The Effects of Sequestration on Medicare Cancer Patients

June 13, 2013


By Colleen Hoeffling

After the federal government failed to approve a budget plan this year, across-the-board federal spending cuts (“the sequester”) went into effect on March 1, 2013. Though some individuals, including President Obama, predicted that the economy would begin an immediate downward spiral as a result of the sequester, such predictions have not been realized.[i] However, there have been several immediate, unintended consequences of the sequester, one of which is “a 2 percent cut to Medicare chemotherapy drug reimbursements [that] went into effect April 1.”[ii]

Legislators intended to shield Medicare, at least in part, by limiting the cut to Medicare to 2%, but “oncologists say the cut is unexpectedly damaging for cancer patients because of the way [cancer] treatments are covered.”[iii]

The Medicare News Group reported that the cuts apply to provider payments for services delivered in the hospital setting, covered by Medicare Part A. The cuts also apply to contractual payments to Medicare Advantage Plans (Part C), and Medicare Medical Insurance (Part B).[iv] Medicare Part B covers medical services and supplies, including doctor’s office visits.[v] Typically Medicare Part D, an insurance plan that supplements Medicare, covers medication for seniors. Though Medicare Part D is subject to the cut, it includes private insurer options for beneficiaries that would not be subject to the sequester. Also, low-income subsidies, as well as other additional subsidies, for Part D beneficiaries whose spending exceeds catastrophic levels are exempt from sequestration.[vi] However, because a community doctor must administer cancer medication to a patient in an office visit, cancer medication is one of the few medications that the community doctor administers that is subject to the cut applicable to Part B.  In addition, prior to the cut, Medicare paid clinics for the actual cost of cancer drugs, plus an additional 6% for the clinics’ administrative costs.[vii] In applying the sequester, Medicare did not cut 2% only from the additional 6% allotted for administrative costs; rather, it cut the entirety of its payments to clinics for cancer medications by 2%.[viii]

As a result, some claim that Medicare reimburses providers for many cancer drugs at a price that is lower than the cost of the drugs. Thusly, “many cancer doctors, especially community oncologists who operate in smaller, nonhospital settings—are now unable to keep up with the costs associated with treating Medicare cancer patients who are typically elderly and on fixed incomes.”[ix] Doctors are turning these patients away, most often to hospitals that charge more for the same service, thereby increasing the monetary cost for the patient as well as for the health care system as a whole.[x] For example, North Shore Hematology Oncology on Long Island informed 5,000 Medicare patients that their treatments would no longer be covered.[xi] It is, however, unclear whether hospitals, especially rural hospitals, have sufficient resources to serve the displaced patients.[xii] Moreover, non-monetary costs are implicated, as suggested by American Society of Clinical Oncology (ASCO) President Sandra Swain: “Cancer patients are very sick, often elderly, and may struggle with great fatigue and discomfort. Having to travel just an additional 10 miles and be treated in a larger system can be a traumatic experience for these patients.”[xiii]

According to the Community Oncology Alliance (COA), a non-profit organization which devotes itself to “preserving and fostering community cancer care,” 4 out of 5 cancer patients are treated in providers’ offices within their communities.[xiv] A COA survey found that “69% of practices surveyed reported that patient treatment and/or operational changes have been made due to the sequester cut to cancer drugs”[xv] and that 49% of practices reported that they “were forced” to send Medicare patients elsewhere for treatment; 62% stated that they will be forced to send Medicare patients elsewhere if the cut remains in effect through July 31, 2013; 21% reported that they have laid off staff members as a result of the cut; and 38% stated that they will be forced to lay off staff members if the cut remains in effect through July 31, 2013.[xvi]

The director of the COA, Ted Okon, stated, “[t]his is a drug that we’re purchasing. The costs don’t change and you can’t do without it. There isn’t really wiggle room.” Furthermore, he stated, “[i]f you get cut on the service side, you can either absorb it or make do with fewer nurses.”[xvii]

