Doctors, companies angry over Medicare rules that could lower pricy drug profits

© Stefan Wermuth
A newly proposed program by the Obama administration would lower the profits doctors currently see when prescribing expensive drugs and increase earnings from generic ones, but the potential move has cancer doctors and drug companies up in arms.

Under a revised Medicare payment scheme, the government is looking to test the effects of reducing the amount of money it pays doctors who choose to treat patients with expensive drugs rather than cheaper, generic ones that are also clinically effective. Both doctors and pharmaceutical companies have criticized the five-year proposal, arguing that it would hurt the business of small clinics and also have negative consequences for patients.

According to a new study from Memorial Sloan Kettering Cancer Center, the proposal would indeed decrease the profits doctors see from prescribing expensive drugs. However, the amount of drugs affected by this plan is small, and the payments doctors would receive from choosing generic drugs would increase.

Currently, doctors receive the average sales price of the drug, plus 6 percent (this is in addition to being reimbursed for the actual cost of the drug to doctors). Due to the sequester rules enforcing cuts across the US government, the payment has been reduced from 6 to 4.3 percent. Under the new Medicare pilot program, doctors will receive a flat fee and a percentage payment of 2.5 percent (or just under 1 percent thanks to the sequester).

For example, the study found that doctors can earn more than $1,000 by picking an expensive treatment model under current rules. If the new plan is put into place, doctors will earn half of that.

“Approximately half of drugs used to treat cancer will deliver larger profits to doctors and hospitals, while the other half will deliver lower profit,” the study found. It determined that while 50 percent of drugs would see decreased profits, “there are a few very expensive drugs at the upper range where aggregate profits will be severely curtailed.”

In fact, the study found that four drugs seem to be the driving force behind most of the profits. If those drugs are taken out of the equation, then profits for doctors and hospitals remains essentially unchanged under the new rules.

Since the pilot program was announced, hundreds of physician groups and patient organizations have denounced the idea, the Washington Post reported. In a letter to Congress, they argued that Medicare patients often need to try multiple prescriptions before discovering the right treatment. More changes could lead them to experience “an abrupt halt in their treatment.”

“These vulnerable Medicare patients and the providers who care for them already face significant complexities in their care and treatment options, and they should not face mandatory participation in an initiative that may force them to switch from their most appropriate treatment,”the letter reads.

Drug industry trade group PhRMA, meanwhile, told the Post that the changes could hurt small clinics, since they likely wouldn’t be able to get as good of a deal on drug purchases as big healthcare systems. As a result, they would see even less money come in via Medicare payments.

READ MORE: US faces severe shortage of psychiatrists as demand grows – report

On the other side, supporters argue that by decreasing the incentive to use more expensive drugs, treatment may be improved and the escalating costs to taxpayers, who provide the funds for Medicare, could be corralled. Currently, the rules allow drug companies to steadily increase the prices of their most expensive drugs every quarter – behavior that has boosted their profits as well as those of doctors and hospitals.

"The reimbursement system has created an opportunity to charge very high prices, so much so that the profits of doctors on balance revolve around these very few drugs (really the top 10 or so) and that doctors' and hospitals' interests are entirely aligned with the prices of these drugs staying high (and going higher)," said Peter Bach of Memorial Sloan Kettering, who led the study into the proposal, to the Washington Post.