Highlights from the proposed rule include the following:

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1 Proposed Physician Fee Schedule for CY 2011: Initial Summary of Issues of Concern to ASCO Members On June 25, 2010, the Centers for Medicare and Medicaid Services (CMS) displayed the proposed rule for the Medicare Physician Fee Schedule (MPFS) for Calendar Year (CY) The CMS notice is quite lengthy. This initial summary provides a review of the issues of greatest concern to ASCO members. We are conducting additional review of the data and statements presented by CMS, and will be preparing detailed comments for submission to CMS prior to the deadline in late August. Highlights from the proposed rule include the following: Changes Arising from the PPIS: CMS proposes to implement in 2011 the second phase of a four-year plan to revise practice expense relative value units (PE RVUs) for all medical specialties based on the AMA s Physician Practice Information Survey (PPIS). This proposed change has a negative impact on medical oncology practices, especially with respect to the reimbursement for chemotherapy administration codes. CMS estimates that this change would decrease overall Medicare reimbursement for medical oncology practices by approximately 2% in Rebasing and Revising the MEI: The impacts of the PPIS survey are partially mitigated for oncology practices by the CMS proposal to revise and rebase its use of the Medicare economic index (MEI) in This proposed change would provide greater weight to the practice expense and malpractice components of the RVUs assigned to individual codes, which would benefit codes with high practice expense or small work RVUs (such as the chemotherapy administration codes). CMS estimates that this change would increase overall Medicare reimbursement for medical oncology practices by approximately 1% in Aggregate Impacts on Medical Oncology: Taken in aggregate, CMS estimates that the overall impact on medical oncology practices would be a 1 The display copy of the final rule is available at 20Affairs/Downloads/2011%20Fee%20Schedule%20Proposed.pdf

2 decrease of 1% relative to other medical specialties in calendar year 2011 under the proposed rule. The actual impact on individual physician practices will depend on the mix of services provided. ASCO is currently performing additional financial analyses on the CMS proposal to better understand these impacts. Tables prepared for ASCO estimating the payment rates for specific CPT codes are provided at the end of this summary. SGR: CMS indicates that in the absence of action by Congress to address the sustainable growth rate (SGR) issue, the cut in reimbursement during 2011 will be approximately 28% for all medical specialties. This is an increase over the 21.2% SGR reduction that has loomed over the physician community during The latest temporary patch enacted by Congress for the SGR will expire after November 30, Reimbursement for Drugs and Biologics: When Congress enacted legislation establishing the average sales price (ASP) payment methodology for prescription drugs in 2003, Congress also directed CMS to use several other pricing standards to provide additional methods for capping drug payment levels. Although CMS has been hesitant to use these alternative methodologies in the past, CMS now proposes to begin using the average manufacturers price (AMP) as a means to limit drug payment levels in the physician office setting under certain circumstances beginning in CMS also addresses payment for additional free product provided within drug packaging and the establishment of reimbursement rates for biosimilars. Bonuses and Penalties: CMS proposes several changes and updates to the patchwork of incentives and penalties for reporting performance measures, participating in a maintenance of certification program, showing meaningful use of electronic health record systems and using e-prescribing technology. As discussed below, ASCO is working to help members understand and take advantage of these initiatives. Miscellaneous Issues: The proposed rule also addresses changes in reimbursement for radiation oncology, imaging services and bone density testing, as well as changes in the rules governing physician self-referrals, among other issues. These and other issues addressed in the proposed rule for the Medicare physician fee schedule are discussed in greater detail below. Changes Arising from the PPIS Discussion Under the proposed rule, 2011 would be the second year of CMS four-year plan to phase-in the use of the AMA s PPIS data for determining PE RVUs. With this proposed rule, CMS continues to incorporate the AMA s PPIS data on practice expense per physician hour (PE/HR) into its

