Hanging in Limbo: What Does Deficit Reduction Mean for Oncology?

Jayson Slotnik, JD, MPH; Ross D. Margulies

August 2011, Vol 2, No 5 - Health Policy


Ross MarguliesJayson Slotnik

Mr Slotnik is a Partner, Health Policy Strategies, LLC, Washington, DC; Mr Margulies is Health Policy Specialist, Foley Hoag, LLP


On August 2, 2011, President Obama signed the Budget Control Act of 2011 into law, the result of a month-long partisan battle over raising the federal debt ceiling and, in the long-term, reducing the federal deficit (Budget ControlAct of 2011. Pub. L. No. 112-25).

The Budget Control Act places an initial $917-billion cap on discretionary spending over the next decade and sets up a new Joint Select Committee on Deficit Reduction tasked with recommending $1.2 trillion to $1.5 trillion in additional deficit reduction by early December 2011.

If the Joint Select Committee (or “supercommittee,” as it has come to be known) either fails to submit a report to Congress or, as an alternative, if Congress fails to pass the proposal, an automatic sequestration is triggered.

Under sequestration, Medicare payments to healthcare providers and to health insurance plans would be cut across the board by 2% over the next decade—saving roughly $216 billion— starting in 2012. Medicaid and Social Security are notably exempt under this fail-safe measure, as are cuts to Medicare beneficiaries.

Looking forward, the oncology community is faced with 2 very different paths—one to be shaped by the yet-to-be-named 12 members of Congress and a lot of unknowns, and the other a known fail-safe measure certain to cause pain to healthcare providers, manufacturers, and patients. Which path is the worst of these 2 evils for those involved in cancer care?

Ultimately this answer comes down to what the Joint Select Committee may do to cut the federal deficit, and what would be the full impact of this action on the oncology community as a whole.

Path 1: The Joint Select Committee Recommendation

The Joint Select Committee on Deficit Reduction, composed of 12 bipartisan members, is empowered to look for cost-savings and increased revenue everywhere it can, including tax increases; tax reform; or cuts to the military, domestic programs, or entitlements. The following strategies are potential proposals that the Joint Select Committee could consider that would have a negative effect on many aspects of cancer care delivery:

  • Reducing Medicare’s reimbursement rate for Part B drugs from average sales price (ASP) + 6% to ASP + 4% or some lower amount. This proposal would lower reimbursement for Medicare Part B drugs to a decrease of ≥2% from the current ASP + 6%.
  • Rolling Medicare Part B into Part D. By folding the Part B program for drugs administered in the physician’s office into the Part D program, advocates insist that increased price competition would push down drug prices among similar drugs (ie, in the same class or the same therapeutic category). It is argued that the cost-savings could result from increased therapeutic substitution between oral and injectable drugs.
  • Allowing Medicare to negotiate Part B drug prices. Although in – creased attention has been paid to the proposal that allows the Secretary of Health and Human Services to negotiate the price on Part D drugs, one possibility for cost-savings is also to allow the federal government to negotiate lower cost with pharmaceutical manufacturers when Medicare is the major purchaser of a specific Part B drug.
  • Least costly alternative. Although prohibited since 2009, based on a US Court of Appeals for the District of Columbia circuit case, applying the “least costly alternative” approach would allow the Centers for Medicare & Medicaid Services to include a cost-effectiveness calculation in Medicare payment policy to limit reimbursement on costly new therapies (which would apply to many new cancer drugs and diagnostics), thereby limiting beneficiaries’ access to these potentially lifesaving options.

It is evident that the adoption of one or some of these proposals could have a devastating impact on both oncology providers and on manufacturers in the oncology space. Most important, however, these cuts could have a detrimental impact on patients with cancer.

Path 2: Across-the-Board Cuts

Although the sequestration process, which guarantees cuts to Part D reimbursement and Medicare providers, initially appears to be a losing proposition, when compared with the alternatives as discussed above, this may be the better of 2 evils. Moreover, given the composition of the Joint Select Committee on Deficit Reduction (6 Democrats, 6 Republicans) and the current ultrapartisan atmosphere in Congress, the likelihood of the committee actually coming to a “grand bargain” appears highly unlikely.

As such, unless the committee is able to beat the odds and reach a major compromise, or, in the alternative, if Congress is able to amend the Budget Control Act with a much larger deal (economists are still insisting that at least $4 trillion in cuts are necessary to avert a crisis), across-the-board cuts appear the most likely result. Under this scenario, it is still possible that the ASP percentage would be reduced, but the more sweeping policy changes mentioned above would not occur.

Regardless of which path is chosen, we have a classic example of bad facts making bad law. The resulting policy changes will not take place through regular order, and will shut out many stakeholders and lawmakers. Is this really what the founders of our country had in mind?