Location, Location, Location: Spending Differences for Physician-Administered Outpatient Medications by Site of Treatment

Summary

An increasing number of medications are being developed as either injectables or intravenous drugs. Physicians often administer these medications; thus, they are largely paid for via the medical benefit. A subset of these physician-administered outpatient drugs (PAODs), known as specialty medications, provide a highly sophisticated treatment, generally when there are few or no other treatment options available. Some of the benefits of specialty medications include the reduction in the number of relapses; prevention of disability progression; symptom management; maintenance and/or improvement of quality of life; and, sometimes, disease remission or cures. These specialty medications have piqued the attention of employers, more so than PAODs overall, because of their relatively high costs.

In this Issue Brief, we use data from the 2019 IBM^® Marketscan^® Commercial Claims and Encounters Database to analyze waste caused by pricing failure and measure site-of-treatment price differentials for PAODs. This analysis is important not only because of the observed price differentials but also because waste from site-of-treatment price differentials is being compounded by two other trends — the shifting of care from physician offices (POs) to more costly hospital outpatient departments (HOPDs) and the fact that prices for care in HOPDs are growing faster than PO prices. Ultimately, employers and workers bear the brunt of cost differences when HOPDs perform services that can be provided in less costly POs.

Key Findings:

• Just over one-half of PAODs were administered in HOPDs. One-third were administered in a PO, and 9 percent were received in other settings, such as a patient's home.
• Allowed charges were higher in HOPDs than in POs for all but two of the 72 PAODs examined in this study.
• In the aggregate, employers and workers would collectively save $10.3 billion annually if price differentials between HOPDs and POs were eliminated for the 72 PAODs examined in this paper. If we extended the savings to all PAODs, aggregate savings would be $14.1 billion each year.
• On a per-member, per-year basis, savings would be $80.21 for the 72 drugs examined in this paper and $110.03 for all PAODs if price differentials between HOPDs and POs were eliminated.

Employers could cut spending by $14.1 billion by shifting patients away from more costly HOPD settings or by negotiating site-neutral pricing for specialty medications. The $14.1 billion represents 1.5 percent of total health care spending on workers and their families.