3 methodology to calculate PE RVUs. Although ASCO was successful last year in retaining use of medical oncology / hematology supplemental survey data on PE/HR, this safeguard does not shelter medical oncology practices completely from the adverse effects of the PPIS data. Because all specialties essentially share a limited amount of resources, the gains in relative value made by other specialties under the PPIS data result in an adverse effect on payment levels for oncology services. This proposed change has a negative impact on medical oncology practices, especially with respect to the reimbursement levels for chemotherapy administration codes. CMS estimates that this change would decrease overall Medicare reimbursement for medical oncology practices by approximately 2% in Rebasing and Revising the MEI The MEI is a measure of physician practice costs and is used in the SGR formula that determines physician payment updates each year. The MEI reflects various inputs necessary to provide physician services, including physician time, PE and professional liability insurance (PLI). Each is assigned a corresponding MEI weight. As a result of rebasing proposed by CMS for 2011, the distribution of weights assigned to each MEI category is shifting, with PE and PLI going up and physician work going down. Accordingly, CMS is also proposing to adjust RVU shares to match the proposed, rebased MEI weights. This means that there will be a reallocation of relative value from physician work to PE and PLI. CMS is proposing to increase PE and malpractice (MP) RVUs as a result, although the agency does not intend to deflate the work values. Rather, CMS is proposing to apply a downward adjustment factor to the conversion factor to assure that Medicare expenditures for physician services in the aggregate do not increase (maintaining budget neutrality as required by current law). The approach described above increased weighting for PE and PLI is expected to generally increase payments for specialties with high practice expenses, while reducing them for specialties with lower expenses. Although CMS indicates that the impact of the MEI rebasing will be positive for medical oncology (+1%), ASCO is conducting independent analyses to confirm that this is the case and to consider specialty (as well as cross-specialty) level effects. Aggregate Impacts on Medical Oncology Compared to 2010, CMS estimates that the overall impact on medical oncology practices would result in a decrease of 1% relative to other medical specialties in calendar year 2011 under the proposed rule. With full implementation of the phase-in for PPIS data, CMS estimates that the

4 overall impact on oncology practices would be a decrease of 4% in 2013 compared to 2010 relative values. However, understanding the potential financial impacts of these changes in policy depends on the mix of services provided by each individual practice. To help begin to understand the implications for these changes for your practice, ASCO has developed two tables that estimate the Medicare payment levels for some of the CPT codes commonly used by medical oncology practices. These tables are provided for your review at the end of this summary document. When interpreting these two tables, it is important to understand the inputs used for the following variables: The tables do not reflect the 2.2% update that Congress recently enacted for June 1, 2010 through November 30, For the sake of simplicity, these tables reflect a 0.0% update equal to the update in place during the first five months of For 2010, we used the most recent conversion factor published with the May Health Care Reform RVU file ($ ). We used this same conversion factor for 2011, 2012 and 2013 (as the final conversion factors for these years have not been decided). However, we did multiply the conversion factor by as proposed by CMS in the recent proposed rule to account for the MEI adjustment, lowering the conversion factor in 2011, 2012 and 2013 to $ For the sake of simplicity, we are ignoring the geographic adjustments (GPCI) that vary across states and regions. Table 1 examines the chemotherapy administration codes. From 2010 to 2011, rates remain relatively constant, with slight increases or decreases for a small number of codes. These increases are mostly due to MEI rebasing (discussed above) and the redistribution of savings from the multiple procedure payment reduction (MPPR, discussed below) to the entire fee schedule. From 2011 to 2013, rates for all but one drug administration code would decrease between 7 to 16%, which is most likely the result of the full implementation of PPIS data and its effects on oncology. Table 2 examines the office-based E&M CPT codes. Office-based E&M services are projected to have slight rate increases from 2010 to In the non-facility setting, all codes except have a rate increase of 1 to 3% from and 2 to 4% from 2011 to2013. We are continuing to investigate the policy proposals contained within this proposed rule and the effects on reimbursement.

