Monday, March 04, 2013

Sequestration Mania Hits Physician-Administered Drugs

So, the federal government’s mandated spending cut took effect. The world didn’t end, consistent with the Wall Street Journal’s prescient February 6 editorial titled The Unscary Sequester.

Physician-administered drugs under in Medicare Part B will get a 1.6% payment cut, because of a reduction in the reimbursement rate from ASP+6% to ASP+4.3%. (Check the math. It’s a cut from 106% to 104.3% of ASP.)

While I view the sequester as incredibly poor public policy, let’s keep some perspective. As I explain below, total drug revenue per full-time equivalent hematology/oncology physician will drop by less than $27,000.

Even President Obama is busy walking back his administration’s comments of complete disaster. KCCO.


For those who don’t know, the Medicare Part B program covers a limited number of outpatient prescription drugs. These include injectable drugs administered by a physician; certain self-administered drugs, such as oral anticancer drugs and immunosuppressive drugs; drugs used in conjunction with durable medical equipment; and some vaccines.

Medicare uses Average Sales Price (ASP) as the basis for reimbursing physician-administered injectable drugs and some self-administered medications, such as oral anticancer drugs and immunosuppressive drugs. Average Sales Price (ASP) equals the volume-weighted, per-unit average of manufacturer sales prices for each product that falls within a single Healthcare Common Procedure Coding System (HCPCS) billing code. ASP is computed using actual sales revenues to a manufacturer, i.e., list price minus all price concessions (volume discounts, prompt pay discounts, cash discounts, free goods, chargebacks, rebates, etc.).


As many pundits have noted, the sequester’s indiscriminate cuts, all of which come from discretionary annual spending, are a crazy way to get the country’s debt problem under control.

Putting aside politics, here’s how I estimate the typical impact per physician:
Thus, a 1.6% reduction will reduce Medicare practice revenue from $1.7 million to $1.67 million—a reductions of about $27,000.

As far as I know, commercial payers are not planning similar cuts. Plus, 36% of oncology drugs are handled by specialty pharmacy providers, and are not paid via buy-and-bill. See Specialty Pharmacies Keep Gaining on Buy-and-Bill.

Sadly, these cuts could encourage more physicians to sell their practice to hospitals, which can then jack up the drug prices. So much for sensible health care policy!


  1. While I agree with your drug analysis…remember that the 2% (or whatever) also comes out of services, labs, and DME under the current scenario---many of which have low or no margins, so practices hand to lose more than you describe…

  2. Good point, Bobbi. I'm only trying to provide perspective on the drug impact, because I have seen some blatant misinformation being published during the past week.

  3. Hi Adam,
    Nice article on the effect of sequestration on Part B reimbursed drugs. Just have one question for you… how did you calculate the 1.6% payment cut? Or where did you see the cut from 106% to 104.3%? Everything I’ve seen is 2% payment cut which would effectively be ASP +3.88%.

  4. I used the figures posted by the Community Oncology Alliance in their scare-post Sequestration Started; Countdown to Cancer Care Cuts.

  5. Adam:
    After doing some more research, this is my understanding: The 2% sequester cut impacts just the Medicare amount. Patient cost sharing is not impacted by sequester. Patient cost-sharing is 20% of the Medicare Allowable Payment (106% of ASP). The calculation is as follows and the new reimbursement rate will kick in April 1, so, if Congress stops the sequester, no impact.

    Sequestration rate = ('Medicare pays' minus 2%)+ 'patient pays'

    In other words:
    - Normally: Allowable= (.80*1.06asp)+ (.2*1.06asp) = 1.000
    - Sequester: Allowable= (.98(.80*1.06asp))+ (.2*1.06asp) = 1.043


    Rick Moore | Manager, US Commercial Compliance
    Compliance Implementation Services (CIS)

  6. Dr. Fein:

    Read your story on the impact of the sequester on Part B drugs in oncology. Unfortunately, it is way too superficial and does not tell the entire story.

    First of all, many of the drugs now are under water (reimbursed at less than cost) currently at ASP + 6% based purely on acquisition cost. One of the reasons for this is the inclusion of manufacturer-to-distributor prompt pay discounts included in the calculation of ASP. More are under water factoring in all costs including storage, handling, purchasing, and waste.

    The sequester cut is at least 2%, although it applies only to the 80% billed to Medicare. What you neglected to mention is the bad debt associated with the 20% patient co-payment.

    Additionally, the sequester cut will wreck havoc with practices' internal billing systems, and will require more administrative oversight.

    The ratcheting down of Medicare drug reimbursement has led to severe consolidation of cancer care, as we have documented. The second shoe to drop was drug shortages. This sequester cut cuts far deeper than your analysis.


    Ted Okon
    Executive Director
    Community Oncology Alliance

  7. Thanks very much for your thoughtful comments, Ted. The sequester is certainly bad policy.

  8. One of Rick's CIS colleagues just posted additional information about the cut: Sequestration – Beware Medicare and Physician-Administered Drugs


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