Oncology Drug Costs and Site of Service

Cancer is obviously a terrible disease.  The costs of newer oncology drugs add greatly to the already high anxiety and stress that these patients and their families must deal with.  Some providers, i.e., hospital outpatient departments, apparently feel it is their prerogative to add further to that burden by marking up the cost of those drugs, increasing patients’ cost-sharing.  A brief from the Employee Benefits Research Institute gives some details on the differences in cost of treatment depending on site of care.   (EBRI Brief)  The brief uses data from the year 2016 on over 18,800 commercially insured users of infused cancer drugs and studies relative cost of the top 37 medications.  In 2004, 94% of cancer drug infusions took place in the physician office, but by 2014 that rate had dropped to 57%, with a corresponding rise in use in hospital outpatient departments.  That was strongly driven by hospital acquisitions of oncology practices and a consequent shift of site of service to where the hospitals could make more money.  The spread in relative drug cost in the two settings has gone from 25% more in the hospital in 2004 to 42% more in 2014.

In this study, 51% of the users were treated in the physician office, suggesting that commercial payers were having some success pushing patients to the less expensive setting, which benefits patients by reducing cost-sharing.  But the drug prices in the hospitals ranged from 128.3% to 428% higher than those in physician offices and every single drug was more expensive in the hospital setting.  Just so you understand, those drugs aren’t costing hospitals any more, they actually are probably paying less.  The hospitals are just marking up the cost.  The weighted average difference for a treatment was 86% more in a hospital outpatient department.   An average course of therapy cost $13,128 in a doctor’s office and $21,881 in a hospital.  The hospitals also used more expensive drugs and more units of a drug.  If you held everything constant, the insurer would save 45% or $9,766 per patient by only using physician offices or by reimbursing at the same rate regardless of setting.  And that is just the drug price, hospitals also charge much higher service fees for these treatments.  I don’t know how any hospital executive possibly justifies this crap.