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30–451 2006

MEDICARE REIMBURSEMENT OF 

PHYSICIAN-ADMINISTERED DRUGS 

HEARING 

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 

( 


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COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

DEVIN NUNES, California 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

NANCY L. JOHNSON, Connecticut, Chairman 

JIM MCCRERY, Louisiana 

SAM JOHNSON, Texas 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

KENNY C. HULSHOF, Missouri 

FORTNEY PETE STARK, California 

JOHN LEWIS, Georgia 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

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. 


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C O N T E N T S 

Page 

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

WITNESSES 

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 


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iv 

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 


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MEDICARE REIMBURSEMENT OF 

PHYSICIAN-ADMINISTERED DRUGS 

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:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

July 06, 2006 

HL–16 

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 p.m. 

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. 

BACKGROUND: 

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 physicianadministered 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 

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ment, lowering the bad debt exposure and liability of the physician and significantly 

reducing their paperwork burden. 

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.’’ 

FOCUS OF THE HEARING: 

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 beneficiaries. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

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://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Thursday, July 

27, 2006. Finally, please note that due to the change in House mail policy, the U.S. 

Capitol Police will refuse sealed-package deliveries to all House Office Buildings. 

For questions, or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 


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The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

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. 


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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), 


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will speak from the patient perspective about the importance and 

accessibility of intravenous immunoglobulin (IVIG) to treat PID. 

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 program. 

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 IVIG. 

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 


bajohnson on PROD1PC69 with HEARING
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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 skepticism. 

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. Kuhn. 

STATEMENT OF HERB B. KUHN, DIRECTOR, CENTERS FOR 

MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES 

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 administration. 

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 


bajohnson on PROD1PC69 with HEARING
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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 drugs. 

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 

drugs. 

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 form. 

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 marVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\30451.XXX 30451

bajohnson on PROD1PC69 with HEARING
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ketplace. 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 


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drugs; and home infusion of intravenous immune globulin for Primary Immune Deficiency. 

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 departments. 

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 drugs. 

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. 

ASP 

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 


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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. 

CAP 

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 


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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 


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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 past. 

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. 

IVIG 

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 reports. 

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. 


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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. 

Summary 

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 system. 

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. 

f 

Chairman JOHNSON OF CONNECTICUT. Mr. Vito. 

STATEMENT OF ROBERT A. VITO, REGIONAL INSPECTOR GENERAL FOR EVALUATIONS AND INSPECTIONS, U.S. DEPARTMENT OF HEALTH AND 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 


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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 marketplace. 

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 methVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 E:\HR\OC\30451.XXX 30451

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1Section 1847A(c) of the Social Security Act, as added by the MMA. 

2Pursuant 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. 

odology. 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


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4 All data and methods described in the testimony refer to calendar years. 

5These figures relate only to reimbursement for the drugs themselves. They do not include 

the dispensing fees paid to the supplier. 6 ‘‘Adequacy of Medicare Part B Drug Reimbursement to Physician Practices for the Treatment 

of Cancer Patients,’’ A–06–05–00024. 

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. 

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

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 reviewed. 

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 


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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. 8Section 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. 9 ‘‘Monitoring Medicare Part B Drug Prices: A Comparison of Average Sales Prices to Average 

Manufacturer Prices,’’ OEI–03–04–00430, May 2006. 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. 11Fourth-quarter 2005 ASPs are used to set second-quarter 2006 reimbursement amounts. 12 ‘‘A Comparison of Average Sales Prices to Widely Available Market Prices: Fourth Quarter 

2005,’’ OEI–03–05–00340. 13The 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. 

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. 

• 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 2005. 

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 year. 

• 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. 

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


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14 ‘‘Calculation of Volume-Weighted Average Sales Price for Medicare Part B Prescription 

Drugs,’’ OEI–03–05–00310. 

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. 

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 ASPbased 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 future. 

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. 

Conclusion 

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 


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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. 

f 

Chairman JOHNSON OF CONNECTICUT. Dr. Miller. 

