it. I think in 
some ways we are happy to have IVIG.
    Mr. MCCRERY. That would be helpful to this Committee, and 
you seem, again, particularly well situated to do that. Surely 
you have some relationship with your distributor, your pharmacy 
department has some relationship with your distributor. They 
spend a lot of money with them. So, use the marketplace to 
demand an answer. Why can't you--what is the reason that you 
can't supply what we prefer for our patients? See what they 
say. It would be nice if you could let us know, or let CMS 
know. Which gets me to my next question. Are you hopeful, let 
me rephrase that, of course you are hopeful. Do you believe 
that the two studies going on, one from the Office of Inspector 
General and the other from the Assistant Secretary for Planning 
and Evaluation of HHS, will bear fruit in terms of identifying 
the reasons for at least anecdotally spot shortages or 
shortages of one particular kind or another in the market and 
problems with reimbursement levels?
    Dr. ORANGE. I was very enthused by some of the studies that 
are ongoing and particularly look forward to the results of Mr. 
    Mr. MCCRERY. Have you been contacted by either HHS or the 
Office of Inspector General? Would you like to be?
    Dr. ORANGE. I think a dialog, ongoing dialog is essential. 
We have met with Mr. Kuhn before. I wasn't aware of his study 
per se, but I am thrilled to hear about it. With what he 
proposed, the one concern I do have is that we are not going to 
identify the specific administration costs of safely and 
effectively giving IVIG through that study; although it will 
give incredibly valuable information. Once again, for a variety 
of reasons, IVIG is reimbursed as a low complexity 
administration. With the reformulation of reimbursement you 
have to pay attention to how the different services are 
    Mr. MCCRERY. In your view, would that be a good solution to 
the reimbursement problem, to separate the cost of the drug 
from the complexity or time involved in administering the drug? 
In other words, do you have a separate payment to the provider 
for administering the drug?
    Dr. ORANGE. There already is an administration code that 
does support the provision of IVIG. It is just the way it has 
been classified as a non-chemotherapy administration, I fear 
that with everything being itemized at this point, that doesn't 
support the safe and effective administration. We at the quad 
A-I are working together with the Immune Deficiency Foundation 
to try to ascertain some hard objective data, but don't have 
that right now.
    Mr. MCCRERY. Well, it seems to me, Madam Chairman, we ought 
to write Mr. Kuhn or Dr. McClellan and advise them to contact 
Dr. Orange's organization, both the association and maybe his 
hospital, and seek their input. They have got some good data. I 
don't know why they haven't contacted you so far. What are they 
doing? Who are they contacting? Do you know, Dr. Orange?
    Dr. ORANGE. Through the quad A-I we actually have had 
dialog with CMS and it has been very----
    Mr. MCCRERY. You said that before. You said also you 
weren't aware of the study that HHS was doing. Okay. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Mr. Hulshof.
    Mr. HULSHOF. Thank you, Madam Chairman. I appreciate all 
the witnesses that are here, and I appreciate the Chairman 
bringing this issue forward. Again, I think it is because of a 
lesson that we learned after 1997 with the balanced budget 
agreement, in a bipartisan way, in fact, some of those probably 
here in the room who remember the markup, there were 39 Members 
of the full Committee back then in 1997, and the Medicare 
changes, if memory serves, passed by a 36 to 3 vote. The reason 
I remember is because I was a freshman and I remember 
everything that went on that first year that I was here.
    I think what happened, of course, as we look back at BBA 
was perhaps we weren't as diligent in overseeing those changes 
that were made, because it had some real difficult challenges, 
it provided real difficult challenges for a number of sectors, 
and I think Congress was slow to respond to those unintended 
consequences. That is why I think this is so important, 
because, again, with the Medicare Modernization Act, and as 
these changes are being implemented, it is important to do just 
what you have done, and that is provide us with the information 
and the follow up.
    Please let me suggest to you don't let today be the end of 
your journey, but, again as Mr. McCrery talked about, continue 
to provide us information. I would probably say, Mr. Schnell, 
as you were sitting through the first panel, you had to take at 
least some encouragement from at least the tone of questions 
from those of us up here, because as I look at Exhibit C of 
your testimony, which you call quotes, we call verbatim, what 
have you, it was as if I was, again, at the community cancer 
clinic in Columbia, Missouri, listening to some very dedicated 
individuals who said almost verbatim these same things. So, I 
appreciate the dilemma or where we are moving.
    Again, if we could make those changes. If Mr. Kuhn tells us 
in some aspects it doesn't take an act of legislation, but they 
can be done administratively, we will learn that as well. I do 
want to ask you, having sat through the previous panel, one of 
the suggestions you have made in your written testimony on page 
5 is to reevaluate existing drug administration payment codes. 
As you probably heard, I think not only Mr. Kuhn, but Dr. 
Miller said, and I know MedPAC actually in their report has 
shown an increase in the utilization of drug administration 
codes. So, are we saying the same thing, or help clarify then 
maybe what MedPAC or what Mr. Kuhn has overstated, if in fact 
they have overstated the use of these administration codes?
    Dr. SCHNELL. Yes, sir, I would be glad to speak to that. We 
believe that MMA held immense promise for our community. The 
problem is they didn't deliver in developing codes that address 
the magnitude, intensity and complexity of service that we 
provide. I have been asked to add that we are highly supportive 
of H.R. 4098, the Community Cancer Care Preservations Act, 
sponsored by your colleague Mr. Ramstad. We have 74 sponsors on 
that and it contains a majority of things we would like to see 
happen. I might also add that the exhibit to which you referred 
contains anecdotes from a small number of people. We have many 
more, but, I truly dare say that if I pulled any community 
oncologist that I know in any part of the country, we would 
come up with similar quotes.
    Mr. HULSHOF. I appreciate that. For the record, I think I 
misspoke earlier when I said Secretary Shalala in 1998 talked 
about the average wholesale price. I think it was actually the 
year 2000. I remember it had been an election year. I just 
remembered the wrong election. I remember visiting with our 
local cancer oncologists, or community oncologists too about 
the concern about even changing AWP to this new methodology. 
So, I appreciate that your organization agrees that something 
needed to be done, because obviously within AWP you were 
picking up the practice expense and you were dealing with, for 
instance, the very technical requirements for oncological 
nurses and technicians and what have you. I think this is--the 
intent, at least, is to have a better, more transparent system, 
so that you are reimbursed for the drugs adequately and that 
there is a practice expense specifically within this. Insofar 
as this is deficient, we hope to continue to have this dialog 
so that we can make whatever corrections are necessary. Again, 
I appreciate all of you being here today. Thank you, Mrs. 
    Chairman JOHNSON OF CONNECTICUT. Thank you. Dr. Schnell, I 
agree that it was the coding process that fell down, and I want 
Mr. Hulshof to know that it is part of that problem of the 
changes in medicine up against a very old law and a very old 
process. The idea of practice expense was kind of stuck in the 
old world of receptionists and nurses and delivering 
chemotherapy is much more of a clinic operation. It requires a 
lot more overtime capability, and we could never get that 
picked up, even though we worked hard on trying to get 
oncologists involved in that process. So, it was a 
disappointment. It is very hard to get back at it now, but that 
is something that I hope that as we get them focused on how the 
payments per treatment type have declined, we will begin to be 
able to get at that.
    Mr. Friedman, if you are going to get reimbursed at ASP 
plus 4.4 percent, what gives you confidence that you can 
deliver these drugs to community oncologists for under ASP plus 
6 or plus whatever they are going to get paid? How are you 
going to manage this problem that they won't get paid ASP plus 
6, they will get paid ASP plus 4 at the best, because they 
aren't going to get some of the discounts that bigger 
purchasers can get? How will you be able to serve them in a way 
that will actually save them money?
    Ms. FRIEDMAN. We actually don't manage that end of it. Our 
job is to deliver the product and then get reimbursed ourselves 
from CMS and the co-pay side.
    Chairman JOHNSON OF CONNECTICUT. I see. Of course.
    Ms. FRIEDMAN. So, we are not involved in the pricing part 
of what happens within the oncologist's office or any other 
specialist, or any other physician that signs up for the 
program. Our job solely is to make sure that the drugs are 
there for the patient.
    Chairman JOHNSON OF CONNECTICUT. You certainly had a lot of 
experience in this line of distribution, and I am glad someone 
is out there to try the CAP initiative, and it is surprising 
that only one vendor was willing to take it on. Dr. Bailes and 
Dr. Schnell, why don't you see this as a positive possibility? 
It eliminates your doctors' exposure to loss on the price of 
    Dr. BAILES. Well, ASCO does not have a formal position on 
the Competitive Acquisition Program. That is an individual 
practice decision. There are issues with it, Madam Chairman, 
that need to be addressed, we believe, in addition to the 
administrative issues that were mentioned. For instance, one is 
the ability of a vendor to seize shipment of drugs if a patient 
or cancer patient or any patient is 45 days or more late on 
payments. There is also the inability to take a CAP drug from 
one office to another for those practices that have multi-site 
jurisdictions, and patients are often treated in different 
sites in those areas. So, those we see are two major issues, in 
addition to the extra administrative activity in the practice 
that is required because the drugs are specific to the 
individual patient when they are shipped.
    Chairman JOHNSON OF CONNECTICUT. Mr. Friedman, do you care 
to comment?
    Ms. FRIEDMAN. I happen to agree. It is part of our 
testimony as well that we should be able to send drugs to where 
the physician wants, even in multiple locations. Part of the 
problem that we see is in the rural locations where the 
physician only attends that office maybe 1 day a week. How do 
you get the drugs there? There is no staff to accept the drug. 
So, having the drug sent to the main office and then carried 
there we see is not an issue as well. We appreciate the point 
on the co-pay. We are concerned about that as well. In past, I 
believe the physicians did have the ability to step in, if they 
wanted to, and we would like to open that up again.
    Chairman JOHNSON OF CONNECTICUT. Any other comments on the 
subject of the CAP program? Thank you very much for your 
testimony. These are difficult problems to work out, but I am 
glad to have heard all of the parties today and hope we will 
make some real progress over the next couple of months. Thanks. 
This hearing is adjourned.
    [Whereupon, at 3:35 p.m., the Subcommittee was adjourned.]
         Statement of J. Jay Baker, Greenbrier Oncology Clinic,
                        Lewisburg, West Virginia
    I am a board certified medical oncologist who has been in practice 
for thirty years, the last fifteen years as a solo practioneer in a 
rural community in West Virginia. There is a very large population of 
retirees here, which helps explain the fact that approximately seventy 
percent of my patients are insured through Medicare, many without co-
insurance. In the same medical complex there is a freestanding 
radiation therapy facility. Together, we provide what is felt by the 
community to be excellent cancer care. The nearest facility to offer 
this type of care is 55 miles away, while chemotherapy alone is offered 
a bit closer, 45 miles away in Virginia.
    Since January 2006 when the latest Medicare changes were put into 
full effect, I have lost money each and every month . . . totaling 
nearly $125,000 thus far. I can say that nearly all of this loss has 
come as a result of changes in reimbursement from Medicare, especially 
the underfunding of the administrative costs incurred when treating 
patients. I have tried to eliminate overhead as much as possible in 
hopes of finding a way to keep this office open. As you are aware, many 
offices are sending their Medicare patients to the hospital for 
treatment, but in this small community hospital, that is simply not an 
    As a consequence of the above, I am being forced to shut the doors 
to this office and close down my practice, thereby depriving this area 
of quality medical oncology service. I see no other way out of this. I 
do not believe that medical oncology can survive in a rural setting in 
the present circumstances, and I am a prime example of this. It is my 
hope that this committee will somehow see the errors of the present 
situation and take appropriate steps to correct them. It will, of 
course, be too late for this practice, but perhaps others can be saved 
and thereby continue to offer quality care to patients who don't happen 
to live near a population center or cannot afford to drive 50 miles one 
way to receive care. I know you have received reports of practices 
closing ``satellite'' clinics in some areas, but this is a report of 
one entire practice being forced out of business totally . . . and I 
dare say that I am not the first, nor will I be the last if Medicare 
remains unchanged.
    Thank you for you attention to this testimony.
    PS . . . I have not drawn a paycheck for the past month and a half!


