Before 2003, Medicare reimbursed 95% of the average wholesale price — an
unregulated price set by manufacturers — whereas oncologists paid 66 to
88% of that price and thus received $1.6 billion annually in
overpayments.
To blunt unsustainable cost increases, the Medicare Modernization Act
mandated that the Centers for Medicare and Medicaid Services (CMS) set
reimbursement at the average sales price plus a 6% markup to cover
practice costs. This policy has reduced not only drug payments but also
demand for generics. In some cases, the reimbursement is less than the
cost of administration. For instance, the price of a vial of carboplatin
has fallen from $125 to $3.50, making the 6% payment trivial. So some
oncologists switched to higher-margin brand-name drugs. Why use paclitaxel (and receive 6% of $312) when you can use Abraxane (for 6% of $5,824)?
This is abut a small real example of what a failure to think through the process results in. As one of the left wing politicians said when trying to get the recent health care bill passed, she said, "You have to pass it to see what it says." Pass it they did, and if one thinks the current shortage is anything just wait.
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