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Reimbursement for medical care in the USA
Keynote Comment
Reimbursement for medical care in the USA
David Mack/Science Photo Library
With the promise of healthcare reform from the Obama administration, there are as many opinions of how to control costs as there are commentators. One leading proposal is to develop information technology to reduce errors and save costs. Having ordered the installation of IT systems in institutions over the years, I have never seen one that saved money, although efficiency and accuracy may be improved, so I remain to be convinced. I believe a more important issue is the unjust and wasteful reimbursement system for medical care in the US. The first hurdle is the widespread cultural belief (not just in the US) that spending 30 min to remove an appendix is worth 10–30 times as much as spending 30 min examining a patient, telling her that she has breast cancer, explaining what the prognosis might be, and then recommending the next steps. This belief is held by patients as well as payers and doctors. It is wrong-headed and is a major factor in driving up costs. Procedures that use technology, like surgery and diagnostic imaging, are reimbursed much more richly than the intellectual and humane aspects of medical care. The latter are considered more difficult to measure or value. Also, bureaucracies that handle the payment for services—both government and private—often include in the calculation of a professional fee the complexity of equipment and facilities used, even though the use of facilities and equipment, including depreciation, nurses, and technologists, is paid for in addition to professional fees.
Resale and administration of drugs provides a large proportion of revenue in oncology practices
198
Another concern is that government is not always the answer to medical cost problems. When the 2003 Medicare Modernization Act was passed by the US Congress and implemented in 2006 to increase pharmaceutical benefits for elderly patients, the Bush administration got the money by reducing reimbursements to doctors and hospitals. It is common for oncologists to purchase chemotherapy and resell it to the patient at a profit, which is legal, within limits. Before the Act, it was estimated that 65% of the revenue in the average medical oncology practice was from the resale and administration of chemotherapy in their offices. This source of revenue has been sharply reduced since 2006. Before the reader expresses righteous indignation, understand that, because professional reimbursement is so low, it is very difficult for a medical oncologist to survive in the US if his income comes only from professional fees for examining patients and prescribing pharmaceuticals. The sharp reduction of reimbursement for chemotherapy put some small practices out of business and induced larger ones to include technical activities in their practices, such as diagnostic imaging, clinical laboratories, radiation oncology, and surgery. In essence, this created a system of self-referral, which may be unethical but is not illegal. Studies have shown that the number of imaging procedures ordered by physicians in a practice group rose dramatically when all practice members were financial beneficiaries. Untangling this complex system isn’t easy. But there is another side of that coin. Even after 2006, senior members in large, multi-specialty medical oncology practices can earn a million dollars a year or more because of the lucrative technical services in their practices. In effect, they are venture capitalists. They eventually may hire a hot-shot accountant who is paid according to the practice’s financial performance, so the risk is that an accountant can have a strong influence on practice decisions and operations. Another costly feature of the US system is the offlabel use of prescription drugs. For a pharmaceutical company to obtain approval for a drug to be put on the market, they must show efficacy and relative safety for only one disease. If a drug is approved by the Food and Drug Administration for the treatment of lung cancer, www.thelancet.com/oncology Vol 10 March 2009
Keynote Comment
an oncologist may give it to a patient with endometrial cancer with no penalty even though the drug was not studied for that cancer. He may have a patient with refractory endometrial cancer and has nothing else to offer, so he gives the drug based on instinct, preclinical studies, preliminary human studies, or just plain desperation. This off-label use is common in oncology and is usually reimbursed by payers. It is apparent that abuses can arise, particularly since many of these drugs are new and very expensive. Changing some of these factors that contribute to the high cost of medical care would have already been done if it were easy. But the fragmentation of thousands of providers and payers presents an initial challenge, and the special interest groups can be very influential on the decisions of policymakers. There are those on the right who believe the government can never do anything right and everything possible should be privatised. It is easy to hold this doctrinaire position until a neighbour’s son is badly injured in Iraq and receives inadequate care from the veterans hospitals, run by the same government, and then they become
www.thelancet.com/oncology Vol 10 March 2009
indignant. Some on the left think a single-payer system will solve the cost problem. Major savings are certainly possible, but the US Government has not controlled costs in the Medicare system since its inception in 1965. We are expecting miracles from Obama. He has tremendous political capital, but that will not last forever. And he does not have a filibuster-proof majority in Congress. But a cost-effectiveness system in Medicare and Medicaid with the power to decline payment for unproven therapies, except within a formal clinical trial, would surely cut costs. Fixing the perverse reimbursement system would be much, much harder, but rebalancing payment for non-technical professional services would be more just and in the bargain might reduce costs; it certainly is worth a try. Joseph V Simone University of Florida Shands Cancer Center, PO Box 103633, Gainesville, FL 32610, USA jsimone@ufl.edu The author declared no conflicts of interest.
