Where is all the money going? In identifying who is making what profit in the oncology drug distribution system, there are four parts to consider in pricing:
Manufacturer cost: the technological cost to produce, shop, or otherwise bring the drug to market. Their profit margin should be transparent – they know the end user’s profit margin is at a maximum 6%.
Distributor cost: includes acquisition costs, storage costs, and a reasonable profit margin. This margin is 2%, considering their cost is only 1% above the manufacturer cost. ASP (average sales price) does not include this 2% shipping, and distribution cost and this is a permitted cost added on to the ASP.
GPO (group purchase organization) cost: commissioned to help medical oncologists in the community purchase drugs at their lowest possible price. The GPO secures a .25% to .75% discount from the distributor, who would negotiate an even better cost with higher volume. The manufacturer does need to know the demand to appropriately staff and manage production.
Acquisition cost (or Oncologists’ cost): should be ASP less 2% as an industry standard, but in reality, it is typically 4% above ASP.
The Million Dollar Questions
Who is taking the 2% to 4% margin?
Are all these costs necessary?
In the end, the oncologist is suffering from this process. It’s way too complicated.
We would like to hear your thoughts on what process should we engage in to eliminate both the GPO and distributor overhead factors. Simply reply on the “comment” button below. You can provide your name or be totally anonymous. You can also email me (Marty Neltner) at mneltner@earthlink.net.
Thursday, May 29, 2008
Monday, May 12, 2008
New Codes May Be the Answer to Evidence Based Medicine
The challenge of oncology is to recognize and establish incentives for the cognitive skills of physicians that will create both cost savings and superior outcomes for both patients and payers.
I recently attended a the world conference on health care titled “Leadership Summit on Evidence Based Medicine” in Alexandria, VA. The major speakers at this meeting were medical directors of insurance companies, think tank experts, Gail Walinsky the prior CMS director and the Institute of Medicine. The overarching conclusion is there is no independent measurement of Evidence Based Medicine. The Institute of Medicine (IOM) issued a compelling report suggesting an independent agency (I thought, “Oh great, another agency to measure nothing”) be established to perform this task. The problem is how to fund it. As you know, private industry, insurance companies and the government are trying to develop this process of Evidence Based Medicine. Everyone agreed whoever funds this will have a difficult task of developing a process that is encumbered by special interest.
As you can guess I was one of few representing the physician interest. I might mention that speaker after speaker referenced the disastrous bone marrow transplant failure brought on by the oncology community. My sense is that this group did not have much respect for what oncology does for its patients on a day-by-day basis. After three days of listening I finally had an opportunity to comment. I am always struggling with what to say to convince those attending there are solutions – if only they would listen to us “privates in the trenches”.
My solution is simple: create level six, seven and eight evaluation and management codes for chronically ill patient care. These codes can be utilized by any physicians in any specialty providing chronic care. This would solve the issue surrounding the failed lobbying for oncology treatment planning codes. Treatment planning never happened (even at our urging with a proposal including detailed documentation) as the AMA RUC Committee has stated oncology treatment planning is recognized in the level five services. The AMA has denied requests for treatment planning at least two times. In my opinion, however, the AMA would accept the argument for level six, seven and eight codes for management of chronic illness. These new codes would reduce health care costs; therefore their value would generate the measurement for Evidence Based Medicine.
The compelling excellent outcome evidence is ever present in oncology care. The problem of course, is the oncology community is not engaged in utilizing the Evaluation and Management coding to prove its worth. Instead, they continue to under code and produce documentation that has no real true measurement. The oncology bell curve unfortunately looks like that of Internal Medicine and Family care. The verbiage in the note is full of ROS and exam points that are negative and without real substance offering data about the current condition of the patient, where we started and the goal of therapy. There is no clear evidence of success and outcome. Yet 99.9% of the patients who pass through the daily offices of thousands of oncology offices tell a different story.
So, the challenge of oncology is to “Change the Wheel” and redirect attention to creating the perfect level five note that will show 70% utilization in every oncology practice. Acquiring this data by year-end will be the calling card to support the need for level six, seven and eight coding that will clearly define the outcome measurement of Evidence Based Medicine. So join the Neltner Marines, board the bus and get ready for “Neltner Billing Level Five Boot Camp”. We’ll be posting more about this training that we will conduct. At the end of this training you will have the tools and the confidence to collect what the GAO says you are entitled to. We believe you will be paid for 50% of your value which will lead you to six, seven and eight codes to complete the cycle.
I recently attended a the world conference on health care titled “Leadership Summit on Evidence Based Medicine” in Alexandria, VA. The major speakers at this meeting were medical directors of insurance companies, think tank experts, Gail Walinsky the prior CMS director and the Institute of Medicine. The overarching conclusion is there is no independent measurement of Evidence Based Medicine. The Institute of Medicine (IOM) issued a compelling report suggesting an independent agency (I thought, “Oh great, another agency to measure nothing”) be established to perform this task. The problem is how to fund it. As you know, private industry, insurance companies and the government are trying to develop this process of Evidence Based Medicine. Everyone agreed whoever funds this will have a difficult task of developing a process that is encumbered by special interest.
As you can guess I was one of few representing the physician interest. I might mention that speaker after speaker referenced the disastrous bone marrow transplant failure brought on by the oncology community. My sense is that this group did not have much respect for what oncology does for its patients on a day-by-day basis. After three days of listening I finally had an opportunity to comment. I am always struggling with what to say to convince those attending there are solutions – if only they would listen to us “privates in the trenches”.
My solution is simple: create level six, seven and eight evaluation and management codes for chronically ill patient care. These codes can be utilized by any physicians in any specialty providing chronic care. This would solve the issue surrounding the failed lobbying for oncology treatment planning codes. Treatment planning never happened (even at our urging with a proposal including detailed documentation) as the AMA RUC Committee has stated oncology treatment planning is recognized in the level five services. The AMA has denied requests for treatment planning at least two times. In my opinion, however, the AMA would accept the argument for level six, seven and eight codes for management of chronic illness. These new codes would reduce health care costs; therefore their value would generate the measurement for Evidence Based Medicine.
The compelling excellent outcome evidence is ever present in oncology care. The problem of course, is the oncology community is not engaged in utilizing the Evaluation and Management coding to prove its worth. Instead, they continue to under code and produce documentation that has no real true measurement. The oncology bell curve unfortunately looks like that of Internal Medicine and Family care. The verbiage in the note is full of ROS and exam points that are negative and without real substance offering data about the current condition of the patient, where we started and the goal of therapy. There is no clear evidence of success and outcome. Yet 99.9% of the patients who pass through the daily offices of thousands of oncology offices tell a different story.
So, the challenge of oncology is to “Change the Wheel” and redirect attention to creating the perfect level five note that will show 70% utilization in every oncology practice. Acquiring this data by year-end will be the calling card to support the need for level six, seven and eight coding that will clearly define the outcome measurement of Evidence Based Medicine. So join the Neltner Marines, board the bus and get ready for “Neltner Billing Level Five Boot Camp”. We’ll be posting more about this training that we will conduct. At the end of this training you will have the tools and the confidence to collect what the GAO says you are entitled to. We believe you will be paid for 50% of your value which will lead you to six, seven and eight codes to complete the cycle.
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