Did “Medicus economicus” Kill Medicare Part B Reform?

When doctors complain about proposed changes to health care reimbursement, do they speak for patients or their pocketbooks? As the recent debate over Medicare Part B shows, even with access to publicly available billing data, it’s hard to disentangle financial motivations from more altruistic ones.

Since 2005, Medicare Part B has paid for physician-administered drugs like infused chemotherapeutics by reimbursing 106% of the average selling price (ASP) – a formula commonly referred to as “ASP+6”. In order to reduce overall spending and the program’s apparent incentive for physicians to preferentially use high-priced drugs, CMS proposed a pilot program last year to test a new payment formula that would have reduced the 6% markup to 2.5%, but added a flat per-infusion payment – effectively rewarding doctors more for choosing cheaper drugs, and reducing their profit from expensive ones.

The plan to revamp Part B reimbursement was scrapped after many groups – including professional organizations representing cancer doctors – vigorously objected. Oncologists argued that there are few cases in which a cheap anti-cancer drug is therapeutically equivalent to a more expensive one, and that the proposed change would mainly harm oncologists’ ability to provide high-quality care.

These may be valid arguments, but it’s hard to disentangle oncologists’ clinical interests from their financial ones. Many economists might reasonably view cancer doctors who object to Part B reform as the physician manifestation of “Homo economicus,” acting solely to maximize their personal gain. Neeraj Sood at the University of Southern California summed up many observers’ knee-jerk response: “Doctors are human. The fact is, this [new proposed] model changes how much money they’ll make.”

But that raises a key question: how much do oncologists make from “ASP+6,” anyway?

If cancer doctors rely on Part B profits for much of their income, then it’s more plausible to think that economic self-interest played a big role in their opposition to the pilot program – but if the proposed change to Part B would have had a minor impact on doctors’ take-home pay, then this trivial explanation is less compelling. Prior analyses have measured the relative decrease in profit the new formula would have engendered across all oncologists and for individual drugs, but they haven’t converted this percentage into actual dollars per doctor.

At first blush, it appears that Part B profits could account for a sizable fraction of take-home pay. We estimate that the median oncologist who billed for drugs under Part B in 2014 earned $29,900 of profit (interquartile range, $13,586-$49,954) from the Medicare fee-for-service population, which is just under 10% of the median oncologist’s income – but this is likely the low end of the range. (See footnote for methods.) The CMS database doesn’t include drug-related income from older adults covered by Medicare Advantage or private payers, or from the almost 50% of cancer patients who are younger than Medicare age. (Although other payers besides traditional Medicare typically pay more than a 6% mark-up, it’s likely they would at least somewhat follow Medicare’s lead if “ASP+6” were changed.) Although it’s hard to calculate precise numbers without knowing the exact payer splits and mark-ups in the typical oncologist’s practice, our analysis and a recent benchmarking study together suggest that Part B income is a fairly substantial chunk of the net profit generated by each doctor.

But this back-of-the-envelope calculation may mask a high degree of skewness in the distribution of these data. Of the almost 12,000 U.S. cancer doctors engaged in patient care, fewer than 5,000 reported any Part B drug billing in the CMS data set, of whom we estimate just 108 reaped 10 percent of total drug profits. It’s hard to understand the shape of the income distribution curve across all of these doctors – some may be the “biller of record” for colleagues in their practice, and others may infuse some or all of their Medicare fee-for-service patients at academic or hospital-based centers instead of in their offices– without more granular patient- and practice-level data across a wider set of payers.

Adding to the complexity, it’s also likely that only a minority of oncologists personally realize the profits they generate from Part B. Similar to other specialties, only about 40 percent of oncologists reported working in physician-owned practices in 2015. The rest, who work in academia or practices owned by hospitals or health systems, are typically paid a base salary and a bonus based mainly on patient care volume, with strictly financial factors (like drug mark-ups) contributing relatively little to their variable compensation. So in many practices, Part B profits are earned by corporate and institutional owners, and their impact on individual physicians is minimal and indirect.

On balance, it’s impossible to assess from public data how much oncologists’ opposition to Part B reimbursement changes is motivated by economic self-interest versus clinical factors. Doctors and professional groups could boost their credibility in this debate by helping collect, analyze, and disclose far more complete and granular data on practice volumes, patient demographics, payer mix, compensation models, and net profits from Part B than they have to this point. Until then, cancer doctors who object to reimbursement reform may continue, rightly or wrongly, to be viewed as “Medicus economicus” until proven otherwise.

Methods: We downloaded the Physician and Other Supplier Public Use File (PUF) for calendar year 2014 from the CMS website, which contains Part B data for fee-for-service Medicare beneficiaries. We identified doctors classified as “Hematology/Oncology”, “Medical Oncology”, or “Gynecological/Oncology” (N=7,765), and analyzed the 4,658 who billed drug services under Part B. For each physician, we calculated Part B profit (i.e., excluding ASP) by multiplying total Part B drug billing by (0.043/1.043). (Although the current formula defines the mark-up as 6% above ASP, the effective percentage under the budget sequester is 4.3%.) Descriptive statistics were calculated in Excel.

About the authors: Frank S. David, MD, PhD, is the founder and managing director of Pharmagellan, a biotech consultancy. He tweets about the drug and device industries, health care policy, and related issues at @Frank_S_David<>, and blogs at the Pharmagellan website and at Forbes.com. Andrew Matthews, MD, and Keshia Maughn, MPH, are an associate consultant and data scientist, respectively, at Pharmagellan

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2 replies »

  1. There are pros and cons of enrolling in Medicare Part B when retiring with the federal employee health benefit program. Most of what I have read seems to indicate that enrolling in Part B gives more peace of mind. It is always the out-of-pocket cost that is given as a good reason to have Part B. Another reason is that you might have a catastrophic cost sometime. Most FEHB programs have a catastrophic limit so the savings by not paying Part B premiums seems like it would more than offset a large out-of-pocket cost in a particular year.

  2. Good questions raised. Reducing ASP+6 may not make a huge difference to the bottom line of the typical oncologist, but ASCO may have its own reasons to fight the reduction all the while claiming to speak on behalf of all oncologists. So long as cost decisions remain centralized, obscurity will prevail.