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PHARMA/PHYSICIANS: The oncologists dilemma, by Matt Quinn

Regular contributor Matt Quinn who used to work in this obscure part of the health care business, reminded me of the Medicare Bill’s provisions to reduce the ability of oncologists to make money off the drugs they dispense:

    The proverbial other ball is about to drop in the injectible drug game…

    The game is actually decreasing AWP (average wholesale prices, which drug manufacturers report artifically high so that docs make money on the “spread” between what they actually pay and what they’re reimbursed), then reimbursing based on ASP (average sales price, i.e. the actual price that docs pay) and/or just getting the drugs shipped to them. It’s good to see that CMS has looked to boost service payments to offset the lost income from drug game, but you can expect LOTS of grumbling and ads about cancer patients dying in the streets for lack of an available oncology practice. My take is that it’s removing an oft-denied but all-to-available opportunity for docs to succumb to perverse incentives (i.e. designing cancer regimens around drug profitability; continuing treatments until expiration, etc.).

    CMS has also slipped in a provision to reimburse “functionally equivalent” drugs at the same rate as their predecessors. So, for example, Aranesp, which I assure you has a completely different name and package than Procrit, will be reimbursed at the same rate as the older version of the drug that
    does the same thing and costs less. Again, expect LOTS of resistance, as drug companies will have to make their money from actual innovation/novel
    drugs vs. “extended release” or new packaging of old ones. I wonder if this will address combination drugs (i.e. taking to drugs and putting them together and calling it a new drug) – another tactic to drive profits without innovation? 1/2 ASP of both?

    I think the bigger question is: if the government can exercise such cost restraint on drug costs on injectible market, why wouldn’t it make sense to do so for the rest?

Of course some other intended consequences could be more chemotherapy heading back into the inpatient setting (i.e. the oncologists pushing the less profitable patients into the arms of the hospitals) and more shenanigans from the pharma cos on raising AWP and ASP. This one will be an interesting niche to watch to see if overall cost control is possible or if the providers and pharmas will collectively find a way around it.

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