STATEMENT OF MARK MILLER, PH.D., EXECUTIVE DIRECTOR, 

MEDICARE PAYMENT ADVISORY COMMISSION 

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 71⁄2 percent. As you have already heard mentioned, the actual Medicare reimbursements to support the adminVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\30451.XXX 30451

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istration 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 care. 

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, MediVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 E:\HR\OC\30451.XXX 30451

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care 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 

Background 

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 facilities. 

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 


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(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 price. 

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. 


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• 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 manufacturers. 

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 rate. 

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 spending. 

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 2005. 

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 


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$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 drugs. 

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 patients. 

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 October. 

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 physicians. 


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Chart 2. Change in price variation by chemotherapy and non-chemotherapy drugs 

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 capital. 

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 time. 

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. 


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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 liability. 

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 

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care 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 worsens. 

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 outof-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. 

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quire 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. 

Conclusion 

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 outof-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 work. 

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 facilities. 

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. 

f 

Chairman JOHNSON OF CONNECTICUT. Mr. Steinwald. 

STATEMENT OF BRUCE STEINWALD, DIRECTOR, HEALTH 

CARE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

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. 


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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 drugs. 

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 


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1Medicare 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. 4 Until 2004, Medicare paid physicians 95 percent of AWP. Legislation changed Medicare’s 

payment to 85 percent of AWP in 2004. 5Manufacturers 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. 

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

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 


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6GAO, Medicare: Payments for Covered Outpatient Drugs Exceed Providers’ Costs, GAO–01– 

1118 (Washington, D.C.: Sept. 21, 2001). 7 Certain prices were excluded, including prices paid to federal purchasers and prices for drugs 

furnished under the Part D program. 8The term rebates refers to price concessions given to purchasers by manufacturers subsequent to receipt of the product. 9See 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. 10We 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. 11We 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). 

often far exceeded market prices that were widely available to health care providers.6

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

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. 

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. 

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. 


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12GAO–06–17R. 13Manufacturers’ 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. 

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. 

Background 

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

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 


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14The 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. 15Typically, hospitals did not systematically track all manufacturers’ rebates on drug purchases, although nearly 60 percent of hospitals reported receiving one or more rebates. 

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 wideranging 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. 

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 


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16GAO–06–17R. 17GAO–06–17R. 18These drugs accounted for 95 percent of Medicare spending on all SCODs in the first 9 

months of 2004. 19The 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. 21GAO–06–372. 

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

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. 

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. 

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. 


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Madam Chairman, this concludes my prepared statement. I will be happy to answer any questions you or the other Subcommittee Members may have. 

f 

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 problem? 

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 ASP. 

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 


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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 areas? 

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 


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how hard it is to look for any—at any one thing, I had them accommodate it, group things by treatment. 

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. 


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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 nonvolume 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-someodd 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 


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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. 


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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. 


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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 


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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 forward. 

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 opinions. 

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 


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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 percent. 

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 


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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 percent. 

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 


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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 there. 

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 


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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 


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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 paVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 E:\HR\OC\30451.XXX 30451

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tients 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 addressed? 

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: 


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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 doctor? 

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 


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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 offlabel 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 

Administrator 

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 available. 


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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 

f 

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 


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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. 

STATEMENT OF FREDERICK M. SCHNELL, M.D., PRESIDENT, 

COMMUNITY 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 


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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. 


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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, 


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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 unreimbursed 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 system. 


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Problem #2: Certain essential cancer care services and costs are not reimbursed. 

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-bycase 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. 


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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 ASPØ3.8%

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 


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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%. 


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• 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 


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1 Congressional Budget Office. H.R.1 Medicare Prescription Drug, Improvement, and Modernization Act of 2003. November 20, 2003. 2Our 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. 

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

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) 


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Table 1. Federal Budgetary Cost of the MMA Payment Changes to 

Oncology Outpatient Drugs and Biologicals (Fiscal Years 2004– 

2013, in $ billions)—Continued 

2004 2005 2006 2007 2008 2004— 

2008 

2004— 

2013 

Difference (0.0) (0.4) (0.8) (0.9) (1.1) (3.2) (9.5) 

PricewaterhouseCoopers estimate, July 10, 2006. 

Methodology 

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 Medi- care 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. 