   Statement of Steven H. Collis, AmerisourceBergen Specialty Group, 
                             Addison, Texas
    Madam Chairman and members of the Committee,
    AmerisourceBergen Specialty Group and its affiliates provide 
pharmaceutical services to pharmaceutical manufacturers and healthcare 
providers in the United States and Puerto Rico, and Canada. We 
distribute brand name and generic pharmaceuticals to various healthcare 
providers, including acute care hospitals and health systems, 
independent and chain retail pharmacies, mail order facilities, 
physicians, clinics, and other alternate site facilities, as well as 
skilled nursing and assisted living centers.
    At ABSG, our emphasis is bringing specialty pharmaceuticals from 
the manufacturer to the physician to the patient. We help manufacturers 
improve their product launches and expand their markets. We ensure that 
provider organizations receive the specialty products they need, when 
they need them most. We give physicians the resources that improve 
their practices and patients the medicines that improve their lives. In 
addition to delivering products, that means related services such as 
reimbursement and consulting services, logistics services, and 
physician education.
    In short, your hearing today is to examine the costs for physician-
administered drugs. That's something we know about because providing 
these drugs to physicians is what we do.
1. CAP Program Design Places Unrealistic Burdens
    The design of the program places unrealistic burdens on competitive 
access program providers (CAPs), burdens that have already discouraged 
entry by many prospective CAPs.
    Geographic Scope. The geographic area that each CAP must serve is 
too large. The additional requirement to serve U.S. territories imposes 
a significant burden with higher risk of co-pay issues. In order to 
enhance the likelihood that the CAP program will meet Congress' goals, 
we recommend you revise the requirements so that CAPs are only required 
to serve physicians in the 50 states and Washington DC.
    Inexpensive, Low-Margin Drugs. The CAP program tries to do too much 
and, in doing so, it forces too many low-cost drugs (for which 
physicians face relatively less economic risk) into the program. While 
the average bid NDC was about $280.00, the median bid NDC was only 
about $59.00. If there were an average 6% gross profit, that would mean 
the CAP would have gross margins less than about $3.50 on one-half of 
its products. That is not adequate. We recommend that you eliminate any 
NDC with reimbursement under $200.00.
    Risk of Unprofitable Orders. The cost to process and ship an order 
will vary by the size of the order but, on average, it will be 
proportionately more for small-dollar orders. We recommend that you 
establish a minimum size for all orders, at least $15,000.00 for 
oncology drugs and $5,000.00 for all others. Additionally, we recommend 
that you allow CAPs to establish a per-order charge of at least $50.00 
to compensate CAPs for their additional dispensing costs.
    Too Many Specialties. Again, the CAP program design tries to do too 
much and, in overreaching, it makes failure more likely. We recommend 
that the CAP program focus on key specialties: Oncologists, 
Rheumatologists, Urologists, and Ophthalmologists.
    Problems Collecting Co-Pays. Challenges in collecting co-payment 
after administration of the drugs to patients makes the CAP program 
operationally unattractive. Outside the CAP program, physicians and 
specialty pharmacies collect co-payment before services are performed 
and drugs are dispensed to the patient. Doing so allows the provider to 
minimize its economic risk. If there's no payment, there's less risk 
because the drugs won't be dispensed. We recommend that you allow CAPs 
to collect co-payments from patients (either directly or through the 
physician) before services are provided in order to mitigate the high 
potential for uncollectible payments from patient, especially those 
without co-insurance.
    Risk of Waste. There is a significant potential for waste, 
especially with some of the high-cost specialty drugs (e.g. Erbitux, 
Velcade, Alimta, etc.).
    Single-Use Units. With single-use vials, a physician might 
prescribe 3.1 vials of an expensive drug and the CAP would dispense 4 
vials. If CMS, after the fact, decides that use of a large single-dose 
vial was inappropriate and the physician did not act in good faith to 
reduce waste, the 0.1 would be deemed waste. Not only would the CAP not 
be reimbursed for the 0.1 vial, it would be denied reimbursement for 
the entire vial. Also, it's not clear how CMS determines good faith 
from the physician and, if CMS decides the physician did not act in 
good faith to minimize waste, the economic risk falls on the CAP--a 
party with only limited ability to control or prevent such waste. Even 
when doing so was completely appropriate, the remaining 0.9 of the vial 
will be truly wasted unless the physician has another patient 
immediately in need of the same medicine. We recommend that you allow 
CAPs to enter into agreements with physicians to require that the 
physician reimburse the CAP if CMS determines the physician acted 
    Multi-Use Packs and Units. There is also a significant potential 
for waste with multi-pack NDCs (e.g. Procrit, Neupogen, etc.) and 
multi-dose vial NDCs (e.g. Herceptin, etc.) because, by design, there 
is more than one discrete dose per NDC. CMS has indicated that any 
remaining doses can be re-directed to other patients based on an 
agreement between the CAP and the physician. However, CMS defines CAP's 
shipments as prescription orders. Prescription orders are subject to 
state pharmacy laws. And, state pharmacy laws generally prohibit doing 
    Conflicts with State Pharmacy Laws. Design of the CAP program does 
not properly recognize the inherent incompatibility with state pharmacy 
laws. That is, distributors and pharmacies operate under different 
restrictions. Drugs sold by a distributor to a physician may be readily 
dispensed to any appropriate patient. However, drugs dispensed by a 
pharmacy for one patient cannot be re-directed to a different patient. 
A physician cannot simply use extra drugs--whether remaining in a 
single-use vial, a multi-use vial or a multi-pack--on a patient other 
than the patient for whom the pharmacy dispensed the drug. We recommend 
that you recognize the distinctions between distribution and pharmacy 
and either avoid conflating incompatible activity or expressly override 
contrary state law. Additionally, we recommend that making it clear 
that any agreement between a CAP and a physician allowing drugs to be 
re-directed from one patient to another will not violate Medicare/
Medicaid fraud and abuse/anti-kickback rules or other laws.
    Risk from Providers. The CAP program model introduces a significant 
new economic risk. With product purchased by a physician, the owner of 
the product has possession of it. And, its owner is the person deciding 
how it will be dispensed to patients. Under the CAP program model, 
physicians have custody of product they do not own and they decide when 
and how much the CAP will need to dispense for each patient. There's no 
question the vast majority of physicians are honest. Only a few would 
over-prescribe a drug or inappropriately use drugs dispensed for one 
patient for another. However, CAPs should be able to monitor use of 
product for which they have the economic risk. We recommend that you 
allow CAPs to audit the use by physicians of drugs dispensed by the CAP 
and to correct any problems that arise.
    Incentives Not Aligned. The economic incentives of a CAP are not 
aligned sufficiently with those of the physicians it serves. For 
example, for high-cost drugs, a physician will have relatively much 
less economic risk because administration fees will be substantially 
lower than the cost of the drugs, not to mention the fact that the CAP 
will have hard-dollar losses for product and shipping it has purchased 
and paid for, not the softer loses that a service provider has in not 
being paid for lost staff time. We recommend that you allow CAPs to 
require that physicians collect co-pays on their behalf.
2. CAPs Have Little Negotiating Leverage
    We believe that the CAP program was designed with an incorrect 
assumption that specialty distributors and specialty pharmacies have a 
high degree of negotiating leverage with drug manufacturers and with 
physicians. This is simply not borne out by the facts. More to the 
point, CAPs do not have negotiating leverage with drug manufacturers or 
physicians--which was clearly shown when the CAP awards were made. The 
net result from CMS's competitive bidding was a composite cost 
reduction of 0.40% when compared to ASP+6% in Q4 2004 before 
application of the PPI--basically no savings. And, actual CAP rates 
will be 4.85% higher than ASP+6% in Q4 2004 after the PPI is applied--
making drugs dispensed by CAPs more expensive than those reimbursed 
under the ASP system. We recommend that you allow CAPs greater ability 
to negotiate with drug manufacturers and with physicians they serve.
3. Current CAP Program Model Unrealistic
    The fatal flaw of the current CAP program design was that its model 
does not correspond to any existing or viable specialty distribution or 
specialty pharmacy economic model. That is, the model seeks to have 
CAPs provide services like those provided by a specialty pharmacy but 
to do so at margins similar to those in the specialty distribution 
industry. There is simply no compensation for the additional risks and 
costs inherent in the current CAP program model.
Specialty Distribution. Specialty distribution is:
      Low Margin. Operating profit margins are typically in the 
low single digits.
      Low Service. Many orders are placed electronically 
through websites.
      Short DSO Payment Terms. Typically, physicians pay for 
product within 10-30 days.
      Low Bad Debt. Physicians are typically very good credit 
risks. Moreover, most physicians purchasing product are repeat 
customers who will not be served if they do not timely pay their bills.
      Efficiency Is Key. Specialty distribution is very 
efficient, with frequent inventory turns and low costs.
      Minimal Returns. While physicians typically return very 
few drugs, there are some. Low returns helps keep operating costs low. 
However, allowing returns also keeps costs low because unused saleable 
product can be re-sold, helping minimize waste.
Specialty Pharmacy. Specialty pharmacy is:
      Higher Margin. Operating profit margins are typically in 
the high single digits.
      Higher Service. Pharmacists typically spend significant 
time providing phone consultation, patient specific dosing, etc.
      Longer DSO Payment Terms. Typically, full payment is not 
received for 1= to 2 months. Often there is a need to coordinate 
benefit payments from more than one insurance company or other third-
party payor. And, the pharmacy will typically need to collect a co-
payment from the patient.
      Higher Bad Debt. Even with the ability to collect co-
payments and deductibles before services are provided and drugs are 
dispensed, specialty pharmacies will typically have more bad debt than 
a specialty distributor.
      Lower Efficiency. While specialty pharmacies are 
typically less efficient, consuming greater working capital than 
distribution, they can profitably serve their patient because they 
typically have higher operating margins.
      No Returns. Under most state pharmacy laws, a patient 
cannot typically return drugs once they are dispensed.
Additional Economic Burdens for CAPs. Under the current design, CAPs 
        have additional economic burdens without additional 
      Consigned Inventory. Product owned by the CAP is placed 
on consignment in the offices of physicians where the CAP has no direct 
control over the consigned inventory.
      Inefficiency. CAPs must own more inventory to meet the 
same level of patients' needs because, when inventory is dispersed, a 
CAP cannot readily shift it to physicians and patients who need it when 
inventory has been consigned to another physician's office.
      Co-Payments. CAPs have no ability to collect co-payments 
and deductibles before services are provided and drugs are dispensed. 
This increases their bad debt risk and increases their expenses to 
collect payment.
      Greater Cost. The per-dose cost is typically lower when 
purchased in multi-packs or multi-dose vials. Under the CAP program, 
there will be greater reliance on single-dose vials, which will tend to 
increase overall costs.
      Greater Waste. When multi-packs and multi-dose vials are 
used by CAPs, it will tend to increase the amount of drugs that is 
      Minimal Negotiating Leverage. CAPs have little real 
ability to negotiate favorable terms with manufacturers and little real 
ability to require physician and patient compliance.
4. Conclusion
    For the CAP program to succeed, it's essential that Congress 
implement reforms that will remove the economic and structural barriers 
of the current design. We at AmerisourceBergen Specialty Group are 
available at any time to work with you in helping enhance this program 
so it will better serve patients and their physicians.
    Thank you, again, Madam Chairman and members of the Committee.
      Revise the requirements so that CAPs are only required to 
serve physicians in the 50 states and Washington, DC.
      Eliminate any NDC with reimbursement under $200.00.
      Establish a minimum size for all orders, at least 
$15,000.00 for oncology drugs and $5,000.00 for all others.
      Allow CAPs to establish a per-order charge of at least 
$50.00 to compensate CAPs for their additional dispensing costs.
      Focus on key specialties, including oncologists, 
rheumatologists, urologists, and ophthalmologists.
      Allow CAPs to collect co-payments from patients (either 
directly or through physicians) before services are provided in order 
to mitigate the high potential for uncollectible payments from patient, 
especially patients who do not have coinsurance.
      Allow CAPs to enter into agreements with physicians to 
require that the physician reimburse the CAP if CMS determines the 
physician acted inappropriately.
      Recognize the distinctions between distribution and 
pharmacy and either avoid conflating incompatible activity or expressly 
override contrary state law.
      Ensure that agreements between a CAP and a physician that 
allow re-directing product from one patient to another will not violate 
Medicare/Medicaid fraud and abuse/anti-kickback rules or other laws.
      Allow CAPs to audit the use by physicians of drugs 
dispensed by the CAP and to correct any problems that arise.
      Allow CAPs to require that physicians collect co-pays on 
their behalf.
      Recognize the increased costs and lower margins that CAPs 
face when compared with specialty distribution and specialty pharmacy.
      Allow CAPs greater ability to negotiate with drug 
manufacturers and with the physicians they serve.
      Recognize that CAPs have additional economic burdens that 
justify additional compensation and remove economic and structural 
barriers from the current design.
               Statement of Appearance and Representation
    Pursuant to the Committee's rules for appearances, Steven H. 
Collis, AmerisourceBergen Specialty Group and AmerisourceBergen 
Corporation submit the following information.
    Steven H. Collis is Senior Vice President of AmerisourceBergen 
Corporation and President of AmerisourceBergen Specialty Group. His 
appearance is solely on behalf of ABSG and its affiliates and not on 
behalf of or otherwise representing any client, other person or 
    AmerisourceBergen Corporation, a publicly traded company 
(NYSE:ABC), is one of the world's largest pharmaceutical services 
companies serving the United States, Canada and selected global 
markets. AmerisourceBergen Corporation has more than $58 billion in 
annualized revenue, employs more than 13,000 people and is ranked #27 
on the Fortune 500 list. For more information, see 
    ABSG is a wholly owned subsidiary that provides manufacturer 
services, distribution services and physician and patient services 
through its nine specialty pharmaceutical services divisions, 
Manufacturer Services
      ICS--Customized outsourcing partner, whose services 
include outsourced logistics, contract services, clinical services and 
medical education.
       Imedex--An industry leader in providing continuing 
medical education to healthcare professionals worldwide, Imedex 
organizes more than 80 conferences and projects worldwide each year.
      Lash Group--One of the largest reimbursement consulting 
firms in the nation, serving pharmaceutical, biotech and medical device 
companies with a range of consulting and reimbursement services.
      NMCR--International source for analytical research into 
medical decision-making and provider of medical education programs
Distribution Services
      ASD Healthcare--A leading supplier to physicians in 
nephrology, oncology, plasma, primary care and vaccine healthcare.
      Besse Medical--One of the largest nationwide distributors 
of vaccines, biologicals and injectables.
      Oncology Supply--One of the largest nationwide 
distributors of oncology products and practice management solutions.
      Physician & Patient Services.
      International Oncology Network (ION)--A group purchasing 
and medical education organization serving more than 3,000 community-
based oncologists.
      U.S. Bioservices--A specialty pharmaceutical services 
company dedicated to helping pharmaceutical manufacturers and 
physicians improve patient's lives through evidence-based medicine.


