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No, Oncologists Are Not Going Broke

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When the automatic spending cuts kicked in for Medicare this month, every doctor saw a 2 percent reduction in reimbursement from the government insurance program. But cancer doctors have made the most noise. A front-page Washington Post story reported that thousands of cancer patients were being turned away by doctors who could no longer afford to treat them. Members of Congress responded quickly, introducing legislation to reverse the cancer reimbursement cuts and asking the Health and Human Services Department to reinterpret the sequester law to exempt oncologists. “This particular cut itself is so devastating to cancer patients that this is one that we just have to see our way to improving and fixing,” said Rep. Renee Ellmers, R-N.C., who sponsored the bill to reverse the cancer cuts. (The doctors are unlikely to find an ally in President Obama, whose budget last week recommended even deeper cuts to their reimbursement.)

Partly, this is political theater. While some oncologists warn that patients will lose access to lifesaving care, others admit they’ll simply absorb the cuts and keep treating their ailing charges. Their median compensation was $430,695 in 2011, according to the Medical Group Management Association. But the situation also highlights how problematic the business of oncology has become. Federal-payment policies have distorted the market and perverted incentives for providers.

Like other physicians, medical oncologists are paid to diagnose disease and devise treatment plans for patients. But for years, they have also had a thriving side business buying and reselling the expensive chemotherapy drugs they administer. Instead of paying for compounds directly, or sending patients to buy them from a retail pharmacy, Medicare reimburses cancer doctors for buying the drugs, then pays them a 6 percent markup above an “average sales price” for the medication.

That markup is designed to reimburse practices for the cost of acquiring, storing, and managing the drugs (doctors often buy the medications before they get paid to administer them). But even accounting for those costs, the margin on cancer drugs still represents 21 percent of the average practice’s revenue, according to asurvey by the firm Oncology Metrics published in the Journal of Oncology Practice. Cancer tends to strike people later in life, so Medicare beneficiaries make up the majority of patients, but many practices also obtain higher drug markups from younger patients with private insurance.

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