JAMA Viewpoint: Overhaul of oncology payment system needed

Dr. Peter Bach, an oncologist at Memorial Sloan-Kettering Cancer Center in New York, is calling for a radical revamp of Medicare's cancer drug payment program. "The current financing method for physician-administered oncology drugs is unsustainable," he writes in an online Viewpoint on the Journal of the American Medical Association website.

Oncology practices currently operate by charging a mark-up on the retail sales price of chemotherapy drugs. Previously set at 6%, the federal budget sequester dropped that to 4.2%, and the CMS is talking about further lowering it to 3% to hold down costs as the price of the latest cancer drugs soars. The average sales price system provides oncologists with bigger margins if they choose the most expensive drugs, which they are under increasing pressure to do because of the cuts. Responding to oncologists' protests, at least 91 sponsors in the U.S. House of Representatives have signed onto legislation restoring the 6% mark-up.

Bach suggests three possible ways out of the dilemma: episode-based payments, which give a set price for each chemo session and create an incentive for oncologists to choose lower-priced drugs; payments for "pathway adherence," which give higher payments if oncologists follow lower-cost regimens; and third-party buy-and-bill arrangements, where an outside distributor purchases chemotherapy drugs and supplies them to oncologists, who decide which drug they think will work best and bill 100% of the costs to the insurer. This eliminates any financial incentive for oncologists to choose more expensive regiments.

While Bach sees strengths and weaknesses in each approach, he says any of them would be better than the current system. "Episode-based payment appears the most appealing in the long term and is most consistent with the trend in health system reform toward shared accountability and global payments," he writes. "However, third-party buy-and-bill is the easiest to introduce because it does not require proscriptive decisions by insurers regarding what care is appropriate for which patients and is already enabled in Medicare through existing legislation."

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