                                   Connecticut Oncology Association
                                   South Windsor, Connecticut 06074
                                                      July 27, 2005
Congresswoman Nancy Johnson, chairwoman,
Committee on Ways and Means Health SubCommittee
U.S. House of Representatives
1102 Longworth House Office Building
Washington D.C. 20515

Dear Chairwoman:

    Thank you for the opportunity to comment on the impact of the MMA 
upon community oncology in support of the hearing held on July 13, 2006 
by the House Ways and Means Subcommittee on Health.
    The impact upon patients and physicians in the state of Connecticut 
has been dramatic. In 2004, the combined net payments from both drugs 
and professional fees as well as the 32% transitional payment were 
sufficient for oncology practices to continue to care for Medicare 
cancer patients at close to a breakeven level. Most practices care for 
Medicare patients as 40--50% of their patient mix, so changes in 
Medicare reimbursement have significant to the financial stability of 
these small businesses.
    In 2005, the transitional payment decreased to 3% and the drug 
payments changed to an ASP basis. From the first day these rates were 
in place, practices found themselves unable to care for Medicare 
patients who could not afford to carry supplemental insurance and could 
not afford to pay the 20% Medicare co-payment. These patients were 
referred to local hospital outpatient facilities (which were not 
locally available in several communities because those hospitals had 
long before closed their own outpatient infusion centers since care had 
shifted to the more cost-efficient physician office sites). 
Additionally, Medicare patients from Skilled Nursing Facilities in need 
of cancer treatment were also being shifted to any available hospital 
facility (even inpatient if the patient's condition warranted) because 
of Medicare policy changes making the Skilled Nursing Facilities 
responsible for an illogical and incomplete list of cancer treatments. 
The Skilled Nursing Facilities refused that responsibility so 
physicians were forced to refer such patients to the more-costly 
hospital facilities when cancer care was needed. This shifting of 
patients without supplemental insurance and those from Skilled Nursing 
Facilities has resulted in a real but as yet uncounted additional 
financial burden upon the Medicare Part A system, as well as a hardship 
and quality of care burden upon the Medicare cancer patients and their 
families, which in some cases has adversely affected their care.
    Two specific examples: In southern CT, a Medicare woman without 
supplemental insurance could not afford to pay the required 20% 
copayment for her treatment after Jan 1, 2005, and the ASP+6% payment 
was significantly below the practices' costs of purchase and 
acquisition of the drugs in that regimen. The practice offered to refer 
her to the local hospital (which in this case was accepting patients). 
She refused to go, stating that she had been there before and felt the 
care, experience and skill level of the non-oncology specific nurses 
employed at the hospital was inadequate for her needs, so she also 
decided to then forego that treatment completely. THIS WAS AN ACCESS 
    The second example occurred in another town further west, still in 
the south of CT. A patient had been receiving her care from the 
practice despite being unable to meet her copayment obligations. The 
practice was able to continue her care under the old Medicare payment 
structure because they could still afford to accept a certain level of 
bad debt. Under the 2005 payment schedule, the inability of the ASP+6% 
payment to cover their costs of purchase and pharmacy acquisition meant 
that the practice was facing more than $10,000 in annual losses for her 
care. They were forced to refer her for treatment to the local 
    There are no longer dedicated oncology divisions in this hospital. 
Like most community hospitals across the nation, when the most 
appropriate cost-effective care setting became the physician office, 
oncology units were closed and oncology-certified nurses migrated to 
the physician offices. Nurses on the general medicine floors or even in 
the few hospital owned infusion centers are not as familiar with the 
complications of caring for cancer patients, especially with the newer 
drugs and nursing shifts frequently change during the course of a day's 
treatment, creating lack of continuity in what is already extremely 
complex care. This patient was referred to the hospital outpatient 
infusion center, and the nurse from the physician office called the 
hospital nurse to give her information on the specific drug being used. 
This drug was very toxic, and even the physician office nurse had 
checked with the manufacturer before administering it to learn of any 
new information on managing patient comfort and reactions. The hospital 
nurse never bothered to follow up on the office nurse's suggestion that 
she also could get updated information before administering this 
treatment. The patient did suffer complications and reactions, 
requiring hospitalization for those symptoms, which led to clinical 
depression. Medicare Part A was now incurring costs of the 
hospitalization, and the additional medical and mental complications 
from the differences between her physician office based treatments in 
2004 and this new locus for treatment in 2005. THIS IS A DIRECT EXAMPLE 
    One solo oncologist in CT closed his practice and was packing boxes 
and moving them out as the MMA was being signed into existence.
    Another solo oncologist, the only practicing oncologist in the 
town, closed first his infusion center in February of 2005 because of 
the inadequacy of the ASP+6% formula to cover his costs of both 
purchase and acquisition, and then his full practice in May of 2005 
because the remaining professional rates were inadequate to sustain a 
practice without infusion services. Patients are now driving almost an 
hour on back winding roads to seek treatment in the nearest town.
    Several respected oncologists have moved forward their retirement 
plans, some well below retirement age, because of the significance of 
Medicare patients in their patient mix and the fact that in 2004, net 
net Medicare payments were close to breakeven, in 2005, they dropped 
below breakeven unless you were careful to manage your patient bad debt 
potential and evaluate treatments and refer patients elsewhere for 
treatments that would have incurred significant financial losses, and 
by 2006, there is no practice that is not losing money on every 
Medicare patient they treat, for both professional and drug services. 
One of those physicians just retired on July 1, 2006, in the prime of 
his career, because of the financial burden as well as the emotional 
toll of not only caring for cancer patients, but the added toll of 
explaining and guiding them through a system that he feels has let them 
    The testimony of the Community Oncology Alliance and ASCO have 
highlighted the specific problems with the ASP+6% methodology and the 
fact that professional services required for the safe and effective 
delivery of cancer care are not reflected in the professional codes or 
reimbursement rates set by CMS. The Relative Value Units and practice 
expense bases were created decades ago when the majority of current 
cancer treatments did not even exist, and the physician offices were 
not the efficient models of acute care and even emergency care service 
for cancer treatment that they are today. I testified before CMS and 
the RUC review committee as to the inadequacy of these codes and base 
rates in 2004, and those issues have not been addressed fully to this 
    Even large medical groups in CT are writing to me now, citing the 
impact they are seeing on their private reimbursements when insurers 
are mimicking the flawed 2006 Medicare payment system. When large 
medical groups in the center of the state are joining private oncology 
practices of all sizes across the state in a common message ``We cannot 
hold on much longer, we are worried about our ability to continue to 
    Bridgeport Hospital announced in 2004 that there were specific 
drugs, without generic alternatives and essential parts of standard 
cancer treatment regimens, that they were no longer to provide in the 
hospital, since they could not afford to provide these drugs: among 
them were Avastin, Rituxan, and Erbitux. This created problems with 
access for patients in 2005, and by 2006, when local physician 
practices also became financially vulnerable for all levels of Medicare 
patients, even those with supplemental insurance, THIS HAS CREATED AN 
    I appreciate your time and am happy to discuss the situation in CT 
with you should you wish. Please heed these messages. Oncology care is 
in crisis due to the flawed methodology used for the ASP policy as well 
as the continued lack of recognition of the costs and resources 
required to provide care in the most cost-effective and medically 
efficient setting, the physician office.
                                   Dawn Holcombe, MBA, FACMPE, ACHE
                                                 Executive Director


                                                    The West Clinic
                                                      July 18, 2006
The House Committee on Ways & Means Health Subcommittee
Room 1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Johnson & Members of The Ways & Means Health Sub-

    The changes under MMA have put our clinic into a significantly 
compromised situation. As a result, we are no longer able to treat all 
of our cancer patients in our facility. Many are being shifted to 
hospital settings--nearly ten times the amount that were shifted last 
year. The hospitals have placed significant limitations upon their 
willingness or ability to accept them. Thus, patient treatments are 
being delayed or shifted outside the communities that we serve.
    The West Clinic has offices in Tennessee and Mississippi and serves 
a patient base within 150 mile radius of Memphis, Tennessee--including 
West Tennessee, North and Central Mississippi, Eastern Arkansas, 
Southeastern Missouri, Southwestern Kentucky, Northeastern Alabama, and 
Northern Louisiana. Last year we had over 110,000 patient encounters 
and nearly 500,000 phone calls. Our clinic sites intervened to prevent 
thousands of emergency room visits and hospital admissions. That was 
our story in 2005.
    In 2006, the full impact of MMA has hit and we are no longer able 
to care for our patient population as before. Major shifts of patient 
care are now occurring and proactive interventions that avoid ER visits 
and hospital admissions are now more limited.
    The vast majority of the best treatments for colon cancer, lung 
cancer, breast cancer, lymphoma, and many other diseases are now 
reimbursed significantly below cost. For the first time in the 27 year 
history of our clinic we are facing a serious deficit situation. How 
can this be? First, the bad debt scenario. In our communities nearly 4 
out 10 Medicare patients have either Medicaid, no secondary, or 
insufficient co-insurance. The net effect is the inability to collect 
the full 20% co-pay on nearly 30% of our Medicare patients. This alone 
puts our reimbursement for drugs below ASP. Secondly, the real costs of 
delivering 21st century cancer care are not covered. We have 
sophisticated pharmacy operations in all of our sites. Yet, the cost of 
the storage, preparation, inventory, safety, and other essential 
pharmacy operations is not reimbursed. Third, we have faced over 35 
drug price increases since January 1st of this year. Thus, we have to 
wait at least six months for the Medicare reimbursement to reflect 
these increases. Fourth, neither our oncologists nor our nurses are 
fully reimbursed for the work that they do. Currently, there is no 
reimbursement for oncology treatment planning. Our oncologists are the 
point person on the management of patient care--including chemo, 
surgery, radiation, home health, hospice, and every aspect of the 
entire continuum care. Also, the essential work of our nurses is 
enormously undervalued. Most noteworthy is the pittance that is paid 
for the second and subsequent hours of chemotherapy. Given the 
sophisticated and complex nature of the many of the new chemotherapy 
regimens the focused intensity of the second and subsequent hours of 
chemo is equal (and at times more) than the initial hour. Fifth, the 
prompt pay discount inclusion in ASP lowers our effective reimbursement 
by at least 2 percent.
    Meanwhile, commercial insurers are now pushing for setting their 
reimbursement based upon the current Medicare model. Should they 
succeed, we will essentially have to cease operations. This will leave 
thousands of cancer patients fending for themselves and over 300 
employees out of work. As the largest and leading cancer provider in 
the 150 mile radius of Memphis we consider this a tragedy.
    On July 13, 2006 your committee held hearings on the salient 
concerns resulting from MMA. Your efforts to look into this matter are 
most appreciated. Clearly, this was a step in a positive direction. As 
one who sits in the clinic--time is of the essence--regarding real 
solutions to these concerns. Cancer clinics operate as month-to-month 
businesses relying solely on the revenue for providing care. We have no 
endowments, foundations, or corporate investors. We can only go so much 
longer getting paid less than it costs us to provide care.
    Some may say, why then, are you not going to be a CAP provider? 
Very simply, CAP will lead to major disruptions of care (as 35% or more 
treatments change the day of the visit) and secondly, CAP will actually 
cost us more--given the added administrative expenses. Thirdly, CAP 
will create such confusion with individual patient inventories that the 
costs will increase as will the likelihood of medical errors. Given our 
annual malpractice bill of $555,000, we cannot afford to increase our 
risks. Most importantly, we will not subject our patients to the 
medical risks associated with CAP or the harassment they will receive 
from the CAP vendor when they cannot afford the 20% co-pay and they end 
up being sent to a collection agency or the threat of having their 
treatment discontinued. CAP is a great idea of maintenance 
medications--terrible for oncology.
    Anyway, where does this leave all of us?
    The time and need for solutions is now. Many sound and reasonable 
solutions for balanced and permanent reform for cancer care 
reimbursement have been proposed. We hope that the committee will move 
legislation and that CMS will move forward with administrative fixes 
before the crisis exacerbates to a point where like the crisis in IVIG, 
patients lives are at risk. I am afraid that we are just a few months 
away--at most--from this happening.
                                        Steven M. Coplon, MHA, CMPE
                                            Chief Executive Officer


