I spent much of the past week sitting in a room participating on a committee that advises the Medicare folks on their physician fee schedule.

I enjoy my work on this committee, but thinking about how we as a society are going to pay for the many new procedures and technologies we discuss can be daunting.

During the meeting I had a chance to get an early look at a report on Medicare spending patterns for 2005.  I was particularly interested in the costs of chemotherapy drugs.

It was not a pretty picture. To be honest, it was somewhat depressing.

Medicare, in my opinion, is going to face a real challenge in getting adequate funding to pay for the newer cancer chemotherapy drugs while still providing all of the medical services that doctors order and patients and their families have come to expect.

There are two parts to the Medicare program.  Medicare Part A covers hospital costs, and Part B covers physician visits and chemotherapy drugs, among many other services.

Part A costs are covered by the Medicare program.  Part B is supported 25% by the monthly premiums that are paid by the beneficiaries and 75% out of general tax revenues.

Part B is what we call “budget neutral.”  That is, if one part of Medicare Part B becomes more costly, then physician payments go down to make up the difference. 

There is every reason to believe that the costs of Medicare services including the drugs the doctors give in their offices and the tests they order are going to continue increase in cost every year.

That means, according to law, the monthly premiums paid by the beneficiaries will have to increase.

And, payments to doctors will decrease every year.  As a result, Medicare patients may have increasing difficulty finding a physician who will treat them.

Not every Medicare cost went up last year.  The cost of drugs given in doctors’ offices and covered by Medicare actually went down a bit (by 3%) due to new payment rules that took full effect in 2005. 

Doctors used to be reimbursed at what was called the average wholesale price for their drugs.  It turned out they could buy them in many situations for much less than that.  The difference either allowed the doctors to provide more services in their offices, or take a higher salary. 

In 2004 that began to change, and in 2005 the payment for drugs was the average sales price—the actual price the drug companies and their distributors charged the doctors—plus 6%.   This brought the Medicare payment for the drugs much more in line with what the doctor actually paid, thus reducing the doctors’ profits from the sale of drugs.

But that decrease is only a temporary one in my opinion, as targeted therapies and other expensive chemotherapy drugs are more widely accepted and used, and as more of these drugs are used to treat cancer.

For example, 2005 was the first year that Medicare provided data on how much they spent on some of the newer chemotherapy drugs.  And those amounts are nothing to sneeze at:

Bevacizumab    (Avastin)          $280 million

Bortezimab       (Velcade)         $73 million

Cetuximab        (Erbitux)           $112 million

Pemetrexed      (Alimta)            $91 million

I expect these costs to increase significantly next year.

Other drugs that have been around for a couple of years have a significant impact on Medicare costs as well.

Epoetin alpha (Procrit) and darbepoeitin alfa (Aranesp) which are used to treat anemia in cancer patients cost Medicare a total of $912 million.  (That number would have been higher if the new drug payment rules had not gone into effect.  In 2004, the total for these two drugs were $1.04 billion.)  That is close to 1% of the ENTIRE Part B budget in 2005 going to one type of drug.

Spending on rituximab (Rituxan), a drug that is used to treat lymphoma and has recently been approved in the treatment of rheumatoid arthritis went from $595 million in 2004 to $787 million in 2005.

Some drugs went down significantly in price. That is particularly true for the drugs used to treat prostate cancer, which decreased in cost by over 50% for the Medicare program. 

My prediction is that in 2007, those costs are going to start increasing once again since the major savings from the new drug payment rules have already been realized.

What I don’t know as I write this is what the impact of all of this will be on Part B premiums charged to beneficiaries. 

Because of all of the increased costs of the Part B program, that number is likely to be significant.  It is now $88.50/month, and there is talk of it going over $100 which is likely going to be very unacceptable to politicians and beneficiaries alike.

I know this is complicated information.

But I suspect you get the message: we are going to face a significant increase in the costs of treating cancer and I am not certain where the money is going to come from to afford this care.  This is particularly true for the Medicare population.

We need to get a better understanding of the impacts of these costs, so we can put real faces together with some of these numbers. 

And then we need to figure out how to be certain that people who need care can get it, without bankrupting themselves, their families and everyone else who needs medical care.