High drug prices skewing payouts to some physicians

Ophthalmologists are among Medicare's highest paid specialists—a finding already drawing scrutiny from policymakers and watchdogs worried about waste and overuse. But doctors' advocates say the data shouldn't be interpreted as eye doctors getting rich off the government's senior citizen healthcare program.

A closer inspection of the data reveals that many of the highest-paying codes for eye doctors relate to the use of Lucentis, a branded injectible drug for macular degeneration that costs $2,000 a dose.

Medicare rules let doctors mark up the price of drugs delivered in their offices by 6% over the manufacturer's average sale price. The additional fee was designed to help physicians defray the cost of running their facilities.

Ophthalmologists say the federal government's release of physician payment data has skewed public perception against them by including the total cost of drugs in overall Medicare payments. “Including those drug reimbursement dollars as part of a physician's Medicare payment artificially inflates the amount paid to ophthalmologists,” said Dr. David Park II, CEO of the American Academy of Ophthalmology in San Francisco.

The federal government on Wednesday published an unprecedented database listing how much Medicare money was paid to some 880,000 doctors, broken down to the level of individual procedure code. The 9-million-line database only detailed Medicare Part B payments, which totaled about $77 billion in 2012.

Not surprisingly, internists, who care for their patients from the office to the hospital bedside, received the most Medicare money as a group with $8.7 billion. But highly paid specialists like ophthalmologists drew the most attention because their outsized share of Medicare spending wouldn't seem to be justified by their relatively small numbers.

The highest-paid Medicare doctor in the country is Florida ophthalmologist Salomon Melgen, who received $20.8 million from the government program in 2012. As a group, eye doctors received at least $5.6 billion—about 7% of total Medicare spending on physicians, making them the second-highest compensated group.

Cardiologists received $5 billion, or 6% of the pie, making them the third-highest compensated specialty by Medicare.

The relatively large amounts received by some specialties drew immediate fire from consumer groups. “If I was a policy maker, I would want to take a hard look at whether we are paying higher prices than we should for some of those procedures, or if there are excessive procedures being done,” said Robert Krughoff, president of Consumer's Checkbook, an advocacy group that has pushed for release of Part B data. “But I'd also want to take into account the way that things are reimbursed.”

The reimbursements for several specialty groups reflect the price of drugs when they are delivered in physicians' offices. They include not just ophthalmologists but oncologists, whose practices deliver costly chemotherapy treatments.

Nearly a decade ago, the government sought to limit the price paid for drugs through Medicare Part B by allowing them a 6% markup over the average sales price paid by physicians. The new system replaced the misnamed average wholesale price system, which congressional and HHS investigators repeatedly found was an arbitrarily high book price that was heavily discounted by drug companies to give physicians huge margins on drugs administered in their offices.

While the new system succeeded in curbing excessive markups, it created a new incentive for physicians to favor more expensive drugs. A 6% markup grows in direct proportion to the retail price of the drug.

For instance, ophthalmologists earn significantly higher markups by treating macular degeneration, a common malady among seniors, with Lucentis, which costs about $2,000 per treatment, instead of Avastin, which is equally effective and is made by the same company to treat cancer. Avastin can be administered for around $50 a treatment.

Including the drug payments in the overall spending on physicians may also be skewing perceptions about whether services that involve drug administration can be more efficiently delivered in a doctor's office compared to a hospital, according to Sheryl Dacso, a partner in healthcare law at Seyfarth Shaw. “My speculation is that the cost would be higher when you add the professional fee and the facility charges for that same item or service,” she said, “but we don't have the data to make that comparison.”

In a conference call with reporters Wednesday, a CMS official noted that the physician payment data don't allow the public to differentiate between the physician payment and drug payment when they are contained in a single Medicare Part B payment code.

Follow Joe Carlson on Twitter: @MHJCarlson