    Dear Sir:
    I am practicing medical oncologist, and I have been in practice in 
Tyler, Texas for 22 years. Tyler is a city of 80,000 and is a regional 
referral center for most of East Texas' rural citizens.
    The MMA and its attendant cuts in reimbursement have a terrible 
impact on the quality of care we can offer our Medicare patients. As 
background, let me state that to provide high quality cancer care in 
the community setting (and 80% of all American cancer patients receive 
their care in this setting) we have to endure an enormous overhead. We 
require a highly trained staff (a pharmacist, 2 ``chemo'' nurses, 2 
physician's assistants to support the patients of a 2 doctor oncology 
practice: annual salary for these employees alone exceeds $350,000), 
sophisticated billing and coding staff and equipment, and the drug 
bills which are in the millions. Our cognitive services are reimbursed 
on the same scale as primary care physicians who have an overhead which 
is but a fraction of ours. To fund this quality of service, we must 
have some other source of revenue. One would think that source would be 
chemotherapy administration, yet; Medicare reimbursement for our chemo 
drugs is less than our cost for 38 of the 42 drugs which we purchase 
regularly. Only if the patients have a supplemental insurance which 
will pay the 20% difference between actual Medicare payment and the 
Medicare ``allowable'' charges can we treat our patients in our own 
clinic. If we treated Medicare patients without supplementary 
insurance, we would be hundreds to thousands of dollars ``in the red'' 
on each treatment. Our only alternative is to send outpatients with 
``Medicare only'' insurance to the local hospital's outpatient chemo 
units for treatment.
    We are fortunate to have two hospitals in Tyler that are willing to 
help our patients, but the hardship to these individuals can be 
significant: 1. JW is a 70 year old widower who is virtually paralyzed 
by a disease called chronic inflammatory demyelinating polyneuropathy. 
He lives alone, and his very function depends on monthly infusions of 
IVIG (intravenous immune globulin.) He has Medicare ``only'' insurance, 
so with the institution of ASP-based reimbursement and the further cuts 
in reimbursements for infusions in 2006, we have bee forced to send Mr. 
W to the hospital outpatient setting for treatment. He now sits in a 
wheelchair for 10 hours taking a treatment he could complete in our 
office in 4 hours. 2. EF is a 68 year old retired nurse with ``Medicare 
only'' needing chemotherapy fro high risk stage 3 colon cancer. She 
spent 11 hours on the fourth of July at the hospital taking what would 
have been a 3 hour treatment in our office. The next available 
appointment time for her treatment would have been 2 weeks later, and 
that was simply too long to wait. I could offer you several other 
examples. Our patients are educated and well aware of what is at stake. 
JW has written letters to Congressman Gohmert, our Senators, and 
President Bush. Our patients are angry!
    Please fix the problem. Clinic based oncology care is the best in 
the world. Don't let it disappear. Please deal with the flaws in ASP 
(prompt-pay discounts, several month delays till increased drug prices 
are reflected in the ASP, etc.). Please enhance E and M reimbursement 
for oncologists. The intensity and the overhead of our job are not like 
that of other physicians who are not reimbursed for procedures. Please 
save community oncology.
            Thank you,
                                            Gary E. Gross, MD, FACP


        Statement of Arlette J. Holland, Practice Administrator,
                      Chestnut Hill, Massachusetts
    To Whom It May Concern:
    As Practice Administrator for a small oncology practice I see the 
day to day impact and ripple effect of reduced Medicare reimbursement. 
Two of our oncology nurses are commenting, under separate cover, on the 
impact on treatment accessibility, the impact on our nursing staff and 
the time it takes to assist patients to get the care they need. I will 
be focusing my comments on the effect of reduced revenue on the 
practice itself.
    Since we are a small practice we do not have the luxury of purchase 
power when it comes to buying drugs and medical supplies. We do the 
best we can by joining every Group Purchasing Organization we can and 
by taking advantage of rebate programs and contract pricing. In the 
past we were able to earn early pay discounts from our drug vendors--
but now with the reduction in our reimbursement and it's direct impact 
on our cash flow we cannot pay early to receive said discounts. In 
fact, the majority of time we are paying our vendors late and incurring 
late fees and service charges--sometimes in excess of $5000 a month! 
Over time we have lost the ability to purchase from some of our drug 
distributors because of late payments and over extending our credit 
limits--the result for us is we have fewer opportunities to shop for 
best drug pricing. If you factor all of this together and compare it to 
ASP+6%, we are on the loosing end. We are NOT able to purchase drugs at 
or below ASP+6.
    In some instances where we have been able to earn a small profit on 
a drug--those few pennies are still not enough to cover the 
underreimbursed cost of administering the drug. We are not adequately 
reimbursed (sometimes not at all) for IV bags, tubings, dressing 
supplies, etc., so those few pennies are not even enough to cover 
supplies. You must also look beyond that to other expenses oncology 
practices incur--office rent, salaries, employee benefits like health 
and dental insurance, malpractice insurances, telephone and computer 
systems, office supplies, hazardous waste expenses, medical supplies, 
clinical education, licensure and hospital dues for the physicians, 
leases on photocopiers and faxes, transcription services, utilities, 
postage, lab coat and laundry services--the list could go on and on but 
these are things that are necessary to run a safe medical practice that 
offers quality care to its patients. How do these things fit into the 
pennies we are reimbursed for drugs, administration services and E & M 
    Practices like ours are fronting the money for all of these things 
and are quickly falling behind! Some weeks we don't even meet payroll 
and our physicians then do not get paid AND our vendors don't get 
paid--putting us farther and farther behind.
    Our practice, with three treatment facilities, is like many others 
across the country--we are not extravagant. We run bare bones. There 
are no frivolous expenses, we have not had salary increases for our 
staff in three years. We are in fact understaffed--our nurses travel to 
all three locations to treat patients because we cannot afford adequate 
staffing. In some offices we are unable to treat patients on certain 
days because our nurses are required to travel to another of our sites. 
Our nurses not only treat our patients but also assist our billing 
department in screening patients' insurances for coverage and 
preauthorization requirements. The nurses are our social workers and 
patient advocates, they expend a huge amount of their time assisting 
patients in prescription coverage, copay assistance and patient 
education. How is this reimbursed? Our billing and secretarial staff 
are down to the bare minimum; often having to cross cover for each 
other on busy days or vacations. Because we are not being able to 
afford adequate staffing in any department, the patients sometimes feel 
the impact on the quality of their care--some days there just are not 
enough staff and not enough hours to accomplish all that is required 
for patients and thus patients sometimes experience a delay in 
    The Cancer Center of Boston has always prided itself on the ability 
to see new patients within 24 hours of initial contact--we still strive 
to meet that but find that treating the patient the same day as we had 
in the past is no longer a reality in our practice. Not only do we 
clinically review the appropriate treatments for patients but now these 
treatments must be analyzed for reimbursement. Will we be reimbursed at 
all? Will we be under reimbursed? We can no longer afford to stock our 
pharmacies for ``potential'' treatments but are forced to order daily 
for treatments that have been prescheduled.
    We have yet to send our patients elsewhere for treatment. Ethically 
we feel we can't turn patients away and thus extend every effort to 
find an affordable and clinically appropriate treatment. Another 
consideration is that the hospitals at which our physicians are on 
staff have NO oncology services.
    To date we have not closed any of our offices BUT are tenants at 
will in two (2) out of three (3) because signing extended leases seems 
a poor business decision in view of current reimbursements and future 
    Medicare is not the only payor at fault here but are the catalyst 
for other payors to follow suit.
    On behalf of The Cancer Center of Boston I ask the Committee to 
continue to review and appropriately adjust reimbursement to adequately 
match the reality of cancer care today and to plan for cancer care in 
the future.


 Statement of Horizon Hematology-Oncology, Spartanburg, South Carolina
    The current methodology of drug reimbursement is devastating to 
small physician practices. For small practices, with one-two 
physicians, drug pricing reflects high cost and big loss because we do 
not have large volume. This is not taken into consideration, and in 
fact it is a benefit to big facilities and a penalty for small 
practice. The big volume buying power of large facilities skew the 
reimbursement. The large facilities buy large quantities at lower 
prices and reap the reward of purchasing under reimbursement while for 
small practices current drug pricing reflects a substantial loss, as we 
do not have the large volume purchasing power.
    Promoting American small business the government should be paving 
the way versus making it hard to collect the reimbursement due. For 
example, 14-day payment on electronic claims and 29 days with a small 
business waiver actually penalties small business and 6% of ASP doesn't 
cut it when this payment postponement penalty costs to borrow. Knowing 
that the ``Wal-marts'' of oncology can buy anything cheaper than small 
    A flat 6% tips the scale heavily against small business entities. 
Realize when patients are strapped for cash and use a credit card to 
pay their coinsurance there is a minimum processing fee of 2+%. So the 
reality is that we are not getting ASP+6% when all factors are 
considered. This is just another example of the reality of how 
inadequate the calculation for reimbursement truly is.
Additional Comments:
    CMS is taking more money out of Community Cancer Care.
    The 2005 and 2006 Demonstration was put in place by our legislators 
and CMS to offset the drastic reimbursement cuts made to oncologist. As 
we all know the 05' demonstration translated into an additional $130 
for each chemotherapy infusion for each Medicare Beneficiary and in 06' 
an additional $23 for physician evaluation of Medicare Beneficiary with 
certain cancers.
This is not happening! CMS has given Medicare Advantage Plans a pass.
    Change Request 3634 Transmittal # 12 from CMS, which states that 
``only Medicare beneficiaries who are not enrolled in a Medicare 
Advantage plan are included with the demonstration.''
    Shocking! So Medicare beneficiaries are receiving inferior benefits 
and oncologists are receiving inferior reimbursement. This is no 
Advantage Plan at all!
    In 2005 each time an oncologist gave chemotherapy to a Medicare 
Beneficiary with a replacement plan they lost $130 each time and are 
losing $23 per physician encounter in 2006. On a national scale how 
many millions/billions does this constitute? And this savings is passed 
on to private insurance companies.
    I doubt this loss revenue is being considered in the figures that 
the legislators are touting around Washington. Shocking isn't it!