5 SGR Repeated legislative action over the course of the year has held the conversion factor for the Medicare physician fee schedule at a near constant level 2 and prevented the anticipated 21.2% cut for 2010 (at least for the first 11 months of 2010). However, without further intervention from Congress, the 21.2% cut is set to take effect on December 1, In addition, CMS is forecasting that the conversion factor will drop by an additional 6.1% in 2011 reaching approximately $26 an almost 28% cumulative decrease compared to present levels. (It appears that this additional adjustment in the conversion factor is already reflected in CMS s projection of a further 6.1% cut in 2011, although explicit confirmation may be necessary, as some analysts have suggested that an additional cut of more than 7% is implied by the proposed rule.) The additional 6.1% cut that CMS projects in this proposed rule for CY 2011 reflects an adjustment (.921) that CMS is proposing to apply to the conversion factor to keep physician expenditures from increasing in the aggregate as a result of the agency s intent to rebase 3 and revise 4 the MEI. 5 Reimbursement for Drugs and Biologics Within the proposed rule, CMS addresses potential limitations on reimbursement for drugs and biologics based on the AMP for each specific product. CMS also examines payment for excess (free) product provided within drug packaging and the establishment of reimbursement rates for biosimilars. Limiting Reimbursement on the Basis of AMP In the proposed rule, CMS for the first time proposes the mechanism that it expects to use for substituting an AMP-based reimbursement methodology for an ASP-based approach in certain situations. Under the Medicare Modernization Act (MMA) that Congress enacted in 2003, the Office of Inspector General (OIG) is directed to make periodic comparisons of each drug s ASP to AMP and to the widely available market price (WAMP). CMS is directed to adopt AMP- or WAMP-based reimbursement in situations where the ASP exceeds these benchmarks by a threshold percentage set by CMS. If ASP exceeds AMP by the threshold, CMS is directed to substitute 103% of AMP for the typical payment rate of 106% of ASP % update through 5/31/10, 2.2% update 6/1/10-11/30/10. 3 Rebase refers to changes in the data source used, CMS is proposing to move the base year data source from 2000 data to 2006 data. 4 Revise refers to methodology changes. 5 MEI reflects weighted-average annual price change for various inputs needed to provide physician services. It s a fixed weight input price index with an adjustment for the change in economy wide private nonfarm business multifactor productivity.

6 CMS has not made any such price substitutions in the past, and CMS is not proposing specific substitutions now. However, in the proposed rule CMS indicates that once ongoing litigation regarding AMP-based payment limits is completed and CMS is free to publish AMP, CMS will begin to substitute current payment levels with 103% of AMP when ASP exceeds AMP by 5% or more for two consecutive quarters or three of the last four prior quarters. CMS expects to address a parallel authority on WAMP in future years when more information is available about that pricing benchmark. Excess Product Provided within Drug Packaging In conjunction with other technical proposals and clarifications, CMS proposes to update its regulations to clarify that payment for free product, or product in excess of the amount reflected on the FDA-approved label, will not be made under Medicare. This policy is in response to intentional overfill of single use vials to protect providers from losses that must be drawn into a syringe. The agency states that Claims for drugs and biologicals that do not represent a cost to the provider are not reimbursable, and providers who submit such claims may be subject to scrutiny and follow up action by CMS, its contractors, and OIG [the Office of Inspector General]. Medicare Reimbursement for Biosimilars The proposed rule implements the payment provisions of the recent health care reform legislation relating to biosimilar products, essentially codifying the language used in the statute. Products that are approved as biosimilars are paid based on a modified version of the payment for traditional generic drugs under the current system. Payment for the reference biologic will remain unchanged. The reference biologic will be coded separately and will be paid on the basis of ASP plus 6%. Payment for one or more biosimilar products will be based on the weighted average of all of the biosimilars to the reference product on the basis of the NDCs. In addition, the reimbursement level will be increased by 6% of the ASP amount calculated for the reference product for the biosimilar. CMS also clarifies in the preamble that until ASP data is available for a biosimilar product, CMS will use WAC and AWP data if available as directed by section 1847A(c)(4) of the Social Security Act. If no manufacturer data is available, these products will be contractor priced, using provider invoices and other means as necessary. Bonuses and Penalties CMS proposes several changes and updates to the patchwork of incentives and penalties that exist for reporting performance measures, participating in a maintenance of certification programs, participating in meaningful use of electronic health record systems and using e- prescribing technology. All four of these areas are discussed below.

