Drug payment cuts wanted by Medicare

Federal health officials plan to announce a proposal today that could save taxpayers at least $16 billion over the next decade by slashing the amounts Medicare pays for more than two dozen cancer and lung drugs, a move almost certain to raise an outcry among cancer specialists and some drug companies.

The health care industry has been bracing for rollbacks. But until the proposal, few outside the Medicare agency had known the extent of the price cuts, which for some drugs would be as much as 89 percent below current levels. Besides saving the government money, the changes would also benefit Medicare recipients, who pay 20 percent of the prices their doctors charge for the drugs.


Some cancer doctors, who along with a few other types of health care providers customarily pocket the difference between what Medicare pays for certain medications and what the drugmakers charge the doctors, have warned that they will stop caring for Medicare patients if the price cuts become permanent. Companies that provide care to patients suffering from emphysema have also said that they may end their services; some of them have already stopped advertising for new patients.

Federal health officials who described the price proposals are estimating that the changes would reduce the typical cancer doctor's Medicare revenue by 8 percent next year.


"We believe that there is potential that the changes may have a really dramatically negative impact on our ability to deliver care in ways patients are accustomed to," said Dr. David Johnson, president of the American Society of Clinical Oncology.

The changes result from last year's Medicare drug law. The legislation's primary purpose was to set up a new program that in 2006 will begin paying for prescription drugs dispensed by pharmacies. But the law also overhauled the way Medicare pays for certain drugs it already covers - mainly cancer and lung medications that are not available through pharmacies but are administered through intravenous tubes or mist machines.

Almost half of Medicare's drug budget of $10.5 billion went for cancer drugs, at rates that are based on supposed wholesale price lists provided by the drugmakers. But the prices paid by doctors are typically much lower. Last year, 70 percent of oncologists' income came from drug markups, according to Medicare data.

Medicare's system for paying for these drugs has long been criticized by watchdog agencies like the Government Accountability Office, the auditing arm of Congress.

To stop the government from paying big markups, the law passed last year instructed Medicare to survey prices for drugs and pay accordingly. In the proposal to be released today, which is based on that continuing survey, Medicare plans to preview the prices it intends to pay for the 30 drugs on which it spends the most annually. In some cases, the government will propose slashing the prices by 89 percent, according to the federal health officials, who described the proposal on condition of anonymity.

To make up for part of the income that would be lost by doctors and other care providers, Medicare would increase its service payments to them while also paying a 6 percent surcharge above the new price of the drug. Care providers and drugmakers will have the opportunity to file comments on the plan. Medicare officials plan to use that information and other price surveys to determine a final price list that would be released in November and go into effect in January. Through the end of the year, Medicare will continue to reimburse providers for the cost of drugs using the wholesale prices reported by drugmakers.

Among big price cuts

Among the biggest proposed price cuts to be announced today are the 89 percent reductions for two drugs used to help open lung passages for patients with emphysema and other chronic obstructive pulmonary disorders - albuterol sulfate and ipratropium bromide.


The prices paid by Medicare for both drugs will be reduced, health officials say, to 4 cents from 39 cents a unit for albuterol sulfate, and to 28 cents from $2.82 a unit for ipratropium bromide. The reductions for these two drugs will save the agency more than $1 billion a year, although officials acknowledge that some of the savings may be returned to providers in the form of increased service fees.

Most of the savings in oncology drug reimbursements would involve drugs that have cheaper, generic competitors. The price for each unit of Taxol from Bristol-Myers Squibb, for instance, would drop 81 percent, to $24.38, from this year's price of $138.28, because there are generic competitors.

Depending on the course of treatment, a patient's Taxol therapy under current Medicare pricing can run into the thousands of dollars.

Medicare's announcement is certain to ignite a fierce round of lobbying on Capitol Hill. Cancer doctors are expected to object the loudest because they have political influence and stand to lose substantial sums. More than 80 percent of cancer patients receive medications in doctors' offices instead of hospitals, avoiding the added cost and stress of hospitalization.

Fearing the changes, some cancer doctors have sent letters to patients in recent months warning that they may have to check themselves into hospitals to receive care or they may soon be given older, more toxic cancer drugs. In some cases, small offices with a few doctors have consolidated with larger practices in hopes of winning bigger discounts from drugmakers.

Although most of Medicare's savings on cancer drugs would involve treatments with generic competitors, prices for drugs without such competition would also be reduced.


The price of Procrit, Johnson & Johnson's biggest seller, is to drop by 11 percent, to $9.78 a unit, from this year's $11.62. The price of Aranesp, Amgen's major seller, is to drop by 15 percent, to $17.08 from $21.20.

Zoladex reduction

The price of AstraZeneca's prostate and breast cancer drug, Zoladex, would be slashed 38 percent, to $221.02 a unit, down from $375.99, under the proposal. Mary Linn Carver, an AstraZeneca spokeswoman, said the company supported the transparency that Medicare officials were bringing to cancer care with the new price system. But she said that if physicians lose money under the new system, patient care could suffer.

Federal health officials say that patients have been spending more on their drug co-payments of 20 percent than providers spend to buy the drugs.

The American Association for Homecare says companies use the markup to provide such services as overnight delivery of drugs and 24-hour on-call support. But federal health officials said in interviews that Medicare did not pay for such services for patients with other diseases.

The officials said that many patients use nebulizers in place of inhalers mainly because Medicare does not pay for inhalers. That will change in 2006.