                                      Hunterdon Hematology Oncology
                                       Flemington, New Jersey 08822
                                                      July 13, 2006
    Thank you for giving me this time to share how I feel about this 
issue. If you need further information please feel free to call.
    I came into oncology management 6 years ago. At that time, I too 
thought that the way reimbursement by AWP was incorrect because there 
were a handful (5) of generic drugs that were paid at brand name 
    The MMA has turned a Molehill into a Mountain- Act.
    Each drug, brand or generic, is assigned a separate NDC number. The 
simplest solution would have been to reimburse a % by billing the NDC 
#. There would never have been an issue of any drug being reimbursed 
    I had mentioned this 3 years ago to Steven Phillips at CMS and was 
told how the computer system would need to be changed in order to 
handle 11 digits. I believe it would have been more cost effective to 
changed the system to handle NDC#'s and there would not be any issues 
of drugs ``Below Water.''
    We have 29 drugs ``below water`` in this 3rd quarter. Admin fee do 
not cover the difference between cost and reimbursement. Where do I 
make up the difference?
    example: Neulasta costs 2366.84 we are reimbursed 2148.71 if we do 
not reach our goal we are minus 218.13. If we reach our goal we could 
make 1% over cost! That's it!! Admin code pays 21.52. This does not 
even cover the cost to see this patient!
    We have to check each patient's regimen before treatment to see if 
we can afford to treat them here or if we need to send the patient to 
the hospital for their treatment.
    Administration fees must be increased to cover the true expenses.
    What are we saying to our seniors? That they are not worth 
receiving the best care possible? Our seniors have worked hard for 
their benefits and to be turned over to an all day treatment that could 
have been 2 hours in the outpatient setting is atrocious.
    I spend my day looking at websites shopping for better drug prices 
because everyday there are price increases from the pharmaceutical 
companies. The pharmaceutical companies are not even allowed to help 
Doctors office as they did in the past. Educational grants and any help 
they could have provided has been eliminated.
    Next solution, we tack on 6% to our invoice amount. This way 
everyone would be paid fairly regardless of the size of the practice. 
It would be easier and more cost effective to send in prove of 
    I am not naive. I realize that the method that is being used forces 
us to find the ``Best'' prices but there are so many flaws that will 
never be remedied with the system the way it is. We can not purchase 
drugs at some of the discounted prices because of volume. Also, 
hospital prices, incentives, and rebates should not be included in the 
averaging. If I can pay my bills on time I should be able to enjoy a % 
off my bill just like any other business. If I meet a quota for a 
rebate I should be entitled to that rebate. This is part of running a 
business. If I can not reach the levels I shouldn't be penalized by 
having to pay more for the drug! That does not make any business sense.
                                                       Luanne Lange
                                                   Practice Manager


 Statement of Samuel W. Needleman, Oncology Associates of Stephenville 
                Hematology-Oncology, Stephenville, Texas
    I have a rather short reply. I am a compassionate, Triple Boarded 
Heme-oncologist who came to a Texas Town of 25,000. The CEO of the 
local hospital had done a study that showed a need for one full time 
Oncologist. I have been very well received and see about 300 consults a 
year. My start up was underwritten generously by the hospital. I 
collect over a million dollars a year, but we lose so much on 
chemotherapy that the hospital has cut my salary from $300K to 50K, and 
I shall be forced to leave this community. I was very happy here and it 
will hurt the community. The current system of reimbursement does not 
allow small groups without super specialist billing experts to operate 
without losing money. It has driven me away from a small community I 
have loved and served well.


      Submitted by Physicians of Southeastern Gynecologic Oncology

    We are writing to let you know of the impact of the reimbursement 
changes resulting from the implementation of the Medicare Modernization 
Act (MMA). As you are aware, the intention of the MMA was to correct 
over-reimbursement for chemotherapy drugs and under-reimbursement (or 
no reimbursement) for essential services relating to administration of 
the drugs. In the planning phase, it was estimated that the reduction 
to community cancer care would be about $4.2 billion over 10 years. A 
more recent estimate using real world figures from community 
oncologists shows the impact to be more than three times that--$13 
billion over 10 years.
    For lawmakers used to the realities of large numbers in budgeting, 
this may sound feasible. But on the local level, it is untenable. Just 
two years into implementation, the implications are far-reaching, 
severe, and at a precipice.
    In our gynecologic oncology practice where we care for women 
diagnosed with ovarian, uterine, cervical, vaginal and vulvar cancers 
(about a third of whom are Medicare beneficiaries), we have seen 
precipitous drops in Medicare reimbursements. In fact, our 
reimbursement rates for Medicare beneficiaries have dropped by 30% 
since the phased MMA changes begin to be implemented in 2004. Although 
many sources have painted oncologists as making huge profits on drug 
reimbursement, the reality is that oncologists have huge outlays for 
administering chemotherapy drugs: staff pharmacists; highly trained and 
experienced oncology nurses (often with special certification); time 
for treatment planning (changing dosages based on side-effects; 
changing regiments based on efficacy for that particular patient; 
changing treatment dates for emergencies, etc.); special equipment in 
the office for preparing chemotherapy safely; charges for safely 
disposing of chemotherapy-related waste and more. These costs are not 
accounted for in any Medicare reimbursement rates or methodology.
    Any business with such a dramatic decrease in income must adapt. We 
are no exception. In order to keep our doors open, we have had to 
change the way we do business. In the past, our patients received 
chemotherapy in our office. This enabled us to provide excellent care 
for our patients: they could see the physician on the same day as their 
chemotherapy (reducing trips for patients who are already exhausted 
from their disease and treatment); providing continuity of care (the 
same oncology nurse provided their chemotherapy at each visit, making 
the patient comfortable enough to voice important concerns that they 
wouldn't ``bother the doctor with'' and allowing the nurse to notice 
changes in patient's clinical status); and providing quicker care 
(patients who must register in the hospital face considerably longer 
wait times). Now, Medicare beneficiaries without a secondary insurance 
must be treated in the hospital, increasing their treatment time and 
travel time, requiring multiple visits for physician follow up and 
treatment, and decreasing continuity of care. We cannot risk their 
inability to pay their copayments as this could put us in jeopardy 
financially. They cannot have labs drawn in our office, receive 
important supportive care injections in our office or see the physician 
on the same day as treatment. This, of course, is just the first step. 
We have already considered sending all Medicare patients regardless of 
secondary insurance to the hospital. We have not done this because it 
is important to us to continue to provide our patients with the best 
care we can. But this may become necessary in the not distant future.
    As we said at the beginning of this process, changes to Medicare 
are only the beginning. Private insurers follow Medicare's lead. This 
summer, Blue Cross Blue Shield of Georgia announced that they would be 
reducing our reimbursement rates by 11%, effective July 1, 2006. This 
affects another 30 percent of our patient base. We expect other large 
private insurers to follow, compounding the problems set into motion by 
the MMA.
    If reimbursement rates continue to drop from government and private 
payors, our practice will have no choice but to send all of our 
patients to the hospital for their chemotherapy. We are not the only 
practice facing this reality. Transferring all the patients who 
currently receive chemotherapy in a community oncologist's office into 
the hospital will overwhelm the system. This is already happening in 
some locations.
    On a larger scale, inadequate reimbursement for chemotherapy 
affects cancer care throughout the country:

      Older oncologists are retiring.
      Fewer new physicians are choosing oncology as a 
      Satellite offices serving rural communities close to 
patients' homes are closing making cancer treatment more difficult if 
not impossible for some patients.
      Most research protocols are administered in community 
clinics. Disabling these clinics hinders the pace of oncology research 
and the delivery of life-saving treatments to the patients who need it.
      Hospital infusion centers will likely be overwhelmed by 
the sudden demand when a practice must stop providing chemotherapy or 
worse, must close its doors. This causes unacceptable treatment delays 
that harm patients.

    Fortunately, this scenario does not have to occur. Legislation in 
the House and Senate (HR 4098 and S 2340) includes provisions to solve 
the problems with drug reimbursement created by rushed implementation 
of the ASP system, create payment codes for essential services that 
Medicare does not currently reimburse for (i.e., treatment planning and 
pharmacy facilities), and restore appropriate payment for drug 
administration and deal with the reality of bad debt. These provisions 
will not make oncologists wealthy, but will allow them to continue to 
provide world-class cancer care to all Americans. We implore you to 
save cancer care; the situation is urgent and deteriorating. Congress 
must act now to preserve the best cancer care system in the world.


                                   Medical Specialists of Fairfield
                                       Fairfield, Connecticut 06824
                                                      July 26, 2006

To Whom It May Concern:

    I am the managing partner for a group of five hematologists and 
medical oncologists in Fairfield, Connecticut. We perform about 90% of 
our chemotherapy infusions as an outpatient in our private office and 
about 10% in the infusion center of the hospital. Over the last seven 
months, it is obvious that we are sending more patients to the infusion 
center because of pharmacoeconomic issues. The ASP reimbursement system 
for drugs clearly has flaws that need correcting. The Medicare 
Reimbursement Policy of ASP plus 6% is clearly not adequate when we 
factor in bad debt, collection costs of 2% to 5%, and the low rates 
    To show a specific example, we are sending patients who receive 
Neulasta white blood cell factor support injections to the hospital if 
they have Medicare or private payer Medicare Choice plans. The 
reimbursement for Neulasta is $400 less than our costs, per injection.
    We have made it an office policy to send all Medicare patients 
without supplemental insurance to the hospital infusion center because 
drugs for these patients are ``underwater'' and do not cover our costs. 
Many patients have experienced delays in their chemotherapy because of 
staffing and scheduling issues to the hospital, as well as an 
inconvenience factor, having both to go to the infusion center and then 
come to see me for followup, whereas other patients with adequate 
insurance and adequate reimbursement are being seen the same day as 
chemotherapy. This reduces the strain both on the patient and the loved 
ones, significant others, or friends who escort these patients who can 
seldom come alone.
    I hope this is helpful and allows you to see the wisdom of 
increasing reimbursement for things like pharmacy handling, patient 
coaching and counseling, medical treatment planning, supplies and 
regulatory compliance costs, equipment costs, and increased staff costs 
that we are now bearing the brunt of and are not being covered in the 
professional services.
    Thank you for your attention to this matter.
                                  Glen A. Reznikoff, M.D., F.A.C.P.


                                        The Cancer Center of Boston
                                      Plymouth, Massachusetts 02360
                                                      July 27, 2006
    This communication is being written to express my concern for the 
reimbursement formula currently used to calculate payment for oncology 
drugs in the community office setting.
    As an oncology nurse in a small community office, I am very 
involved in the purchasing, dispensing, and billing of oncology drugs 
within our practice. I cannot fathom that the committee in charge of 
developing, implementing, and evaluating reimbursement formulas for 
community oncology practices have any working knowledge of how these 
oncology offices function.
    Our physicians used to be able to decide upon a treatment for their 
patients based on what chemotherapy drugs and supportive drugs were the 
most appropriate for each patient; however, now the physicians are 
sometimes forced to alter treatment regimens based on insurance 
coverage. I am appalled that patients may be denied the most effective, 
possibly life-saving, medications because they do not have the correct 
health insurance coverage.
    Even patients with primary and secondary health insurance coverage 
are not always able to receive the most appropriate medications because 
some of those medications cost our practice more to purchase them than 
Medicare reimburses for the drug. Since the reimbursement is based on 
average sale price (ASP) plus 6%, I am left to wonder who determines 
what the average sale price should be. Having purchased chemotherapy 
drugs for the past fifteen years, I can tell you for a fact that the 
average sale price for small community oncology practices is not the 
same as the average sale price for large offices or huge buying 
conglomerates. Since we do not have the ability to obtain volume 
discounts due to the size of our practice, we pay a much higher price 
than buying groups pay for the exact same drug. Thus, when the 
medication costs our office more than we are reimbursed, the patient 
may not have the option of receiving that medication. This fact 
constitutes denial of access to care for our senior citizens, those who 
have built this country into what it is today.
    In addition to medication reimbursement, another factor is the cost 
of administration of the medications. Medicare does not reimburse for 
the intravenous bags or any of the supplies and equipment necessary for 
the administration of the chemotherapy drugs. All of these items must 
be purchased and paid for, whether or not they are reimbursed. Nursing 
staff, an integral part of the administration of chemotherapy, must be 
paid for their time. What part of the reimbursement covers the cost of 
nursing coverage? The reimbursement for the administration codes does 
not cover supplies, equipment, salaries, compliance with regulations, 
etc. that are a part of the total functioning of a community oncology 
    Congress must take into account that small community oncology 
practices do not have the available cash flow that larger practices 
have. We are usually unable to pay the wholesalers according to the 
terms outlined and therefore often incur later fees and service 
charges, another cause for decreased cash flow. What are community 
practices to do when they are unable to pay their bills? What are they 
to do when they are reimbursed less for a drug than the purchase price? 
Let me tell you that, community practices are beginning to do one of 
two things. These practices are either sending the patients to local 
hospitals for the more expensive treatments or deciding to treat 
patients with the second best treatment available. Many local hospitals 
do not offer oncology services; therefore some patients may even be 
denied that option. Does this seem like the way you, as Congressmen and 
women, would want to be treated or have your parents treated if you or 
they had the misfortune to be covered by the Medicare system?
    Please do not hesitate to contact me for further information as I 
would welcome the chance to discuss this issue in greater detail.
    Thank you for your time and your interest in this very important 
                                         Donna J. Strong, RN OCN BS


