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Medicare Officials Need an Econ 101 Refresher

By Bryan Johnson

Washington bean counters don’t set the prices of houses or vehicles. Buyers and sellers settle on mutually agreeable prices. That’s why there isn’t a nationwide shortage of duplexes or jeeps.

Evidently, our unelected officials at the Centers for Medicare and Medicaid Services slept through Econ 101. They’re about to set Medicare drug reimbursements so low that hundreds of local clinics — the ‘sellers’ of medical services — will have little choice but to refuse to treat their patients or risk going out of business altogether. Patients with Crohn’s disease, rheumatoid arthritis, multiple sclerosis, and other serious diseases will struggle to find centers that can treat them.

Medicare “Part B” covers injectable and intravenous medicines given to patients in clinics and doctors’ offices. Physicians purchase these drugs first and then bill Medicare for the cost of the medications plus the cost of administering them.

The Centers for Medicare and Medicaid Services originally set the reimbursement rate in 2006 at the average sales price (ASP) of a medicine plus 6 percent.

Now, officials want to slash this rate further – to ASP plus 0.86 percent and an additional flat payment of $16.80.

The problem isn’t just the drug reimbursements themselves. Most Doctors wouldn’t care if Medicare paid them the cost of medicines with zero markup – so long as Medicare then paid them a fair rate for their time spent administering these medicines. Medicare pays so little for these administration services that clinics rely on the margin from drug reimbursements to stay afloat.

If those drug margins disappear too, clinics won’t be able to cover their costs. They’ll turn away Medicare patients or shut down entirely.

Consider the plight of infusion centers, which treat patients with multiple sclerosis, psoriasis, and a range of autoimmune diseases. From 2006 to 2014, hourly wages for U.S. registered nurses increased by a well-deserved 22 percent, just a tad over inflation. For those same years, Medicare payments for these complex infusions were reduced by 24 percent.

All told, centers’ margins for administering medicines have dropped by almost half in the past decade. Medicare’s payments are no longer enough to cover the cost of a registered nurse, supplies, rent, malpractice insurance, and support staff required to administer these drugs.

Infusion Centers and clinics can’t lose money indefinitely. Providers will have no choice but to turn away patients on Medicare and private plans that follow the Medicare fee schedule.

Shifting care to hospitals is bad for patients. Big hospitals can’t possibly provide the level of personalized one-on-one care that local providers do.

It’s also bad for taxpayers. Infusions of Rituximab, a treatment for both rheumatoid arthritis and non-Hodgkin’s lymphoma, cost 44 percent more when provided at a hospital instead of a clinic.

So when Centers for Medicare and Medicaid Services officials say that reimbursement rate cuts will “improve quality of care and deliver better value for Medicare beneficiaries,” they’re wrong on both counts.

Officials can ignore the laws of supply and demand all they want, but that doesn’t make those laws invalid. If Medicare reimburses doctors so little that they lose money on each patient, they will do the only thing they can and send those patients away to the nearest giant hospital. That’d be disastrous for taxpayers and millions of Americans suffering from serious illnesses.

Bryan Johnson spent 14 years in the Infusion Center industry and currently serves as Board president for the National Infusion Center Association.