Commentary

Culture of How Washington Pays for Medical Care

By Scott Gottlieb, XXXX
To understand how the Centers for Medicare and Medicaid
Services (CMS) approaches its responsibilities regarding the
coding, coverage, and payment of medical servicesand uses
these authorities to pursue its policy prerogativesconsider the
circumstances surrounding the pharmaceutical company Sepracor
(Marlborough, MA) and its drug Xopenex (levalbuterol).
Xopenex is an innovative respiratory medicine that com-
petes with the chemically distinct and much cheaper generic
drug albuterol. Both are delivered as inhaled aerosols and used
to treat asthma and chronic obstructive pulmonary disease. It is
widely agreed that Xopenex has the same benets as albuterol.
However, some believe Xopenex has fewer of the cardiac ad-
verse effects of albuterol. Medicare did not agree.
1
In 2005, a group of staff members within CMS thought
Xopenex was being inappropriately used in place of cheaper
albuterol. They set out to do something about it.
The agency tried to make a national coverage decision to
curtail use of Xopenex, but it could not come up with a medical
justication that was clinically defensible and would survive
scrutiny. Next, the staff tried to manipulate the payment pro-
cess for the entire class of inhaled drugs, saying it would pay
Xopenex a price equivalent to the least costly alternative (LCA)
form of albuterol. This came out to approximately $0.10 per
treatment for the generic version, compared with approxi-
mately $2.50 for Xopenex. A patient promptly sued CMS, ar-
guing that the agency had exceeded its authority in applying the
LCApolicy to a Part B drug. The LCAprocess had usually been
reserved for low-technologic medical devices. Two federal
courts ruled in favor of the plaintiff and, in the process, sharply
constrained the ability of the agency to apply its LCA policy in
other contexts.
Medicare nally succeeded in reigning in the use of Xopenex
by employing its nal tool: the coding system. By issuing
Xopenex the same classication as generic albuterol, it was able
to pay both products the same blended pricean average of the
cost of each individual drug. This lowered the price of Xopenex
but ironically increased the amount Medicare was paying for
the previously cheaper generics.
Writing on this episode for the Wall Street Journal, I noted
that it is not a stretch to say that Medicare spent hundreds of
cumulative man-hours focusing on Xopenex while other prior-
ities languished. The question is: Why? There were not safety
concerns associated with the drug. Everyone agreed Xopenex
was, at worst, therapeutically equivalent to generic albuterol.
Moreover, Xopenex may have been used in lieu of a cheaper
alternative, but at peak Medicare sales of approximately $300
million, it represented far less than 0.001 of the total budget of
the agency.
Simply put, a few staffers within Medicare were consumed
with Xopenex and its higher price. They viewed the drug as no
better than its cheaper alternative. Seprecor, in their view, was
eecing Medicare. They were determined to x this.
The episode, along with its motivation, reveals the esprit de
corps that inspires the agency staff and drives their efforts. Their
sense of mission turns on a view that they are stewards of an
imaginary trust fund, said to hold the money that funds Medi-
care benets. Whereas staff at the US Food and Drug Admin-
istration (FDA) will speak of their role in protecting and
promoting public health, by contrast, those who work at CMS
often dene their mission around the need to protect the trust
fund. What inspires CMS staff the most is the opportunity to
nix perceived instances of waste. However, the methods they
use in exercising their prerogatives reveal a process that is capri-
cious, indiscriminate, and often disconnected from science.
The travails of Xopenex are also instructive in understanding
the reimbursement predicament that certain radiation oncology
services now nd themselves facing.
2
As described by Falit et al,
3
CMS has used some consumer marketing literature that agency
staff clipped from the Internet as a rationale for reducing the
amount of treatment time that CMS bakes into its calculations for
reimbursing intensity-modulated radiation therapy (IMRT) and
stereotactic body radiation therapy (SBRT). The changes are part
of the 2013 physician fee schedule of the agency.
The authors take issue with, among other things, the use by
CMS of the consumer literature as the basis for estimating
treatment times. Empiric tools such as surveys supported by
real-time data have traditionally formed the basis for the estab-
lishment of payment assumptions by the agency. It is obvious
CMS departed from its conventional methodology, if not the
intent of its own regulations and statutes, in the unusual man-
ner in which it went about setting the IMRT and SBRT fee
schedule. It is also obvious that the consumer literature CMS
referenced described treatment times in the context of what
patients experience, not the times required by providers.
However, none of the lapses by the agency should be a sur-
prise. Efforts by CMS to tweak its reimbursement and payment
schedules are rarely bottoms-up affairs where it spots some un-
usual trend in use or payment of a product or service and then
sets out to investigate the root cause. Instead, in most cases, staff
members will zero in on a particular treatment where there is a
perception of waste and then build their case. The initial inter-
est in a particular technology or service could emanate from
something as basic as an article published in a newspaper.
Radiationservices wouldseemtobe a peculiar place for CMSto
apply a controversial and novel tactic aimed at cost control. Pa-
tients do not use these services indiscriminately. They use it when
they face a serious diagnosis of cancer. However, in this case, there
Health Policy
MONTH 2014 j op. ascopubs. org 1 Copyright 2014 by American Society of Clinical Oncology
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is a perception that nancial arrangements between urologists who
advise patients on the treatment of prostate cancer, and the ability
of physicians to self-refer to sites where they maintain ownership
interests, is driving excess use.