     Statement of Talecris Biotherapeutics, Research Triangle Park,
                             North Carolina
    Chairman Johnson, Ranking Member Stark, and distinguished 
subcommittee members, thank you for the opportunity to provide the 
following statement regarding Medicare reimbursement of physician-
administered drugs. Talecris Biotherapeutics manufactures 
Gamunex, an intravenous immunoglobulin (``IVIG'') product, a 
critically important therapy for many patients.
    Our approach to patient care is simple. We support giving each 
patient and his or her physician access to the IVIG brand most 
effective for that patient in a setting best suited for his or her 
individual needs. As such, we focus our comments on the Average Sales 
Price (``ASP'') methodology and its impact on the pricing and 
availability of IVIG therapy.
    We support the ASP methodology as a means to reimburse adequately 
physicians for the cost of acquiring the therapy. Unfortunately, two 
coding-related IVIG reimbursement issues are contributing in a 
substantial manner to situations where providers and patients are not 
able to acquire some IVIG products at a price that is consistent with 
the Medicare reimbursement.
    To ensure ample access to IVIG across all sites of service we 
encourage CMS to commit to a long-term solution by (1) issuing separate 
Healthcare Common Procedure Coding System (``HCPCS'') codes to IVIG 
products and (2) increasing the payment for administration services to 
adequately reflect the cost of providing the service, based on a 
thoughtful and careful review of the costs associated with those 
services. Our recommendations are completely consistent with the ASP 
methodology, and with the letter and spirit of the Medicare 
Modernization Act (``MMA'').
    We ask Congress to encourage CMS to this action at the earliest 
opportunity to address the access issues that currently exist for 
Medicare patients.
I. Our Commitment to IVIG Access
    Talecris Biotherapeutics is a new company that is proud to have 
inherited a legacy of more than 60 years of providing lifesaving and 
life-enhancing plasma-derived therapeutic proteins. Following its 
acquisition of the assets of Bayer Biological Products' plasma 
business, Talecris is maintaining and building on a heritage of patient 
care innovations in therapeutic proteins that dates back to the early 
1940s. Our products have long been recognized in the industry as 
innovative and of the highest quality. Talecris, having inherited a 
solid foundation of unparalleled expertise and experience, is now 
uniquely positioned to create a new standard of excellence in the field 
of biotherapeutics.
    Normal human blood contains antibodies, which help to protect us 
from a wide spectrum of pathogens. However, some individuals are unable 
to make functional antibodies, which renders them susceptible to 
recurrent and life-threatening infections. Treatment with IVIG provides 
immune-deficient individuals with the antibodies needed to prevent 
potentially fatal infections.
    IVIG is produced from plasma pooled from thousands of blood plasma 
donors, which is processed to provide a high concentration of 
antibodies. Talecris is one of a handful of manufacturers who produce 
    As you review this issue, we encourage you to be mindful of the 
special commitments and efforts that Talecris has made. Talecris has 
taken extraordinary steps to substantially improve production of IVIG, 
dramatically increase investment in production facilities, ensure the 
availability of an emergency supply of product for needy patients, and 
conduct important scientific research. Despite the incredible costs 
involved in these efforts, we have not, over the last five years, 
increased our prices at a rate that has even kept pace with the rate of 
inflation. That is an extraordinary commitment to our patients, and we 
are justifiably proud of our record.
II. Understanding the Access Issue
    The chronology of the development of the IVIG access issue reveals 
its substantial link to Medicare reimbursement. Pursuant to the MMA, 
the ASP payment system first became the basis of Medicare reimbursement 
for services in physicians' offices in January 2005. Reports of IVIG 
beneficiary access problems in physicians' offices surfaced shortly 
thereafter and were, based on the information that we have received 
from patient groups, essentially localized in that site of service.
    Significantly, throughout 2005, Medicare continued to reimburse 
hospital outpatient facilities without using the ASP methodology, while 
Medicare services in the physician office setting were being 
transitioned to the ASP methodology. It is important to note that the 
patient groups did not report any significant access issues at the time 
in the hospital outpatient setting. Indeed, the patient groups reported 
a migration of a significant number of patients from the physician 
office setting to the hospital outpatient setting.
    In January 2006, however, Medicare hospital outpatient 
reimbursement did transition to the ASP payment system. Soon after, 
patient groups began to report that Medicare beneficiaries were 
experiencing IVIG access problems in hospital outpatient departments. 
It is important to note that reports of IVIG access issues have been 
primarily focused on Medicare beneficiaries, although some commercial 
payer coverage changes have been responsible for some additional 
    Although some appear to be inclined to see the access issues as 
supply-driven, and not reimbursement-related, we do not believe that 
this is correct, particularly when we examine the evidence related to 
our product. Over the last 5 years, we have increased the amount of 
IVIG we make available to patients in the United States by 85 percent. 
In anticipation of, and in response to, the considerable need for IVIG 
over the last decade, Talecris has dedicated significant resources to 
meet the needs of the IVIG community. Talecris, for instance, has 
invested more than $250 million to build a highly efficient, state-of-
the-art manufacturing facility in Clayton, North Carolina--the only 
facility of its size dedicated to IVIG production.
    In addition to our dramatic efforts to increase production, we have 
established the Gamunex Emergency Supply Program for patients who 
might be facing a critically urgent situation related to their IVIG 
therapy. As part of our overall commitment to help meet patients' 
needs, Talecris holds 2 percent of its inventory in reserve just for 
the Emergency Supply Program. Through the program, Gamunex is provided 
on a first-come, first-served basis to patients in emergency 
situations. We have never come close to exhausting our emergency 
supply. This suggests that the nature of the access issues is not 
supply, but reimbursement, related.
    Further, as noted above, Talecris has approached pricing issues 
with restraint and a sincere interest in limiting price increases. Our 
price increases have been quite limited despite increased production 
costs, significant investments in additional manufacturing capacity, 
and large investments in producing a new IVIG product, which we believe 
has clinical advantages. Again, since 2000, Talecris has not increased 
prices at a rate that keeps pace with the rate of inflation, as 
determined by the Consumer Price Index-Urban. To date we have taken 
just 15 percent in total price increases over the last 5 years.
    We are committed to ensuring access to this life-saving therapy. 
Accordingly, we continue to take reports of IVIG access issues 
seriously, and we are committed to working openly with the subcommittee 
to ensure adequate access to IVIG therapies for the thousands of 
Medicare beneficiaries who rely on this important therapy.
III. Proposed Solutions
    Talecris is committed to a long-term solution for IVIG access. We 
understand how challenging the current market environment is for the 
IVIG community, and we plan to continue delivering on our commitment to 
do everything possible to meet the needs of IVIG patients. We ask 
Congress to urge CMS to do the same by (1) issuing separate HCPCS codes 
to IVIG products and (2) increasing the payment for administration 
A. Issuing Separate HCPCS Codes to IVIG Different Products
    CMS calculates the ASP for drugs based in part on what HCPCS code 
those drugs are assigned to using the standardized coding system 
utilized for outpatient billing. Each quarter CMS computes an ASP for 
each HCPCS code typically based on the volume-weighted average of the 
applicable manufacturer's average sales prices. Where there is only one 
product in a HCPCS code, which is the case for the vast majority of 
drugs, ASP is equal to the price of that product's manufacturer 
reported ASP. This system generally makes ASP predictable and the 
resulting reimbursement stable and consistent with acquisition prices. 
This is, we believe, exactly what Congress intended when it mandated 
ASP as a methodology.
    Unfortunately, because all of the IVIG products are treated as 
multiple source products by CMS, notwithstanding that they are not in 
any way bioequivalent, IVIG ASP reimbursement is based on the weighted 
average of the ASPs of multiple IVIG products. Accordingly, this 
necessarily means that some IVIG products will have reimbursements that 
are based on a class ASP that is below the product's actual ASP. The 
inevitable consequence of this, we believe, is that there will be 
situations where a Medicare provider is forced to provide critically 
necessary IVIG services at a reimbursement rate that is below the 
provider's acquisition cost.
    CMS normally groups only products into one HCPCS code when the 
affected products are rated therapeutically equivalent, 
pharmaceutically equivalent and bioequivalent by the Food and Drug 
Administration (``FDA''). The IVIG products, however, are not 
therapeutically equivalent, pharmaceutically equivalent or 
bioequivalent, as we have indicated above. There is no debate about 
this critical point.
    IVIG products differ in terms of the amount of sugar, osmolality, 
volume, sucrose, immunoglobulin A, and pH. In addition, products differ 
according to donor pools, manufacturing process, and final product 
formulation. These differences provide the clinical basis for 
physicians to prescribe specific brands of IVIG. When a patient is 
administered a brand that is not appropriate for him or her, problems 
can arise. This is particularly true for patients with diabetes, 
congestive heart failure, and compromised renal function, among other 
    Fortunately, CMS has the authority to code and reimburse all IVIG 
products separately. We believe that this change is integral to solving 
the IVIG access issue, and we believe it is entirely consistent with 
the ASP methodology. We ask only that IVIG products be treated like the 
vast majority of other drugs and the way that any unique, distinct 
product should be treated.
B. Increasing the Payment for Administration Services
    In addition to the coding problem, we believe that IVIG access is 
also compromised due to inadequate reimbursement for administration 
services. Where some have suggested that the ASP multiplier should be 
increased above 106 percent to address this issue, we do not support 
this option, because we do not believe that it is consistent with the 
ASP methodology.
    However, the MMA, in decreasing drug reimbursement, did contemplate 
that administration service reimbursement could and should be altered 
where additional administration reimbursement was shown to be 
necessary. We ask that CMS do only what Congress contemplated as part 
of its consideration of the MMA. We ask that CMS review the 
extraordinary costs inherent in the administration of IVIG and make all 
appropriate adjustments that are supported by the evidence presented.
    The safe and effective administration of IVIG is extremely complex. 
We understand that the infusion times for IVIG range from 2 to 8 hours. 
A nurse to patient ratio is set at 1:1, with immediate availability of 
a physician for assessment of potential complications. In addition to a 
physician's evaluation of a patient, the administration service 
includes the complete evaluation of vital signs and neurological status 
by a highly trained infusion nurse, pre-medication by an infusion 
nurse, and complete assessment of vital signs and neurological status 
every 15 minutes. To account for all of these factors, we support an 
increase in the payment for administration services.
    CMS has the authority to make this increase without Congressional 
action. We urge them to act accordingly.
IV. Commitment to Long-term Solution
    One of the most important aspects of a solution to the IVIG access 
issue is a long-term commitment by Congress and CMS to keep a constant 
methodology in place for IVIG reimbursement.
    Various factors make a stable market critical to the decision to 
invest in increased production. The manufacture of IVIG includes more 
than 400 steps from pooling through fractionation, purification, 
inspection, and packaging. To ensure additional investment in IVIG 
capacity to meet the increasing demand for this life-saving therapy, 
predictable demand and long lead times are required because the 
manufacture of IVIG takes approximately 8 months from plasma collection 
at a donor center to lot release, and purchase commitments for raw 
plasma must be made 1-2years in advance. Furthermore, in order to 
ensure compliance and regulatory approval, manufacturers must allow up 
to 5 years to expand production facilities and modify processes.
    Talecris may not continue to make additional investments to 
increase IVIG production in an environment where reimbursement is 
uncertain or subject to change. We fear that a number of the temporary 
or emergency solutions being discussed will only add to 
unpredictability of the marketplace, having the unintended result of 
discouraging future investments by manufacturers, like Talecris.
    We understand that CMS may be contemplating a National Coverage 
Determination (``NCD'') restricting the coverage of IVIG. We feel 
compelled to call your attention to the significant number of Medicare 
beneficiaries who could be negatively impacted by a NCD. We are 
concerned that CMS may be attempting to address what are predominately 
reimbursement issues by limiting coverage. Unfortunately, because it 
would likely take a year or more for an NCD to evaluate the various 
uses of IVIG, the inevitable consequence of an NCD will be to interject 
tremendous uncertainty into the IVIG marketplace that may prevent 
Talecris and other manufacturers from making the additional investments 
in production capacity that are so clearly needed.
    We appreciate that CMS has some questions about the level of 
evidence supporting some uses of IVIG. Accordingly, we support the 
further use of the local coverage determination process to address any 
such issues, but we believe that these decisions should be made by the 
carriers in a manner that will permit local standards of practice to be 
fully considered and where the process for review can be quicker than 
it could, in connection with this product, through an NCD process. The 
local coverage process is the process that has generally determined 
IVIG coverage in the past and it should continue to be the process used 
in the future.
    Many immunocompromised patients rely on this essential therapy to 
treat and prevent fatal infections. Accordingly, we ask you to urge CMS 
to proceed with caution as it considers coverage issues and to weigh 
heavily the long-term implications of restricting the coverage of an 
often life-saving therapy in a precipitous manner through a ``one size 
fits all'' NCD.
    We are sensitive to the complicated nature of the IVIG issue, and 
we continue to look forward to the results of the on-going Office of 
the Inspector General (``OIG'') study of IVIG access. Talecris was 
pleased to meet with the OIG last year and assist with its survey. In 
responding to the survey questions, however, it became clear to us that 
the study contained a number of design flaws, which may compromise the 
results and diminish the OIG's ability to compare data accurately and 
ultimately the aggregate value to the information assembled. As the 
date of the release of the report is extended, we also have concerns 
about whether the data collected is still relevant.
    In addition, we have some concerns about the limited scope of the 
parties surveyed. We believe that a complete picture of the IVIG 
marketplace includes not only manufacturers and distributors, but also 
a robust sample of hospital outpatient departments, group purchasing 
organizations, physicians, and patient advocates. Broad participation 
and comment are key to an accurate report. We have encouraged the OIG 
to work with all of the key stakeholders involved, but we do not 
believe that OIG has fully adopted our and others' suggestions in this 
V. Conclusion
    Talecris thanks you again for this opportunity to provide input to 
your review of Medicare reimbursement of physician-administered drugs, 
specifically the impact of ASP reimbursement on the pricing and 
availability of IVIG therapy. We respectfully ask Congress to urge CMS 
to facilitate beneficiary access to IVIG by (1) issuing separate HCPCS 
codes to IVIG products and (2) increasing the payment for 
administration services. We strongly urge you to consider the lasting 
policy implications of Congressional and administrative decisions as 
CMS negotiates the delicate balance between appropriate reimbursement 
and access to care. We hope that Congress will urge CMS to exercise 
restraint in considering any number of policy options that could 
negatively impact the long-term sustainability of access to IVIG within 
the United States, such as a precipitous NCD process. As the 
subcommittee continues to review this issue, we welcome the opportunity 
to provide additional information.


