The impact of sequestration payment cuts on physician-administered drug utilization

Drugs administered by physicians in the outpatient setting include important treatments for cancer, immunological conditions, osteoporosis, and other conditions. In several physician specialties – including medical oncology – “buy and bill” physician-administered drugs are an important source of practice revenue. These drugs are paid by Medicare under a separate fee schedule with payment rates set at a market reference price plus a fixed margin. Medicare reduced the magnitude of the fixed margin from 6% to 4.3% as part of sequestration in 2013. This paper uses multi-payer longitudinal physician claims data to investigate the impacts of the payment reduction on prescribing patterns. I distinguish between a range of impacts including reductions in Medicare prescribing volume, spillovers in terms of higher prescribing rates for patients with other sources of coverage, and decisions by providers to stop administering drugs altogether.

I use multi-payer claims data from Symphony Health Solutions from January 2013 through June 2014. The study sample includes a panel of nearly 10,000 physicians across specialties and geography that contribute all of their medical claims data to the database. While it is natural to focus on physician specialties with high administration rates, data are available for all specialties. The Symphony sample includes medical claims for administered drugs themselves, evaluation and management visit, and stand-alone physician administration service codes.

Key study outcomes include the proportion of physicians administering drugs, Medicare’s share of each physician’s drug billing, and changes in mix for select disease areas where providers have a choice between treatment alternatives (and a possible incentive to change mix in response to the payment change to meet a target income).  To the extent possible I will explore whether physicians respond to the payment change by substituting retail pharmacy-dispensed drugs for physician-administered drugs. My empirical approach is an interrupted time series design for some outcomes with the April 1, 2013 implementation date for the lower payment rate as the period of interest. I will estimate the impact of the policy in multivariate panel regression models including physician characteristics and practice characteristics as controls. For other outcomes – including Medicare-specific utilization and charges – a difference-in-difference framework may help more cleanly identify the policy effect using utilization and charges in the privately insured population to control for secular trends.

The study is ongoing but I expect to have results in early 2016. The results from the study will help inform current policy proposals to reduce Medicare payment rates further – to 3% above the market reference price. Results from this study will help policymakers understand the likely access and health care spending implications of further reductions.  My hypothesis is that the payment reduction will disproportionately affect some physicians – for example medical oncologists that earn a significant share of practice revenue through physician-administered drugs – than others. More broadly, and especially in oncology, there are important links between results from analyses focusing on the impacts of drug payment rate changes and proposals to implement new payment models for health care services in general.