Cuts in Medicare payments backfire as doctors prescribe more unnecessary procedures

The New York Times is reporting on a study that indicates  cancer treatment specialists, who prior to the cuts in allowed Medicare payments  were often making a handy 20% profit on the cancer drugs they prescribed and administered, responded to cuts in the allowed compensation amounts intended to curtail that profit-taking by physicians by prescribing more treatments — increasing volume to make up for a drop in windfall profit.

The study, which will be published in the July issue of Health Affairs, examined changes in payments for certain cancer drugs as part of Congress’s 2003 overhaul of Medicare.

The issue was the large sums that cancer specialists made from the difference between what they paid for the chemotherapy drugs they gave to patients and how much Medicare reimbursed them for those drugs. In some cases, a doctor could buy the drugs for about 20 percent below the price Medicare set for the drugs, which are given intravenously in a doctor’s office.

There was an upside, though. Critics had worried that the change in price structuring might mean that doctors would stop prescribing needed chemotherapies, sloughing them off to clinics.

But what happened was that doctors began prescribing more chemotherapy — apparently to make up for lost revenue.

“In sum, far from limiting access,” the changes under the law “actually increased the likelihood that lung cancer patients received chemotherapy,” the study concluded.

Doctors responded by treating more patients because they had been making so much money under the old system, Professor Newhouse said. “These markups were a substantial portion of their income,” he said.

It wasn’t all upside, though, since some doctors decided to deal with cuts in markups by switching to more profitable treatments — with little or no regard for the efficacy or appropriateness of treatment:

The study found that doctors frequently switched to more expensive options, like increasing their reliance on drugs like docetaxel, where doctors were paid roughly $2,500 for giving a standard monthly amount. “The financial incentive seemed to have an effect where there’s not strong evidence or more than one equally good treatment option,” Dr. Earle said.

But at the same time, Dr. Earle said, he thinks some cancer doctors left private practice for positions in hospitals because of the lower reimbursement rates, which made them no longer able to afford being independent.

“When you squeeze the system in a little place, there is a lot of change,” he said, “but not always the way one would expect.”


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