                                                      U.S. Oncology
                                                      July 13, 2006
The Honorable Nancy Johnson
Chair, Subcommittee on Health
Committee on Ways & Means
U.S. House of Representatives

Dear Congresswoman Johnson,

    U.S. Oncology is pleased to submit this testimony for the record 
for the Committee on Ways & Means Health Subcommittee Hearing scheduled 
for July 13, 2006 on Medicare Reimbursement of Physician-Administered 
    U.S. Oncology, headquartered in Houston, Texas, is one of the 
nation's largest community cancer treatment and research networks. U.S. 
Oncology provides extensive services and support to its affiliated 
cancer care sites to help develop the most advanced treatments and 
technologies, build integrated community-based cancer care centers, 
improve therapeutic drug management programs and participate in many of 
the new cancer-related clinical research studies. The network consists 
of nearly 1000 physicians, based at over 450 service sites in 34 
states. U.S. Oncology serves as a strong advocate for community-based 
cancer care providers, at whose offices approximately 83.4 percent of 
all cancer treatment encounters occur in the United States.
    Over the past several years, U.S. Oncology and community cancer 
care providers have advocated for a balanced and sustainable reform of 
the Medicare reimbursement structure for physician-administered drugs 
with the goal of preserving and strengthening Medicare beneficiary 
access to cancer care services. U.S. Oncology shared the general 
concern with the prior system used to pay for chemotherapy drugs and 
related drug infusion services: overpayment on drugs was used to 
subsidize underpayment on drug administration services.
    The Prescription Drug, Improvement and Modernization Act of 2003 
(MMA) replaced the flawed system with a new payment structure Congress 
intended to more accurately match reimbursement for cancer-fighting 
drugs and the delivery of those drugs to the costs of providing those 
services. However, in several key areas, the implementation of the MMA 
changes to reimbursement of physician-administered drugs has failed to 
meet Congressional intent of fair and adequate reimbursement.
Prompt Pay Discount
    Prompt pay discounts are discounts typically offered by 
pharmaceutical manufacturers to pharmaceutical distributors on direct 
sales of prescription drugs. Wholesalers typically do not share 
manufacturer's prompt pay discounts with providers. Direct sales by 
manufacturers are made to full-service or specialty distributors that 
buy in bulk, consolidate orders and make just-in-time deliveries to 
providers across broad geographical areas. The prompt pay discount 
compensates wholesalers for the time-value of money and the assumption 
of credit risk associated with sales to downstream purchasers.
    Prompt pay discounts offered to distributors and not passed on to 
providers are typically around two (2) percent of the sales price. 
According to the Healthcare Distribution Management Association, the 
net profit margin for full-service healthcare distributors is about 
0.75%. A significant part of a wholesaler's margin comes from 
manufacturer to wholesaler prompt pay discounts.
    Congress intended under the MMA for ASP to match providers' 
acquisition costs. However, CMS has netted a 2% distributor prompt pay 
discount out of ASP calculations even though the discount is not 
received by providers. As a result, the CMS-computed starting point for 
ASP of a drug that costs $100 when purchased by a physician practice is 
actually only $98, or 98% of the provider's cost to purchase the drug. 
When wholesaler prompt pay discounts are netted out of ASP, Part B 
reimbursement to physicians and pharmacies is effectively reduced by 2% 
to provider cost+4%.
    In recognition of the role that prompt pay discounts play in 
wholesaler compensation, Congress excluded customary prompt pay 
discounts extended to wholesalers when it redefined Average 
Manufacturer Price (AMP) under the Deficit Reduction Act of FY 2006. 
The redefined AMP will be used by the Medicaid program as a metric both 
for retail pharmacy reimbursement and Medicaid rebate calculations.
    U.S. Oncology strongly urges Congress to apply the same formula to 
the Average Sales Price (ASP) metric used to compensate physicians and 
pharmacies for drugs reimbursed by Medicare Part B as physicians and 
pharmacies cannot buy these drugs at prices net of customary wholesaler 
prompt pay discounts. Removing customary prompt pay discounts to 
wholesalers from the ASP calculation under Medicare Part B would:

    1.  Make ASP more reflective of pricing actually available in the 
marketplace to the physicians and pharmacies that buy and administer or 
dispense Part B drugs;
    2.  Better align manufacturer's calculation methodologies for ASP 
and AMP, thus simplifying manufacturers' price reporting burden; and
    3.  Ensure consistency in the way prompt pay discounts are handled 
in the calculation of the reimbursement metrics that determine 
government payments to pharmacies that dispense outpatient drugs 
regardless of whether Medicaid or Medicare Part B is the government 

    Removing customary prompt pay discounts to wholesalers from the ASP 
calculation under Medicare Part B would better reflect the 
Congressional intent behind the ASP payment methodology. As noted 
above, a key objective of MMA was to match reimbursement for Part B 
drugs with the drugs' actual acquisition costs in the market. 
Subtracting customary wholesaler prompt pay discounts when ASP is 
calculated artificially distances reimbursement from cost and is 
inconsistent with the Congress' intent to ensure patient access to 
higher cost drugs in hard-to-serve areas.
Two-Quarter Lag
    Currently, there is a six-month, or two-quarter, lag between 
manufacturer reporting and updating of ASP for physician reimbursement 
under Medicare Part B. The practical implication of this two-quarter 
lag is that a provider's drug cost increase experienced today will not 
be recognized by CMS for six months.
    Approximately 90% of oncology drug expenditures are made for single 
source drugs, which leaves manufacturers little incentive to reduce 
drug prices over time. For some commonly prescribed and expensive, 
single source cancer drugs and certain other injected or infused 
products that are standard of care, ASP has been rising rapidly, 
frequently on a quarterly basis. Examples include 4.3% and 2.6% 
increases in Aloxi and Eloxatin ASP values, respectively, between 2q06 
and 3q06.
    The two-quarter lag means the effective payment for drugs with 
rapidly rising prices can be below current acquisition cost, not 
ASP+6%, exclusive of the prompt pay discount reduction and other 
issues. The reverse is true when prices are falling, as can happen when 
an innovator drug comes off patent.
    U.S. Oncology believes that in a rapidly changing market, reducing 
the lag time between the reporting and use of ASP would better align 
reimbursement with physician acquisition costs. We urge the Committee 
to work with the cancer care community to develop a system that ties 
physician reimbursement to monthly ASP reports as opposed to quarterly 
ASP reports. Manufacturers must begin reporting AMP monthly as of Jan. 
1, 2007 under the DRA. Simultaneously requiring monthly ASP reporting 
beginning Jan. 1, 2007 could effectively reduce the lag between ASP 
reports and physician payments by 2-3 months beginning in the third 
quarter of 2007.
    If the lag time were materially reduced, providers would experience 
fewer cash flow dislocations due to rising ASP. For the same reasons, 
Medicare would benefit more quickly when prices are falling.
Medicare Bad Debt
    When taken in combination, netting out wholesaler prompt pay 
discounts and the two-quarter lag result in effective reimbursement for 
physicians of provider cost plus 2% assuming all allowable costs can be 
collected by the provider. Our historical experience has been that 
approximately 25% of Medicare's 20% patient co-insurance is 
uncollectible bad debt. Medicare bad debt results in an additional loss 
equating to approximately 5% of Medicare allowable costs and drives the 
actual reimbursement received by community cancer care providers for 
drugs provided to Medicare beneficiaries down to three percent below 
provider cost on average.
    The Medicare bad debt faced by community cancer care providers is 
primarily attributable to uncollectible patient co-insurance of 
Medicare beneficiaries who cannot afford or choose not to purchase 
secondary insurance. With the patient co-insurance portion of many drug 
regimens costing thousands of dollars, a large portion of Medicare 
beneficiaries without secondary insurance will never be able to pay any 
more than a trivial portion of their co-insurance. As the Committee 
considers the effects of the Prompt Pay Discount and the Two Quarter 
Lag discussed above, it is important to recognize the reality that 
Medicare makes no provision for the bad debt experienced by community 
cancer care providers. This reality will continue to negatively impact 
patient access to quality care.
    Adopting and adjusting these provisions would lead to a 
reimbursement that would be more consistent with the 6% of ASP cushion 
Congress intended to ensure patient access and protect rural physicians 
from underpayments because reimbursement based on monthly ASPs would 
reflect more current pricing.
Drug Administration Services
    U.S. Oncology does not believe that drug reimbursement and the 
transition to an ASP-based reimbursement structure are properly viewed 
in the absence of a discussion of reimbursement for the administration 
of the same drugs to Medicare beneficiaries. U.S. Oncology remains 
extremely concerned about the underpayment of drug administration 
services under both the current and proposed Physician Fee Schedule 
Practice Expense methodologies.
    MMA established a framework and direction to CMS to fully cover 
drug administration practice expenses that were previously covered 
through drug product payments. Congress recognized the inadequate drug 
administration payment system by creating drug administration 
transition payments (32% add-on in 2004 and 3% add-on in 2005) to allow 
CMS time to build in these new payments into the practice expense 
reimbursement system.
    Additionally, Congress created a budget neutrality waiver for CMS, 
extending through 2006, to ensure that these new practice expense 
reimbursements necessary to cover the costs of drug administration 
would not adversely impact other specialties.
    Despite clear intent of Congress through MMA to more accurately 
match practice drug acquisition and drug administration reimbursement 
with the costs of providing those services, our practices have 
experienced practice expense reimbursements that have declined by 20% 
since 2004 and CMS recently proposed a new Practice Expense methodology 
that will further exacerbate the under funding of drug administration 
services in 2007 and beyond.
    Medicare currently reimburses less than 60% of practice drug 
administration costs even for the mythical provider who collects 100% 
of the patient co-insurance. U.S. Oncology's analysis indicates that 
community cancer care providers are paid more than $900 below the cost 
of drug administration for each Medicare beneficiary and this 
underpayment rises to nearly $1000 below cost net of bad debt.
    Please see Exhibit A--U.S. Oncology Comments Regarding Practice 
Expense Methodology Submitted to CMS March 28, 2006--for further detail 
relating to continuing underpayment of drug administration services.
Competitive Acquisition Program (CAP)
    In December of 2005, U.S. Oncology informed CMS that it would not 
participate as a vendor in the Competitive Acquisition Program (CAP) 
due to continuing concerns about the potential negative impact the 
program may have on the ability of the cancer care community to deliver 
high-quality cancer care services to patients in a safe and cost-
effective manner. Subsequent developments have strengthened our belief 
that CAP is fatally flawed for both vendor and physician and does not 
constitute a realistic or viable alternative to the reimbursement 
challenges facing community cancer care providers.
    Please see Exhibit B--U.S. Oncology Comments Regarding the 
Competitive Acquisition Program (CAP) Submitted to CMS December 22, 
2005--for further detail relating to problems with CAP.
    Thank you for the opportunity to provide this written testimony for 
inclusion in the Committee Record. U.S. Oncology looks forward to 
working with the Committee to construct an adequate and sustainable 
reimbursement system that appropriately values the needed and life-
saving services provided to Medicare beneficiaries by the cancer care 
                                                          Dan Cohen
                                              Senior Vice President