4
The problem is that CMS has little ability to extend more
regulation over these nancial arrangements in the absence of
new statutory authority. So it has chosen to use the only instru-
ment under its direct controlits purview over setting pay-
ment ratesas a way to try and take some of the protability
out of these arrangements.
Some observers celebrate these ad hoc attempts by CMS to
tamp down on spending. As stewards of public spending, it falls
to the agency staff to police what they perceive as nancial waste
in health care. Or so the rationale goes.
But there is a corollary to these practices. By using imprecise
tools and relying on often-arbitrary rationales in targeting specic
services and procedures, CMS risks unintended consequences that
can adversely affect patient care. These risks are made more man-
ifest by the remote relationship between the agency and the prac-
tice of medicine.
In the case of radiation services, even if CMS is correct in its
apparent assumption that nancial ownership in these facilities
invites waste, its policy prescription falls short. If the physician-
owned clinics are really overusing these services (and, in turn,
earning excessive prots), then these might be the only facilities
with enough nancial cushion to survive a shakeout from a
broad payment change by the agency.
Provisions in the Affordable Care Act (ACA) can almost
ensure that we will see more of these sorts of policy journeys,
more imprecision, and more unintended harms. The ACAgives
CMS unilateral authority to tweak mispriced codes. It is a con-
struct that is not well dened. It is meant to include areas of
excess and inappropriate use. But CMS has never established
the kind of transparent and consistent procedures that could
bring precision to how it implements these provisions.
What is the alternative to allowing the agency to continue on
these sorts of excursions? It is to bind CMS to a rigorous meth-
odology where its activities to identify areas for savings are
grounded in a transparent and bottoms-up process, one that
relies on rigorous data. The FDA has established, over time, a
largely predictable and transparent method for how it goes
about making its evaluations. CMS, by comparison, is not gov-
erned by any similar discipline.
Alternatively, the task of mediating among competing ap-
proaches to care could be left to private payers, enlisted by
patients to set coverage and payment policies. This is how the
Medicare Advantage program is largely governed.
There are a lot of challenges when it comes to our current
payment systems in health care. However, it is unlikely that the
Medicare agency, acting on its own prerogatives, is going to
solve these problems through indiscriminate tactics.
Authors Disclosures of Potential Conicts of Interest
Although all authors completed the disclosure declaration, the following
author(s) and/or an authors immediate family member(s) indicated a
nancial or other interest that is relevant to the subject matter under
consideration in this article. Certain relationships marked with a U are
those for which no compensation was received; those relationships
marked with a C were compensated. For a detailed description of the
disclosure categories, or for more information about ASCOs conict of
interest policy, please refer to the Author Disclosure Declaration and the
Disclosures of Potential Conicts of Interest section in Information for
Contributors.
Employment or Leadership Position: Scott Gottlieb, Avalere Health
(C) Consultant or Advisory Role: Scott Gottlieb, GlaxoSmithKline (C),
American Pathology Partners (C) Stock Ownership: None Honoraria:
None Research Funding: None Expert Testimony: None Patents,
Royalties, and Licenses: None Other Remuneration: None
Corresponding author: Scott Gottlieb, XXXX, American Enterprise Insti-
tute for Public Policy Research, 1150 17th St NW, Washington, DC
20036; e-mail: scott.gottlieb@aei.org.
DOI: 10.1200/JOP.2013.001233
References
1. Gottlieb S: How the US Government rations health care. Wall Street Journal,
September 30, 2009:A1
2. Conway L: Proposed MPFS and HOPPS rules for 2013 contain signicant
changes for cancer providers. http://www.advisory.com/Research/Oncology-
Roundtable/Oncology-Rounds/2012/07/Proposed-MPFS-and-HOPPS-rules-
for-2013-contain-signicant-changes-for-cancer-providers
3. Falit BP, Dosoretz AP, Brennan TA: Ensuring accuracy within the Medicare
physician fee schedule: An example fromradiation oncology. J Oncol Pract [epub
ahead of print on October 8, 2013]
4. Mitchell JM: Urologists use of intensity-modulated radiation therapy for pros-
tate cancer. The N Engl J Med 369:1629-1637, 2013
2 JOURNAL OF ONCOLOGY PRACTI CE VOL. XX, I SSUE XX Copyright 2014 by American Society of Clinical Oncology
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JOBNAME: AUTHOR QUERIES PAGE: 1 SESS: 1 OUTPUT: Fri Jan 17 06:33:18 2014
/rich5/jop-jop/jop-jop/jop99911/jop3127d11z
AAUTHOR: You are responsible for detecting any errors in this proof. Confirm that all dosing
information and treatment regimens are complete and accurate in text, tables, and figures, if
applicable to article content.
BAUTHOR: Please provide degree(s) held by author.
CAUTHOR: Please confirm location is correct for Seprecor and generic levalbuterol is correct for
Xopenex.
DAUTHOR: Please verify conflicts of interest information is complete and accurate as of
acceptance date.
EAUTHOR: Please confirm corresponding author contact info is correct, and provide degree(s)
held by author.
AUTHOR QUERIES
AUTHOR PLEASE ANSWER ALL QUERIES 1