Drug Sales Bring Huge Profits, and Scrutiny, to Cancer Doctors

By REED ABELSON

NY Times, January 26, 2003

Kevin P. Coughlin for The New York Times

Preparing a chemotherapy drug at a unit of the MIM Corporation. Cancer specialists sell such drugs to patients, raising ethical questions.

Among cancer doctors, it is called the chemotherapy concession. At a time when overall spending on prescription drugs is soaring, cancer specialists are pocketing hundreds of millions of dollars each year by selling drugs to patients — a practice that almost no other doctors follow.

The cancer specialists can make huge sums — often the majority of their practice revenue — from the difference between what they pay for the drugs and what they charge insurers and government programs. But some private health insurers are now studying ways to reduce these profits, and the issue is getting close attention in Congress.

Typically, doctors give patients prescriptions for drugs that are then filled at pharmacies. But cancer doctors, known as oncologists, buy the chemotherapy drugs themselves, often at prices discounted by drug manufacturers trying to sell more of their products, and then administer them intravenously to patients in their offices.

The practice also creates a potential conflict of interest for these doctors, who must help patients decide whether to undergo or continue chemotherapy if it is not proving to be effective, and which drugs to use.

Cancer specialists have successfully resisted most government efforts to take the drug concession away, arguing that they need the payments to offset high costs in the rest of their practices. An attempt by the Clinton administration to change reimbursement practices was strongly opposed by doctors, and by George W. Bush, who was then governor of Texas, among others. But support for change is growing, and some changes are beginning to take place.

"This has gotten out of hand," said Dr. William C. Popik, the chief medical officer for Aetna, which is exploring different approaches to the concession, including taking it away in some regions.

Health insurers say they can buy these drugs much less expensively themselves and have the drugs shipped directly to doctors' offices. Some also want to keep better track of how the drugs are used.

Critics say the money these doctors make from selling medicine is contributing to the nation's high health care bills and adding to the waste and inefficiency in the health care system.

Medicare, which does not cover most prescription drugs, does pay doctors about $6.5 billion a year for drugs they personally administer, largely cancer drugs. Under the current system of determining what the appropriate prices for these drugs are, the government is paying, by some estimates, more than $1 billion over what the drugs actually cost. Many private insurers say they are also overpaying for these drugs.

In some cases, patients may even be paying a much larger co-payment for the drug than a cancer doctor is paying to buy it. Some patients paid about $150 out of pocket for Toposar, a cancer drug, for example, while doctors appear to have paid closer to $60 after various discounts from Pharmacia, the manufacturer, according to the Minnesota attorney general, who is suing Pharmacia, accusing it of pricing fraud.

The General Accounting Office, which studied federal payments for cancer drugs in late 2001, discovered that doctors, on average, were able to get discounts as high as 86 percent on some drugs. Doctors paid less than $3 for a single dose of leucovorin, for example, while patients paid them around $3.50 out of a total reimbursement of about $17.50.

"We think it's a bad system that creates bad incentives that creates bad medicine," said Robert M. Hayes, president of the Medicare Rights Center, a consumer group, who testified before Congress last fall on the issue.

Dr. Thomas J. Smith, an associate professor of oncology at the Medical College of Virginia Commonwealth University, has estimated that oncologists in private practice typically make two-thirds of their practice revenue from the chemotherapy concession.

The concession echoes the system in Japan, where doctors make money by dispensing drugs. Drug spending per capita in Japan is among the highest in the world, higher than in the United States.

"This is our little corner of Japan," said Joseph P. Newhouse, a health policy professor at Harvard, who has been asked by the government to look into how the Medicare reimbursement system may affect how doctors prescribe chemotherapy.

The concession may also lead some doctors to recommend chemotherapy when patients may not benefit. In a 2001 study of cancer patients in Massachusetts, conducted by a team of researchers led by Dr. Ezekiel J. Emanuel of the National Institutes of Health, the authors found that a third of those patients received chemotherapy in the last six months of their lives, even when their cancers were considered unresponsive to chemotherapy. Those findings strongly suggested overuse of chemotherapy at the end of life.

"We know there is not all appropriate use," said Dr. John Gillespie, medical director of Blue Cross Blue Shield of Western New York.

