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Don't Tamper With Medicare Reform
By Kay R. Daly
April 4, 2004

Cancer invades your family, and suddenly you are thrust into a parallel universe. It is a world saturated with emotional extremes, daily trips to a battalion of doctors, a complex schedule of surgeries, chemotherapy, spinal taps, tests and radiation and an unending mountain of paperwork. Cancer is draining on a family's emotions, time, energy and most of all, finances.

When my father was diagnosed with a small tumor in his salivary gland in February of 2002, it never dawned on us that he would pass away before the year ended. The labyrinth of treatments my father endured is well documented in the Medicare paperwork that we are still receiving and processing. A set of injections ranging from $500 to several thousand dollars per shot were jokingly referred to as "Liquid Gold" by my father.

An entire cabinet in the kitchen was dedicated to prescriptions of every conceivable variety. It was a veritable DEA treasure trove of powerful narcotics, steroids and even herbal remedies from thoughtful friends, concerned neighbors and hopeful family members.

It was a combination of savings, private insurance and Medicare that kept financial ruin at bay. Not every senior is so fortunate.

According to a January, 2000 report from CNN, 63 percent of those in the U.S. with cancer are over the age of 65. Medicare, therefore, plays a significant role in cancer treatment decisions.

In the wake of last year's landmark passage of Medicare reform, America's seniors are on the verge of reaping significant benefits from the new law. Drug discount cards are expected to be implemented in the months ahead in advance of the new drug benefit set to launch in 2006. In the area of cancer care, seniors in 2005 are likely to see a dramatic reduction in their regular co-payments - fixed at 20% of the chemotherapy drug and treatment costs -- as the government adjusts how it reimburses physicians for the purchase and delivery of innovative and life-saving cancer therapies.

But as seniors look forward to those welcome changes, a movement is quietly burgeoning in Washington to address at least one special interest's concerns with the cancer care provisions of the new Medicare law. Recent news accounts and trade association policy statements indicate that oncologists may seek to leverage their considerable political influence to reopen Medicare. But this rhetoric doesn't reflect the long-standing concerns with a system that was called "crazy" by a leading influential economist.

This campaign could impose serious financial harm to cancer patients who have been subjected to the old system's excessive co-payments. And it contradicts the public policy concerns that made up the substance of the debate last year over cancer care.

The drug reimbursement restructuring completed in the Medicare bill worked to meet two important needs. First, it generated significant savings that could then be allocated within other provisions of the Act. In addition, it addressed the issues raised in scathing reports from the GAO and the HHS Inspector General that concluded that the current payment methodology, based on an outdated system called 'average wholesale price' (AWP) was dramatically overpaying oncologists for the services they were providing while overcharging patients with respect to co-payments. It would seem that it is not enough that seniors have been overtaxed all of their lives, now they must be relieved of whatever money they might have left by overcharging co-payments.

A recent report from the GAO said that "Medicare's method for establishing drug payments is flawed. Medicare pays 95 percent of the average wholesale price (AWP), which, despite its name, is neither an average nor a price that wholesalers charge. Instead, it is a number that manufacturers derive using their own criteria; there are no requirements or conventions that AWP reflect the price of any actual sale of drugs by a manufacturer."

The GAO said that "physicians are able to obtain Medicare-covered drugs at prices significantly below current Medicare payments, which are set at 95 percent of AWP. Wholesalers' and GPO's prices that would be generally available to physicians were considerably less than AWPs used to establish the Medicare payment for these drugs."

According to Thomas A. Scully, former CMS administrator, "numerous studies have indicated that the ...reported wholesale prices, the data on which Medicare drug payments are based, are vastly higher than the amounts drug manufacturers and wholesalers actually charge providers. That means Medicare beneficiaries, through their premiums and cost sharing, and U.S. taxpayers, are spending far more than the "average" price that we believe the law intended them to pay."

Imagine that! A government program is not operating on accurate information, but relying upon an entirely flawed system of overpayment? And we wonder why Medicare is going broke?

Worse still, the overpayments have the potential to affect physician prescribing and treatment choices.

Reforming the AWP system was one of Congress' highest priorities during last year's contentious Medicare debates. The successfully-negotiated compromise - a transfer from the AWP scheme to a more reasonable system based on market prices - reflects sound economic principles and a regard for all the players involved in delivering and receiving high-quality cancer therapy to the American people.

President Bush and Congress should be applauded for their efforts. And it is incumbent upon Congress to resist calls from anyone to reopen the new law, and instead make sure the Center for Medicare & Medicaid Services successfully implements the law according to the congressional mandate.

As America ages, the strain on Medicare will continue to escalate. According to Intellihealth.com, a person has a lifetime risk of two in five of developing cancer, meaning that for every five people in the population, two eventually will develop cancer. The lifetime risk of dying of cancer is one in five. While we wait for the ultimate solutions of a cancer cure and Medical Savings Accounts to bless this country, this year's Medicare reform legislation is at least a good start.

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Kay Daly is a radio talk show host for Rightalk and the president of the Coalition for a Fair Judiciary.

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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.