199
Reimbursement for medical care in the USA
David Mack/Science Photo Library
With the promise of healthcare reform from the Obama administration, there are as many opinions of how to control costs as there are commentators. One leading proposal is to develop information technology to reduce errors and save costs. Having ordered the installation of IT systems in institutions over the years, I have never seen one that saved money, although efficiency and accuracy may be improved, so I remain to be convinced. I believe a more important issue is the unjust and wasteful reimbursement system for medical care in the US. The first hurdle is the widespread cultural belief (not just in the US) that spending 30 min to remove an appendix is worth 10–30 times as much as spending 30 min examining a patient, telling her that she has breast cancer, explaining what the prognosis might be, and then recommending the next steps. This belief is held by patients as well as payers and doctors. It is wrong-headed and is a major factor in driving up costs. Procedures that use technology, like surgery and diagnostic imaging, are reimbursed much more richly than the intellectual and humane aspects of medical care. The latter are considered more difficult to measure or value. Also, bureaucracies that handle the payment for services—both government and private—often include in the calculation of a professional fee the complexity of equipment and facilities used, even though the use of facilities and equipment, including depreciation, nurses, and technologists, is paid for in addition to professional fees.
Resale and administration of drugs provides a large proportion of revenue in oncology practices
198
Another concern is that government is not always the answer to medical cost problems. When the 2003 Medicare Modernization Act was passed by the US Congress and implemented in 2006 to increase pharmaceutical benefits for elderly patients, the Bush administration got the money by reducing reimbursements to doctors and hospitals. It is common for oncologists to purchase chemotherapy and resell it to the patient at a profit, which is legal, within limits. Before the Act, it was estimated that 65% of the revenue in the average medical oncology practice was from the resale and administration of chemotherapy in their offices. This source of revenue has been sharply reduced since 2006. Before the reader expresses righteous indignation, understand that, because professional reimbursement is so low, it is very difficult for a medical oncologist to survive in the US if his income comes only from professional fees for examining patients and prescribing pharmaceuticals. The sharp reduction of reimbursement for chemotherapy put some small practices out of business and induced larger ones to include technical activities in their practices, such as diagnostic imaging, clinical laboratories, radiation oncology, and surgery. In essence, this created a system of self-referral, which may be unethical but is not illegal. Studies have shown that the number of imaging procedures ordered by physicians in a practice group rose dramatically when all practice members were financial beneficiaries. Untangling this complex system isn’t easy. But there is another side of that coin. Even after 2006, senior members in large, multi-specialty medical oncology practices can earn a million dollars a year or more because of the lucrative technical services in their practices. In effect, they are venture capitalists. They eventually may hire a hot-shot accountant who is paid according to the practice’s financial performance, so the risk is that an accountant can have a strong influence on practice decisions and operations. Another costly feature of the US system is the offlabel use of prescription drugs. For a pharmaceutical company to obtain approval for a drug to be put on the market, they must show efficacy and relative safety for only one disease. If a drug is approved by the Food and Drug Administration for the treatment of lung cancer, www.thelancet.com/oncology Vol 10 March 2009
Keynote Comment
an oncologist may give it to a patient with endometrial cancer with no penalty even though the drug was not studied for that cancer. He may have a patient with refractory endometrial cancer and has nothing else to offer, so he gives the drug based on instinct, preclinical studies, preliminary human studies, or just plain desperation. This off-label use is common in oncology and is usually reimbursed by payers. It is apparent that abuses can arise, particularly since many of these drugs are new and very expensive. Changing some of these factors that contribute to the high cost of medical care would have already been done if it were easy. But the fragmentation of thousands of providers and payers presents an initial challenge, and the special interest groups can be very influential on the decisions of policymakers. There are those on the right who believe the government can never do anything right and everything possible should be privatised. It is easy to hold this doctrinaire position until a neighbour’s son is badly injured in Iraq and receives inadequate care from the veterans hospitals, run by the same government, and then they become
www.thelancet.com/oncology Vol 10 March 2009
indignant. Some on the left think a single-payer system will solve the cost problem. Major savings are certainly possible, but the US Government has not controlled costs in the Medicare system since its inception in 1965. We are expecting miracles from Obama. He has tremendous political capital, but that will not last forever. And he does not have a filibuster-proof majority in Congress. But a cost-effectiveness system in Medicare and Medicaid with the power to decline payment for unproven therapies, except within a formal clinical trial, would surely cut costs. Fixing the perverse reimbursement system would be much, much harder, but rebalancing payment for non-technical professional services would be more just and in the bargain might reduce costs; it certainly is worth a try. Joseph V Simone University of Florida Shands Cancer Center, PO Box 103633, Gainesville, FL 32610, USA jsimone@ufl.edu The author declared no conflicts of interest.
199