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J Oncol Pract. 2006 May; 2(3): 112–113.
PMCID: PMC2794586

Colleagues Share Their Secrets for Controlling Practice Drug Expenses

Two recent reports to Congress came to similar conclusions about the impact of the Medicare Part B drug reimbursement methodology put into place January 1, 2005: Oncology and hematology practices were able to purchase most drugs at prices below the Medicare reimbursement rate, set at 6% above the average sales price.1,2

Coming out ahead doesn't happen effortlessly, however. Practices have had to become alert, savvy buyers to stay ahead of the game.

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Ruth Linne Lander

When 70% of your expenses revolve around drugs, “it's very important to look at prices if not daily at least weekly,” emphasizes Ruth Linne Lander, practice administrator for Columbus Oncology and Hematology Associates (Columbus, Ohio).

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Steve D'Amato, RPh

Drug purchases should be made by trained staff who monitor drug prices closely. At the Maine Center for Cancer Medicine (Portland, Maine), for example, five full-time pharmacy technicians order drugs under the direction of clinical pharmacy specialist Steve D'Amato, RPh, and alert him whenever they identify favorable pricing.

“I have contracts with three major wholesalers,” says D'Amato, “but if my staff finds a significant difference in pricing, I may go outside my regular suppliers for the best price.”

Both Lander and D'Amato agree that it's crucial to have contracts with more than one distributor. With just one source, says Lander, “you may be getting great prices on 15 or 20 drugs, but on others, you may be significantly overpaying.”

Practices are standardizing utilization, especially of drugs for supportive care. Using one erythroid growth factor, for example, may enable a practice to earn rebates for achieving a target level of product purchased.

D'Amato takes advantage of yet another purchasing strategy, participating in a group purchasing organization (GPO). By aggregating demand, GPOs are able to negotiate best pricing. Several national for-profit GPOs are available, and some state oncology societies offer GPO-like programs.

The Michigan Society of Hematology and Oncology (Royal Oak, Michigan), for example, has offered its members a group purchasing plan for 10 years. Last fall, the plan was reintroduced as a for-profit limited liability professional corporation, Oncology Physician Resource. Unlike other for-profit GPOs, Oncology Physician Resource is owned by its physician members. Its model allows practices of all sizes to benefit from group buying, bringing to small practices the economies of scale that large practices have.

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Philip Stella, MD

“We believe physicians should be more in control of their destiny,” says Philip Stella, MD, chief executive officer of Oncology Physician Resources. “Our experience [as a non-profit GPO] showed we could aggregate demand to negotiate better pricing as well as anyone. By assuring best pricing, we can take the burden of shopping around off the backs of busy practice staff.”

The organization has yet another advantage over traditional for-profit GPOs. Any administrative fees left after expenses will be shared among its member-owners. And physicians don't have to practice in Michigan to buy into the group.

No matter which drug purchasing techniques a practice uses, it needs to be equally effective in getting reimbursed for those drugs. Financially responsible practices consistently review each patient's insurance coverage, educate their patients about their financial obligations, and aggressively negotiate with major payers.

Lander recently began contracting for electronic verification of each patient's coverage. The next day's patient list is electronically sent to the vendor, who sends back a report detailing any changes in coverage, current deductibles, and other reimbursement details for each patient. When the patient arrives, a counselor at reception meets with him or her, discusses any changes or issues, and clarifies amounts for which the patient will be responsible.

“Patients are good and want to pay their bills,” says Lander, “but they don't always understand their coverage, especially with the complexity of oncology.”

Having accurate data and sympathetic financial counselors to consistently approach patients reduces misunderstandings and bad debts. These sessions are also an opportunity to work with patients, prior to treatment, to find alternative means of covering uninsured costs.

How well a group negotiates its contracts with major managed care organizations and insurers has consequences for the life of the contract. It helps to be knowledgeable about the practice's finances, its history with the payer, and industry trends. The Columbus group actively keeps its Congressional delegation and others in Washington, DC, informed about the impact of their decisions. Lander believes when payers know about the group's activism, it causes them to “treat you differently at the negotiating table.”

Another factor aiding the Columbus group in their negotiations may be the presence of former managed-care executives alongside the physician group. Hiring an outside consultant group to help negotiate with major payers is a recent strategy the Columbus group has implemented and found successful.

“It makes a huge difference in what you don't have to settle for,” says Lander.

References

1. Office of Inspector General: Report to Congress—A-06-05-00024, Adequacy of Medicare Part B Drug Reimbursement to Physician Practices for the Treatment of Cancer Patients, http://oig.hhs.gov/oas/reports/region6/60500024.pdf, Washington, DC, Department of Health and Human Services, 2005
2. Medicare Payment Advisory Commission: Report to the Congress: Effects of Medicare Payment Changes on Oncology Services, http://www.medpac.gov/publications/congressional_reports/Jan06_Oncology_mandated_report.pdf?CFID=2465378&CFTOKEN=97387185, Washington, DC, MedPAC, 2006

Articles from Journal of Oncology Practice are provided here courtesy of American Society of Clinical Oncology