7 The financial implications of these incentive payments and penalties are significant enough that all medical oncology practices should focus on how to satisfy the requirements, which can be expected to change each year. As discussed below, ASCO is working to help members understand and take advantage of these initiatives. Physician Quality Reporting Initiative All medical oncology practices should seriously consider taking the necessary steps to report data to CMS under the physician quality reporting initiatives (PQRI). Although many of the measures that could provide the most value to cancer practices are not yet approved for PQRI use, practices that can report on at least 3 measures for appropriate patients could qualify for a 1% incentive payment. The additional payment for 2011 reporting will be paid sometime in Importantly, the 1% incentive payment would be calculated on the basis of all allowed Medicare claims for the practice. CMS proposes to lower the PQRI threshold for claims-based reporting of individual measures from 80% to 50%. CMS anticipates that this change will allow more providers to successfully participate. CMS also proposes to lower the threshold for the group practice reporting option (GPRO) to allow groups with less than 200 physicians (including as few as two) the opportunity to qualify to participate. For the 2011 PQRI, CMS proposes the following alternatives for reporting periods: 12-month reporting period for claims-based and registry-based reporting (January 1, 2011 December 31, 2011). 12-month reporting period for EHR-based reporting. 6-month reporting period for claims-based and registry-based reporting (July 1, 2011 December 31, 2011). 12-month reporting period for the group practice reporting option (GPRO) for both PQRI and the erx Prescribing Incentive Program. These reporting periods are similar to the periods used during The health care reform legislation makes a number of changes to PQRI, including authorizing incentive payments through 2014 (previous law allowed for payments only through 2010), and requiring a penalty beginning in 2015 for eligible providers who do not satisfactorily report in the applicable reporting period for the year. For 2011 the incentive payment is 1%, dropping to 0.5% for 2012, 2013 and The health care reform legislation also requires that eligible providers receive timely feedback on the performance with respect to satisfactorily submitting data on quality measures. Additionally,

8 by January 1, 2011, there must be an informal appeals process in place, whereby eligible providers may request review of the determination that the provider did not satisfactorily submit data on quality measures for the purpose of qualifying for a PQRI incentive payment. The health care reform legislation also requires the development of a Physician Compare web site by January 1, 2011 on which information on physicians enrolled in the Medicare program and other eligible providers who participate in the PQRI program would be posted. By January 1, 2013, to the extent practicable, there is to be implementation of a plan to report 2012 PQRI information on the Physician Compare web site. Maintenance of Certification Programs For 2011 through 2014, an additional 0.5% incentive payment is available for those eligible providers that meet certain requirements, including satisfactorily reporting data on quality measures for a year, having such data submitted on their behalf through a Maintenance of Certification (MOC) Program, and participating in a MOC Program practice assessment more frequently than is required to qualify for or maintain board certification status. ASCO is investigating further the specific details of these requirements, and will keep members informed of how they may qualify for these additional incentives. Electronic Prescribing (erx) Incentive Program For 2011, eligible providers and group practices may choose whether to participate (but please note carefully the information on the erx penalty below). Assuming they meet the thresholds and criteria, they can quality to receive an incentive payment for 2011 and/or avoid being subject to a penalty that goes into effect in For the 2011 erx Incentive Program, each eligible provider would need to report the G-code indicating that at least one prescription generated during an encounter was electronically submitted at least 25 instances during the reporting period. Note that the penalties for not participating successfully in the erx Incentive Program begin in 2012 but are based on 2011 data. For covered professional services furnished by an eligible provider in 2012, if the eligible provider is not a successful electronic prescriber for the reporting period (in this case, 2011) for the year, a 1% penalty will be applied. In other words, CMS is proposing that the reporting period for 2012 on which penalties are based not be 2012; instead, CMS is proposing that the reporting period for the 2012 penalty will consist of the first six months of data from CMS further proposes that because CMS is proposing only 6 months as the reporting period, they will require only 10 successful submissions, instead of 25. Likewise, CMS also proposes to use 2011 data to effect 2013 penalties; however, CMS will consider the reporting period to be all of In 2013, the penalty rises to 1.5%.

