EBRI Issue Brief

Location, Location, Location: Cost Differences for Oncology Medicines Based on Site of Treatment

Jan 16, 2020 16  pages


Previous research demonstrates that payments from third-party payers for infused oncology medicines are higher when care is provided in hospital outpatient departments (HOPDs) compared with physician offices (POs).  Some have speculated this is due to differences in patient characteristics and treatment regimens between the two sites of care.  This study employed a novel analytical approach that distinguishes differences in the cost of drugs due to price alone from differences attributable to drug mix and treatment intensity for cancer patients.  The analysis was based on 18,195 users of the top 37 infused oncology drugs prescribed to employment-based and commercially insured patients in 2016.

Key findings:

  • Hospital prices for the top 37 infused cancer drugs averaged 86.2 percent more per unit than in physician offices.
  • For every drug examined, HOPDs charged more on average with statistically significant relative differences ranging from 128.3 percent (nivolumab) to 428.0 percent (fluorouracil).
  • The mean annual reimbursement to providers per user of infused cancer drugs was $13,128 in POs and $21,881 in HOPDs.
  • Had hospital unit prices matched physician office prices, holding drug mix and treatment intensity constant, we estimate that commercial insurers would have saved $9,766 per user of these medicines in 2016, a savings of 45 percent.

Our findings have implications for private third-party payers, including employers and commercial insurers.  To counter higher HOPD pricing, employers can aim to negotiate contracts with hospitals for site-neutral payments to ensure that costs for the same treatment are not higher in the HOPD relative to the PO.  In the absence of countervailing market power, third-party payers can engage cancer patients through plan design to guide them to less costly sites that are clinically appropriate for their care. Insurers use both value-based insurance design (VBID) and reference pricing to vary patient cost-sharing based on the choices that they make regarding use of health care services.  However, one thing to consider is whether cancer patients receiving oncology services will be sensitive to cost-sharing, since they are some of the highest-cost claimants.  They not only are more likely than the average person to reach their deductible, they are also more likely to reach their out-of-pocket (OOP) maximum.  Hence, higher patient cost-sharing may not be effective unless clinically appropriate VBID or reference pricing tools remain in force for patients who exceed OOP maximums.