Dr. John Cox is a community oncologist at Texas Oncology Methodist Cancer Centers in Dallas and a member of ASCO.[xviii]  Dr. Cox maintains that the cut not only forces providers to either absorb costs or lay off staff; but also asks them to discriminate between cancer patients with Medicare and cancer patients without Medicare.[xix] He stated that this is an outcome that “makes all of us uneasy.”[xx]

The issue has aroused significant bipartisan concern. Numerous members of both parties in the House of Representatives wrote to the Administrator for the Center for Medicare and Medicaid Services (CMS), indicating that the cuts may violate the Medicare Modernization Act of 2003 (MMA), which set prices for cancer medication at 106% of the actual sales price (ASP).[xxi] Members of the Senate and the House, 124 in  total, sent letters to CMS requesting that cancer drugs be exempt from the sequester cut.[xxii]

CMS responded in a letter dated June 3, 2013, and indicated that it did not have authority to expand on the exemptions to the sequester that are specified in 2 U.S.C. sections 905(g) and (h) and 906(d)(7).[xxiii] CMS offered a hypothetical to demonstrate how sequestration is applied. CMS uses the actual sales price (ASP) multiplied by the original 106% required by the MMA in order to make its calculations.[xxiv] CMS ascertains how much the patient must pay, which is typically 20% of the ASP multiplied by 106% (the pre-sequestration amount).[xxv] Therefore the patient will pay the same amount for a service as he or she would have paid prior to the cut.[xxvi] CMS applies the 2% cut to its portion only.[xxvii] The calculations do show that the doctor’s payment is reduced by a total of 1.6%; however they show also that ultimately the patient remains responsible for 20% of 106% of the ASP, while the doctor receives less than the 106% required by the MMA.[xxviii] The CMS letter does not further comment on this issue.[xxix]

On April 2, 2013 Sen. Pat Toomey (R-Pa.), wrote a letter to the Department of Health and Human Services’ Secretary Kathleen Sebelius, requesting that she reconsider how the Medicare cut is administered with regard to cancer drugs.[xxx] Toomey believes spending cuts are necessary in order to “get our fiscal house back in order,” but that the spending cuts should be applied thoughtfully.[xxxi] Toomey supports “giving the Administration broader latitude to restructure spending reductions under the Budget Control Act [of 2011],” in order to protect Medicare patients’ access to “critical oncology services.”[xxxii] Sebelius did not respond to the letter and Toomey’s office has not  followed up.[xxxiii]

North Carolina Republican Rep. Renee Ellmers, a former registered nurse, supports efforts to reduce federal spending but does not support what she calls the “indiscriminate cuts.”[xxxiv] On April 9, 2013 she introduced H.R. Bill 1416, the “Cancer Patient Protection Act,” which would “require CMS to exempt Part B drugs from sequestration, and to retroactively restore full payment for those drugs previously reimbursed at less than 106 percent of ASP.”[xxxv] The bill has been referred to the Committee on the Budget and the Committee on Ways and Means and Energy and Commerce.[xxxvi]


[vi] Id.

[viii] Id.

[ix] Cancer, supra note 2.

[xi] Huffington, infra note 19.

[xii] Cancer, supra note 2.

[xiii] (hereinafter “ASCO”).

[xiv] COA, supra note 8.

[xv] Id.

[xvi] Id.

[xvii] Washington Post, supra note 4.

[xviii] Cancer, supra note 2.

[xix] Id.

[xx] Id.

[xxii] Cancer, supra note 2.

[xxiii] (hereinafter “Lexology”) (follow to “The CMS Letter” hyperlink).

[xxiv] Id.

[xxv] Id.

[xxvi] See id.

[xxvii] See id.

[xxviii] See id.

[xxix] See id.

[xxx] Huffington, supra note 12.

[xxxi] Id.

[xxxii] Id.

[xxxiii] Id.

[xxxiv] Cancer, supra note 2.

[xxxv] Lexology, supra note 14.


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