Session: Incentives and Competition in Physician Practices
Room: Phillips 231
Time: Mon 08:30-10:00

Presenter: Claudio Lucarelli (Cornell University. )

Discussant: Mireille Jacobson (RAND)

Abstract

Medicare expenditures for drugs covered by Part B increased from $2.8 billion in 1997 to $10.3 billion in 2003. Under the payment policy in place during this time period, physicians would purchase Part B drugs from wholesalers or manufacturers, administer the drugs to patients in their offices, and then bill Medicare for both an administration fee and for the drug itself. Prior to 2004, Medicare paid physicians an administration fee and 95% of the drug’s published average wholesale price (AWP), and physicians generally earned large profits. In 2004 Medicare reimbursed physicians 85% of AWP and in 2005 Medicare began reimbursing physicians 106% of the average selling price (ASP) of Part B drugs.
We estimate the impact of drug reimbursement incentives to physicians on chemotherapy treatment decisions and patient outcomes for Medicare and non-Medicare patients diagnosed with breast, colorectal, or non-small cell lung cancer. The ASP reimbursement policy raised reimbursement rates on some drugs, reduced them slightly on others, and reduced them substantially on most chemotherapy drugs. The general question is whether the supply of (high-quality) cancer care to patients is a function of price and, if so, whether the supply curve is inelastic or elastic. We also explore whether the treatment changes depend on the menu of products available, and whether patient health as affected.
We received patient-level data on treatment and outcomes before and after the January 2004 policy change for 12,000 patients from IntrinsiQ, who collects information from 585 oncologists in 111 practices in 36 states. For all patients who were diagnosed with one of the three cancer types between 2003 and 2006, we observe detailed patient demographic, health status and pharmaceutical and non-pharmaceutical treatment. These data also contain several outcome measures: time till stage progression, months of survival and side effects.
We conduct a pre-post analysis exploiting the fact that Part B drug reimbursement amounts changed in the same fashion for all drugs between 2003 and 2004, and changed differently for each drug after 2004. Medicare posts the average selling price for each drug for each quarter of 2005 through 2009, which allows us to estimate the price physicians received on average for each drug in the post 2005 period. Based on the published AWP, we can calculate the prices physicians received prior to and during 2004. Acquisition price data from IMS allow us to estimate the prices physicians paid wholesalers for the drugs throughout the sample period. The difference between the reimbursement and acquisition prices is a physician’s profit or loss.
The aggregated data suggest that changes in profit had no effect on physicians’ treatment decisions for lung and breast cancer, but did for colorectcal cancer. The patient level data offer a number of advantages over the aggregated data, including an ability to examine whether the Medicare payment change affected Medicare patients only, or also had a spillover effect on the treatment patterns and outcomes for privately-insured patients.

Key Terms

physician reimbursement; provider incentives; health outcomes

Authors:

Sean Nicholson (Cornell University) , Robert Town (University of Minnesota) and Claudio Lucarelli (Cornell University)