9 Finally, it is important to note that earning an incentive payment under the EHR incentive program precludes an eligible provider from earning an erx incentive payment. It does not, however, preclude the EP from being subject to the erx penalty. To avoid the erx penalty, an eligible provider participating in the Medicare EHR incentive program still must meet the relevant erx penalty criteria for being a successful electronic prescriber. Miscellaneous Issues The proposed rule also addresses changes in reimbursement for radiation oncology, imaging services and bone density testing, as well as changes in the rules governing physician selfreferrals. These issues are discussed below. Provisions Affecting Imaging Services Of interest to oncologists who own and operate imaging equipment in their offices, CMS is proposing to implement provisions of the health care reform legislation that will affect PE RVUs for certain imaging services: Equipment Usage Assumption: As described within the health care reform legislation, CMS will incorporate a 75% usage assumption into its formula to estimate equipment costs per minute for diagnostic Computed Tomography (CT) and Magnetic Resonance Imaging (MRI) services (including CTA and MRA in the current proposed rule). This differs from the CMS 2010 final rule, which included partial implementation of a 90% equipment usage assumption. The usage assumption reflects an estimate of how often equipment is in use during office operating hours. Prior to 2010, all services were assumed to be in use 50% of the time. An increase in the usage assumption translates into a decrease in PE RVUs on the basis that the cost per service is spread over a greater number of procedures. Congress mandated that savings from the equipment usage assumption change be pulled out of the system and not redistributed to other services. Multiple Procedure Payment Reduction (MPPR) Policy: Since 2006, CMS has maintained a policy that there are efficiencies and economies of scale on the technical component of imaging services within the same imaging modality when performed on contiguous body parts during the same imaging session. Based on this, CMS currently pays 100% of the first service and 75% of each additional service within the same imaging family (according to CMS policy there are 11 different families of imaging services that this policy applies to). As per the health care reform legislation, the payment for the second and subsequent services will drop further to 50% of the normal payment amount. Additionally, CMS is proposing to expand the policy so that it applies across imaging families (i.e., no longer specific to services performed on contiguous body parts) and is proposing to subject additional services (CT heart) to the policy.

10 ASCO is currently analyzing the effect of these policy provisions on oncology and will comment to CMS accordingly. o CMS is also proposing to expand this policy to certain physical and occupational therapy services; doing so will redistribute some PE value within the system. This essentially means that the savings CMS will glean from this policy when applied to therapy services will translate to a small increase in PE RVUs for all other services. In that regard, CMS is proposing to increase all PE RVUs by approximately 1%. o The bulk of the savings generated from application of the MPPR policy to imaging services will be pulled from the system as per Congressional mandate, so CMS s proposal to apply the MPPR policy across imaging families will have small redistribution effects. CMS is proposing to increase all PE RVUs by 0.1% to reallocate this value. Payment for Bone Density Tests CMS also implements a provision in health care reform legislaiton relating to the payment for dual-energy x-ray absorptiometry (DEXA) bone density tests, CPT codes and Consistent with the statute, during CY 2010 and 2011, DEXA services must be paid at 70% of the product of the CY 2007 RVUs for the DEXA codes, the CY 2006 conversion factor, and the geographic adjustment for the relevant payment year. Prohibition on Physician Self-Referral for Certain Imaging Services CMS is also proposing to implement a new disclosure requirement established under the recent health care reform legislation for the in-office ancillary services exception to the prohibition on physician self-referral. For referrals for MRI, CT, and PET, the referring physician must inform a patient in writing at the time of the referral that the patient may obtain the service from someone other than the referring physician or within the group practice. In addition, the referring physician must provide the patient with a list of 10 suppliers who furnish the service within a 25-mile radius. For those physicians practicing in areas where there are less than 10 suppliers within a 25 mile radius, the list of suppliers should include all suppliers within the 25 mile radius. * * * * ASCO will be providing additional information as further analyses of the proposed rule are completed. In the interim, please do not hesitate to contact publicpolicy@asco.org with questions or concerns.

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