EXHIBIT C 

‘‘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. BeVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00066 Fmt 6633 Sfmt 6621 E:\HR\OC\30451.XXX 30451

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cause 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 business.’’ 

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 claims.’’ 

‘‘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 treatment.’’ 

‘‘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. 

f 

Chairman JOHNSON OF CONNECTICUT. Dr. Bailes. 

STATEMENT OF JOSEPH S. BAILES, M.S., EXECUTIVE VICE 

PRESIDENT, AMERICAN SOCIETY OF CLINICAL ONCOLOGY, 

ALEXANDRIA, VIRGINIA 

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 


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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 price. 

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. 


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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 


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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 insurance. 

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 immediately. 

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 


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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 wellinformed 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. 


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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. 

f 

Chairman JOHNSON OF CONNECTICUT. Thank you. Ms. 

Boyle. 

STATEMENT OF MARCIA BOYLE, PRESIDENT, IMMUNE 

DEFICIENCY FOUNDATION, TOWSON, MARYLAND 

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 imVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 E:\HR\OC\30451.XXX 30451

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mune-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 immunecompromised 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 


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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 

hearing. 

[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 me?’’ 

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 setting. 

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 


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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 lifethreatening 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? 


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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. 

f 

Chairman JOHNSON OF CONNECTICUT. Thank you, Ms. 

Boyle. Mr. Friedman. 

STATEMENT OF RICHARD FRIEDMAN, EXECUTIVE CHAIRMAN, 

BIOSCRIP, 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 

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cian 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 nonpaying 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:] 


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Statement of Richard Friedman, Executive Chairman, Bioscrip, 

Elmsford, New York 

I. INTRODUCTION 

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 challenges. 

My testimony today will focus on four topics: 

• Benefits of the CAP for Medicare beneficiaries and physicians • 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. 

II. BENEFITS OF THE CAP 

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 vendor 

III. CAP IMPLEMENTATION 

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 


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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 included: 

• 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 


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who joined the CAP repeatedly specified that they wanted to leave the ‘‘buy and 

bill’’ system and are happy with the reduced administrative burden. 

IV. CAP STRUCTURAL BARRIERS 

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 increase. 

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 provider. 

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 


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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 join. 

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 outreach. 

V. FINANCIAL IMPLICATIONS TO THE VENDOR 

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. 


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VI. CONCLUSION 

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. 

APPENDICES 

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 (d). • 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 CMS 

• April 7, 2006—BioScrip signs the offered contract 

• April 18, 2006—BioScrip is informed of sole vendor status 

• 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 efforts 

• 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


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Appendix B—Number of CAP physician elections—Continued 

Specialty Number of CAP physicians 

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. 

f 


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Chairman JOHNSON OF CONNECTICUT. Thank you very 

much. Dr. Orange. 

STATEMENT OF JORDAN S. ORANGE, M.D., PH.D., CHAIR, PRIMARY IMMUNODEFICIENCY DISEASE COMMITTEE, AMERICAN ACADEMY OF ALLERGY, ASTHMA AND IMMUNOLOGY, 

ASSISTANT PROFESSOR OF PEDIATRICS, UNIVERSITY OF 

PENNSYLVANIA SCHOOL OF MEDICINE, PHILADELPHIA, 

PENNSYLVANIA 

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. 

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 offlabel 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 alterVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00084 Fmt 6633 Sfmt 6602 E:\HR\OC\30451.XXX 30451

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natives 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 

patients. 

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 

Medicine. 

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 subboard 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 


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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 brief: 

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 subVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00086 Fmt 6633 Sfmt 6621 E:\HR\OC\30451.XXX 30451

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set 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 

IVIG. 

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 patients. 

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. 

f 

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 

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creasing. 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 record. 

Chairman JOHNSON OF CONNECTICUT. You say it is a labor 

intensive production drug. Do you think the supply is the problem? 

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 reimbursement? 

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 

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ering 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 practices. 

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 referVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00089 Fmt 6633 Sfmt 6602 E:\HR\OC\30451.XXX 30451

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ring 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. 

Kuhn’s. 

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 reVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00090 Fmt 6633 Sfmt 6602 E:\HR\OC\30451.XXX 30451

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imbursement you have to pay attention to how the different services are supported. 