But oncologists say they are only trying to respond to their patients' wishes. And they say they need the profits from the drugs to make up for high costs in the rest of their operations. They say they spend enormous sums to have the facilities and employees that enable patients to receive chemotherapy outside a hospital, under close supervision.

"It seems to be a wash right now," said Dr. Larry Norton, an oncologist at Memorial Sloan-Kettering Cancer Center in New York and a former president of the American Society of Clinical Oncology. He and his colleagues argue that oncologists treat patients who demand more care and therefore have higher expenses.

"We're just trying to break even," Dr. Norton said.

Oncologists also argue that patients may suffer if doctors do not buy chemotherapy drugs directly. They point to a case in Kansas City, Mo., in which a pharmacist was sentenced in December to 30 years in prison for diluting chemotherapy drugs he then sold to doctors who administered the drugs in their offices. Dr. Norton argued that the case illustrated why he and his colleagues were worried. "Some potential problems could arise," he said.

The health plans, and some of the specialty pharmacies that sell to both doctors and insurers, say this concern is unfounded.

Earlier this month, Representative Pete Stark, Democrat of California, introduced legislation that would slightly increase what Medicare pays oncologists for their services but pay doctors closer to what the drugs actually cost. The government is also looking into how the concession is affecting prescribing patterns.

Oncologists began selling drugs directly more than a decade ago, after they persuaded insurers that it would be less expensive to administer the drugs in their offices than in hospitals. This was part of a trend of doctors' being paid much more to perform services and treatments in their offices than in hospitals. (Some other specialists, like urologists, also profit from chemotherapy drugs, but they administer them only to some of their patients.)

Over the course of the 1990's, oncologists have been able to rely on the sale of chemotherapy drugs as an important source of revenue. They are now among the best-paid doctors, surpassing obstetricians and general surgeons, according to data from the Medical Group Management Association. In 2001, the median compensation for an oncologist in a large practice was $274,000. While compensation for specialists has increased 19 percent, on average, since 1997, oncologists' compensation has risen slightly more than 40 percent.

Dr. Norton dismisses the notion that cancer doctors' compensation has risen faster because of income from chemotherapy drugs. "Oncologists are extremely busy," he said, because more people have cancer and more treatments are available.

But the idea that these doctors make money from the drugs worries some. "All the evidence suggests that doctors do respond to money," said Dr. Susan D. Goold, an associate professor at the University of Michigan Medical School.

Some oncologists acknowledge that the current system creates a perverse incentive. The potential for conflicts of interest "is troubling," said Dr. Edward L. Braud, the president of the Association of Community Cancer Centers, whose members treat more than half of the nation's cancer patients.

In several prominent cases, drug companies have also been accused of using discounts to influence doctors. For example, in the Minnesota lawsuit, brought last year, Pharmacia is accused of having "induced physicians to purchase its drugs, rather than competitors' drugs, by persuading them that the wider `spread' on the defendant's drugs would allow the physicians to receive more money, and make more of a profit, at the expense of the Medicaid program and Medicare beneficiaries."

Pharmacia said it could not comment because the matter was still in litigation.

But others say doctors are solely motivated by what their patients want — a chance, no matter how slim, of living longer or suffering less. Dr. Norton, for one, dismissed the idea that oncologists would be motivated to give too much care or the wrong kind, and said undertreatment is a much greater risk.

Some insurers are getting oncologists to forgo profits from chemotherapy drugs, often by paying the doctors more for administering them. While oncologists may not make as much under the new system, and some have objected vehemently, it is "palatable," said Dr. Abraham Rosenberg, an oncologist in South Florida, where the new system is prevalent.

Last year, inspired by Florida's example, the Blue Cross Blue Shield plan in western New York began negotiating new contracts with oncologists.

The UnitedHealth Group is also in discussions with doctors in New York and expects to begin a pilot program this year. It plans to give oncologists a choice: they can allow UnitedHealth to buy the drugs at a lower price and pay the doctors for administering chemotherapy, or they can accept a lower payment for the drugs if they continue to buy them. The plan is also talking with doctors in cities including Cleveland and Dallas.

Aetna is trying different approaches. In the Northeast, the insurer wants to reimburse doctors at prices that are much closer to what the doctors are actually paying, while in the Southeast and Southwest, it is looking to buy the drugs directly.