Fine Print of Budget Deal Doesn't Bode Well for SGR Overhaul

Ted Okon

The tiny “raise” touted in the latest temporary fix to Medicare’s Sustainable Growth Rate (SGR), which was wrapped inside the bipartisan budget deal headed to President Obama’s desk, is anything but good news for oncologists, according to experts from two major medical associations.

In fact, according to Ted Okon, executive director of the Community Oncology Alliance (COA), Congress sent signals that chemotherapy administration is going to continue its march into the hospital setting, leaving community oncologists and private-practice physicians out in the cold.

Early news reports on the latest SGR legislation, known as a “patch,” touted a purported 0.5% increase in Medicare rates for the first quarter of 2014. But beyond that headline, the real news is less rosy: The SGR stopgap, designed to forestall cuts above 20% to make up for years of shortfalls, includes a provision to keep in place—possibly until 2021—the 2% cuts to Medicare’s reimbursement of physicians for patient care and buy-and-bill medication services that were imposed earlier this year due to the sequester.

The Senate approved the overall budget package December 18 with a 64-36 vote, following a lopsided House vote of 332-94 the week prior.

The votes translate into bad news for community oncologists, according to Okon of COA, a lobbying group for oncologists in community practices. “On January 1, the Centers for Medicare & Medicaid Services will pay less for chemotherapy administration—about 7.4% less,” Okon said. “Eventually, CMS will pay 10% less to administer chemotherapy drugs with no cost-base justification.”

The latest 3-month fix, following 12 years’ worth of stopgap measures to avoid catastrophic cuts to Medicare rates, is designed to let Congress finish designing a plan to permanently eliminate and replace SGR. Critics of SGR call it a flawed instrument that has never kept pace with the true cost of administering care. Congress has vowed to use SGR reform to move Medicare away from a fee-for-service reimbursement model to one that rewards quality care, but many details have yet to be worked out. Left unresolved is how the bill will be funded; that duty will fall to House and Senate appropriators.

Although the military, programs for the needy such as Head Start and Meals on Wheels, and the Transportation Security Administration will benefit from the budget deal, noticeably missing is specific funding for individual federal agencies and programs, including the National Institutes of Health (NIH), a critical source of research funding for oncologists, hematologists, and other cancer researchers. It’s unlikely that NIH funding will return to pre-sequestration levels, according to a statement from the American Society of Hematologists (ASH).

Alan Lichtin, MD

“The passage of the bill is good news for the nation, with no looming government shutdown, but the demands of the sequester and constraints on NIH funding remain,” said Alan Lichtin, MD, chair of Government Affairs at ASH. Lichtin added that the institution where he works as a hematologist, the Cleveland Clinic, “is not immune to budget constraints [and] has experienced more voluntary retirements. With reimbursement rates going down, Cleveland Clinic has not been able to expand many of its research programs.”

The budget deal is disappointing to groups that embraced aspects of an earlier bipartisan plan for SGR reform, drafted by Congress and unveiled on October 30, but now being revised. The day before that announcement, Okon spoke at a Chicago conference, Value-Based Oncology Management, and outlined the “destructive” effects that current Medicare reimbursement policies have had on community clinics.

Since 2005, after Congress altered Medicare cancer drug-reimbursement formulas—tying them to average sales price instead of average wholesale price—Okon said 288 clinics have closed, and 469 have been acquired or have a physicians’ services agreement with a hospital. “The community share of oncology patients is declining,” Okon told the gathering. “More and more I hear physicians say, ‘I give up.’ These are well-run practices.”

The Arc of the SGR Shortfall

Years of uncertainty over Medicare reimbursement have left practices unwilling or unable to make long-term investments, he said. “They say, ‘We strategic plan day-by-day.’ ”The problem with SGR dates to 1997, when Congress created the formula in an effort to control spending. The formula was supposed to set realistic yearly and cumulative spending targets; if the cost of care exceeded the target in any given year, rates would be cut the following year to make up the difference.

However, inaccurate forecasts meant actual Medicare Part B spending has exceeded the target for more than a decade. AMA president Ardis Hoven, MD, told MedPage Today after the October 30 announcement that, each year, the “sword of Damocles” would hang over physicians’ heads as they waited for Congress to pass legislation to thwart the automatic cuts. Yet the longer Congress failed to fix SGR, the worse the problem grew. In May 2012, in an interview with Evidence-Based Oncology, Allen S. Lichter, MD, chief executive officer of the American Society of Clinical Oncology (ASCO), called the situation “the classic kick-the-can-down-the-road.”

How big is the problem? Estimates for getting rid of SGR include $377 billion for 2012 and $139 billion for 2013, and there are no good answers on how to address the problem. When asked how the repeal would be funded, AMA’s Hoven said, “I don’t think we really know.” Some accounts attribute the shrinking SGR shortfall to the fact that physicians have already sustained so many cuts.

Problems with Medicare’s dysfunctional reimbursement model have hit oncology especially hard, and the effects of the federal sequester have only made things worse, Okon explained in Chicago. Oncology’s buy-and-bill system of administering increasingly expensive medications, the diversity of disease states, and the fact that so many cancer patients are older and reliant on Medicare mean an outdated reimbursement model is acutely felt in oncology. According to the American Cancer Society’s 2013 report, 77% of all new cancers are diagnosed in persons 55 years or older.

In his 2012 interview with EBO, ASCO’s Lichter outlined just how an unreformed fee-for-service payment model fails the oncologist, since the total amount of Medicare funding is capped. “Over time, the number of things physicians can do, and the number of patients and the number of medical conditions that we can now affect, has just grown and grown and grown. If the amount of funding to pay the fees is finite, and to some extent the number of things we can do keeps growing and growing, then the fee for each unit of service needs to be cut. That’s essentially, in very broad brush strokes, how the SGR dug the hole that we’re in,” he said.

Meanwhile, the scientific side of cancer treatment—including new therapies and the impact of genetics on treatment—has been transformed. With that transformation has come the call for oncology to move with the rest of medicine toward a payment model that rewards quality. But while multiple pay-for-quality demonstration programs exist in cancer care, as long as Medicare stuck with SGR, change would be difficult.

The lack of resolution has not been good for doctors or patients, Okon told the Chicago gathering. More and more patients who need chemotherapy have been pushed into hospitals, where costs are higher. Shortages of key chemotherapy drugs, especially generics, have emerged, along with parts of the country where care is limited.

“If you look at a state like Wyoming, you see we’ve created treatment cracks in rural areas,” Okon said in Chicago. “Drug shortages have cost lives in this country.”