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, 

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batim 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. Johnson. 

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 


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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 drugs. 

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 


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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 option. 

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! 

f 

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. 


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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 onehalf 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 inappropriately. 

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 so. 

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 


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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 copays 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. 


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• 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 compensation. 

• 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 multipacks 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 wasted. 

• 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. 

RECOMMENDATIONS 

• 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. 


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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 organization. 

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 www.amerisourcebergen.com. 

ABSG is a wholly owned subsidiary that provides manufacturer services, distribution services and physician and patient services through its nine specialty pharmaceutical services divisions, including: 

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. 

f 

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 

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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 ISSUE CAUSED BY THE MMA JUST 30 DAYS INTO 

2005! 

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 hospital. 

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 

OF THE ACCESS AND QUALITY ISSUES RESULTING FROM MMA WHEN PATIENTS ARE REQUIRED BY POLICY CHANGES TO SEEK TREATMENT IN 

SETTINGS OTHER THAN THE PHYSICIAN OFFICE, WHICH HAS BECOME 

THE GOLD STANDARD FOR MANAGING CANCER CARE. 

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 


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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 down. 

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 day, 

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 stay in practice,’’ THIS INDICATES A SEVERE ACCESS ISSUE CAUSED 

BY FLAWS IN THE MEDICARE PAYMENT SYSTEM. 

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 ACCESS PROBLEM FOR 

PATIENTS WHO NOW HAVE TO TRAVEL WELL OUT OF THEIR AREA, IF 

THEY CAN, TO SEEK CARE. 

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. 

Sincerely, 

Dawn Holcombe, MBA, FACMPE, ACHE 

f 

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-Committee: 

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 


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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 monthto-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. 

Sincerely, 

Steven M. Coplon, MHA, CMPE 

f 

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 cogVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00101 Fmt 6633 Sfmt 6621 E:\HR\OC\30451.XXX 30451

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nitive 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, 

f 

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, malVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00102 Fmt 6633 Sfmt 6621 E:\HR\OC\30451.XXX 30451

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practice 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 charges? 

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 services. 

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 trends. 

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. 

f 

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 business. 

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 


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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! 

f 

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 prices. 

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 disproportionately. 

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 purchase. 

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 beVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00104 Fmt 6633 Sfmt 6621 E:\HR\OC\30451.XXX 30451

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cause 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. 

Sincerely, 

Luanne Lange 

f 

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 Hemeoncologist 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. 

f 

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 


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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 specialty. • 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. 

f 

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 involved. 

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 


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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. 

Sincerely, 

f 

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 practice. 

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 hosVerDate Aug 31 2005 05:03 Dec 22, 2006 Jkt 030451 PO 00000 Frm 00107 Fmt 6633 Sfmt 6621 E:\HR\OC\30451.XXX 30451

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pitals 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 issue, 

Respectfully, 

f 

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 IVIG. 

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. 


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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 issues. 

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 services. 

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. 


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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 conditions. 

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 longterm 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 


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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 regard. 

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. 

f 

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, 


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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 Drugs. 

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 CMScomputed 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 


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pharmacies that dispense outpatient drugs regardless of whether Medicaid or 

Medicare Part B is the government payer. 

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. 


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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% addon 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 community. 

Sincerely, 

Dan Cohen 

f 

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 center. 

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 


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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. 

Sincerely, 

f 

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 drugs. 

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. 


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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 issues. 

Respectfully, 

Julie MacDougall 

f 

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 13th. 

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. 


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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. 

Sincerely, 

Frederick M. Schnell, MD, FACP 

President 

Analysis of the ASCO/Gallup/Lewin Oncology Survey Data Used by CMS 

Prepared for Congresswoman Nancy Johnson 

SUMMARY: 

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. 

FACTS: 

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 


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owners of their practice. CMS edits eliminated an additional 338 responses leaving 

a usable sample of only 245 physician responses. 

PROBLEMS: 

• 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. 

FACTS: 

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 

A). 

PROBLEMS: 

• 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. 

FACTS: 

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. 

PROBLEMS: 

• 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. 

Æ 


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