                     West Michigan Regional Cancer and Blood Center
                                          Free Soil, Michigan 49411
                                                      July 18, 2006
    I would like to add my comments to The Ways & Means Health 
Subcommittee on the subject of Medicare Reimbursement for Physician 
Administered Drugs. As a medical oncologist practicing in a community 
cancer center in rural northern Michigan, I have experienced firsthand 
the devastating effects caused by the change in the formula for 
calculating Medicare reimbursement for treatment provided at our cancer 
    Currently, of the 61 drugs that we routinely use, our profit margin 
on 38 of them is less than 6%, which was not the premise of the ASP+6% 
calculation. Additionally, because we are located in a rural area, our 
surrounding community hospitals are small and refuse to treat our 
patients at their facilities, citing that their staffs are untrained in 
oncology administration and that the cost of providing oncology 
services would cause an unsustainable financial burden.
    Because of these issues, there are drugs that I must discontinue 
using in my practice, due to the severe negative financial impact. 
Sandostatin, for example, which is approved by Medicare for 
chemotherapy-induced diarrhea, costs me $2603.09 per dose. We bill 
Medicare and four weeks later receive 80% of the ASP+6%, which amounts 
to $2082.47. Until we receive the co-pay from the patient, or from 
their supplemental insurance, we are ``underwater'' by $520.62.
    Another example is the use of Rituxan, a monoclonal antibody 
routinely used to treat and cure lymphoma. The average dose of Rituxan 
costs me $3726.00 and I get reimbursed 80% of the ASP+6%, which is 
$2980.00 per dose. Again, I carry the financial burden of the 20% 
($746) while waiting for secondary insurance or patient payment. It 
doesn't take long for these underpayments to add up and cripple my 
financial viability.
    The true absurdity of the situation is that while these drugs can 
reduce hospital admissions, morbidity and mortality rates, I am forced 
to use alternatives for these drugs, even when they are suboptimal. 
Ultimately, the patient suffers and Medicare often pays more due to 
hospital admission and extended illness.
    The above examples are just two of the 38 drugs that are not 
adequately reimbursed by Medicare. Changes must be made to compensate 
for this deficit in reimbursement for drugs, whether it is increasing 
chemotherapy administration payment or providing reimbursement for the 
other costs of administering treatment.
    There are many costs related to providing chemotherapy services 
that are not compensated, for example pharmacy costs, which include 
procurement of the drugs, secure storage and inventory control, 
treatment preparation, and pharmaceutical spoilage or wastage.
    I trust that you understand the ramifications these reimbursement 
reductions have on our patients, your constituents, and that you will 
move swiftly to correct these inadequacies.
    Thank you for your attention to this important issue. If I can be 
of further service and provide additional information from a rural 
cancer center perspective, please do not hesitate to contact me.
                                             A. Soliman Behairy, MD


                                   Western Washington Medical Group
                       Departments of Hematology & Medical Oncology
                                                      July 17, 2006

Committee Members;

    I would like to take this time to explain how very difficult it is 
becoming for our office to provide good quality cancer care to our 
Medicare/Medicaid patients. Due to the ASP methodology, in the second 
quarter of 2006, I was buying 12 drugs for more than CMS allows for 
reimbursement. I do not have a concise total as of yet for the third 
quarter because I am still getting many price increases from 
pharmaceutical companies, but I assume it will be similar. In order to 
obtain the best pricing I can, I pay for our drugs through direct debit 
the day I receive them, causing a financial hardship to our practice 
when we have not yet had time to be reimbursed for those drugs. I also 
shop around to find the best prices through a variety of oncology 
specific vendors, of which I might add, takes too much of my time. On 
other drugs, we might get reimbursed $.01 more than we pay, so as you 
can see, we are certainly not covered for our cost of storage or for 
bad debt.
    We are not adequately reimbursed for the special space we are 
required to have in our office to safely store and mix these toxic 
drugs or for the specialized personnel it takes to administer these 
    We have had to resort to sending some patients to the hospital for 
treatment and have not found this very optimal as we find the hospital 
personnel are not as proactive in assuring the patient has all that 
they need in the way of take home drugs and/or prescriptions necessary 
in the event they should have some common side effects.
    Due to Part D, those patients that are in a low income level, that 
qualified for assistance through the pharmaceutical companies for their 
oral agent treatments, are no longer eligible and consequently some 
have chosen not to be treated.
    In all, we feel we are working harder and taking more financial 
risk to care for this group of patients and are reimbursed less, to the 
point of jeopardizing our practice, of which 45% is Medicare and 5% is 
Medicaid. Especially when you consider that some commercial payors are 
trying to emulate the ASP system.
    We have considered CAP, but in analyzing all that would be entailed 
in that program, we found it to be even less of an option.
    These physicians, as I am sure is true of most Oncologists, became 
Oncologists in order to help these patients who are fighting for their 
lives, but today they find themselves having to weigh the financial 
reality of caring for these very patients.
    We sincerely hope that you will find some way to alleviate the 
hardship MMA has put upon us as well as our patients and rectify these 
                                                   Julie MacDougall
                                             Practice Administrator


                                        Community Oncology Alliance
                                                      July 17, 2006
The Honorable Nancy Johnson
Chairwoman, House Ways and Means Subcommittee on Health
U.S. House of Representatives
2113 Rayburn HOB
Washington, D.C. 20515-0521

Dear Madam Chairman:

    For the record, I am submitting this written testimony on behalf of 
the Community Oncology Alliance (COA) and to supplement my testimony 
before the Ways and Means Subcommittee on Health at the hearing on July 
    I would like to clarify my misunderstanding and incorrect answer 
relating to a question you asked me concerning CMS using oncology data.
    For the record, from the official transcript just released you 
asked the following question:
    REP. JOHNSON: How do you respond to CMS's comment that they used 
your survey data and your survey data included the cost of pharmacy?
    To this question, I responded:
    DR. SCHNELL: We have sent them our data and have--effectively 
approximately three months ago and have had no response. I gather 
that's not an isolated experience after sitting through this.
    Unfortunately, I was referring to analyses that we supplied to CMS 
relating to the coding of certain cancer treatment regimens, which show 
that on the treatment level services reimbursement has decreased from 
2004 to 2006. What I did not understand is that you were asking me if 
it is correct if CMS used oncology survey data, specifically in 
capturing the cost of pharmacy-related expenses.
    Yes, in a manner that we cannot determine, CMS has used 2001 data 
provided in 2002 by the American Society of Clinical Oncology (ASCO). 
Unfortunately, we have maintained to both ASCO and CMS that this data 
was fundamentally flawed and is now outdated. In summary,

      data was collected at the oncologist level (and only from 
oncologists who were ``full or part owners'' of their medical practice) 
not at the practice level, thus making it virtually impossible to 
accurately capture all practice/clinic expenses;
      only 8 data elements (i.e., practice expense dollar 
amounts) were collected (see Exhibit A in the enclosed document) making 
it impossible to attribute expenses to specific services such as 
treatment planning and pharmacy facilities;
      much of the data, including high dollar expense items, 
were seemingly arbitrarily discarded by CMS, thus decreasing total 
practice expenses attributed to oncology; and
      the practice expense data from 2001 is now obsolete, 
especially given treatment advances and reimbursement changes over the 
past 5 years, which have increased expenses.

    We have attached a brief background piece on this that provides 
more detailed information on why ``the oncologists' own data'' is not 
valid and reflective of actual community oncology practice.
    We suggest that it would be very helpful if CMS could provide 
information on ``unbundling'' some of the most frequently used drug 
administration codes. Let me explain. We constantly hear the argument 
that all expenses for essential services we provide are ``bundled'' 
together and therefore paid under the most common billing codes we use. 
However, we are not able to obtain a breakdown, or ``unbundling,'' for 
these codes from CMS. We would appreciate help in obtaining this 
information from CMS. This will then allow us to compare these 
component expenses, and the corresponding ``unbundled'' reimbursement, 
with actual practice costs.
    Regardless of this ``bundling'' issue, in the spirit of paying 
appropriately for drugs and specific services, we believe that there 
should be separate payment codes for drug administration, treatment 
planning, and pharmacy facilities, in addition to the evaluation and 
management (E&M) codes used by all medical specialties. CMS could 
easily accomplish this administratively, as we believed this was 
supposed to happen per the Medicare Modernization Act of 2003.
    I trust that this clarifies my response to your questions.
                                     Frederick M. Schnell, MD, FACP
    Analysis of the ASCO/Gallup/Lewin Oncology Survey Data Used by CMS
    Prepared for Congresswoman Nancy Johnson
    Data was collected by the Gallup Organization on behalf of the 
American Society of Clinical Oncology (ASCO), submitted to CMS, and 
analyzed by the Lewin Group. This is ``the oncologists' own data'' that 
CMS references as being used in justifying the current level of 
reimbursement for all services provided by community oncologists. There 
are fundamental flaws with the way the data was collected, the way it 
was analyzed, and the conclusions drawn from it. The specific problems 
are summarized as follows:

      Data was collected at the individual oncologist level and 
not at the medical practice level; that is, the data could only be 
submitted for full--or part-time physician owners of the practice as 
opposed to all other physicians, nurse practitioners, oncology nurses, 
and staff that composed the entire community oncology clinic. Given the 
comprehensive nature of community oncology clinics, even the smallest 
clinics, it is extremely difficult, if not impossible to attribute 
expenses to an individual oncologist. This approach will result in 
artificially lower practice expenses.
      The actual practice expense data captured is attached as 
Exhibit A. Only 8 practice expense dollar amounts were collected via 
phone survey. This made it impossible to value any costs relating to 
specific functions such as treatment planning and pharmacy facilities. 
At best, the data could be used in a collective manner to attribute 
some practice expense component to the drug administration codes.
      The calculation of hours Lewin made about the time 
oncologists spend in direct patient care is inordinately high. This 
resulted in lower expenses attributed per hour (because the hour 
denominator was artificially high) and, therefore, resulted in lower 
total practice expenses.
      It is impossible to ascertain if the final data accepted 
by CMS is representative of actual community oncology. Lewin even 
questions the representative nature of the sample given the low survey 
response rate. Furthermore, it appears that data outliers were 
arbitrarily excluded from the final data accepted.
      There was great concern expressed by CMS over high 
``clerical'' salaries. The data and cost from larger practices that 
employ more highly compensated administrators, CEOs, CFOs, etc., were 
therefore excluded from the survey thus giving an unfair representation 
of salary cost across the board from smaller to larger clinics.
      The data used is from 2001 and is therefore obsolete. 
This information is prior to the availability of newer treatment 
protocols and changes to Medicare reimbursement for cancer care.

    What follows are specific facts and problems associated with this 
data being used in any way by CMS to draw accurate conclusions about 
appropriate levels of services reimbursement.
    The Gallup Organization, which was contracted by ASCO to collect 
community oncology practice expense data, started with the AMA 
MasterFile of 5,574 oncologists. Out of the 5,574, Gallup attempted to 
contact 2,356 oncologists. Out of the 2,356, there were 999 responses 
collected by Gallup and submitted to CMS. The Lewin Group, which was 
contracted by CMS to analyze the data (see Recommendations Regarding 
Supplemental Practice Expense Data Submitted for 2003, Centers for 
Medicare and Medicaid Services, #500-95-0059/TO#6, September 17, 2002) 
eliminated 416 responses because these were responses from oncologists 
that were not owners of their practice. CMS edits eliminated an 
additional 338 responses leaving a usable sample of only 245 physician 
      The AMA MasterFile clearly does not include all of the 
office-based oncologists in the United States. There is no way of 
knowing how representative the AMA MasterFile is in terms of office-
based community oncology practice. With the elimination of data, there 
is no way of knowing how representative the 245 physician responses are 
of nationwide community oncology practice.
      Lewin questioned if the final sample was indeed 
representative (``This low response rate may indicate that the 
responses are not representative of the population of oncologists.'').
      The 245 responses represent individual physicians, not 
necessarily individual practices. We know of instances where two or 
more physician owners from the same practice submitted data.
    The survey was at the physician level, not at the practice level. 
Only individual oncologists who are owners of their practice were 
eligible to submit data for their ``share'' of practice expenses. 
Oncologists who are not owners were excluded from the survey. The 
survey requested only 8 data elements of practice expenses (see Exhibit 
      There are numerous problems associated with determining 
the oncologist's ``share'' of practice expenses, especially specific to 
the oncologist who is a partial and/or full ``owner'' of the practice. 
Is the ``share'' what the oncologist is legally liable for as a 
shareholder or is his/her ``share'' the amount of expense attributable 
to his/her particular practice from an accounting standpoint? We polled 
clinic practice administrators who responded to the survey and the 
interpretation varies. It is virtually impossible to assume that the 
data was consistent and representative of total practice expenses.
      No data were collected relating to specific functions 
performed by the oncologists, nurses, or staff or to specific 
components of overhead. Therefore, it is impossible to draw any 
conclusions about expenses attributed to such specific components of 
care such as treatment planning or pharmacy facilities.
    CMS disputed and originally rejected the ASCO data as too high 
because the salaries reported for ``clerical'' personnel were 
calculated as being higher than that for ``clinical'' personnel. Lewin 
reports that the average clerical person makes $87,253 per year and the 
average clinical person makes $71,014 per year. Lewin questions the 
accuracy of the abnormally high clerical salaries.
      In the data collected, there was only one question 
pertaining to the salaries of ``administrative, secretarial, or 
clerical'' personnel. Yet, because community oncology practices 
function more as clinics than simple physician offices, they typically 
have more experienced practice administrators and related staff (CEOs, 
COOs, CFOs, etc.). It appears that either data was eliminated or 
adjusted, thus artificially lowering overall practice expenses.