Thursday, February 07, 2013

Benchmarking Pharma Economics in Oncology Practices

I just discovered a neat data source about the economics and business operations of oncology practices: National Oncology Practice Benchmark, 2012 Report on 2011 Data, from the Journal of Oncology Practice. (Free download.) This is the seventh year of this benchmarking survey—but the first one that I’ve read.

The article has loads of useful data about many hot topics—electronic medical records, clinical pathways, staffing, and more. In this article, I highlight three findings on pharmaceutical economics in oncology practices:
  • Oncology practices purchase about $3.4 million of drugs per hematologist/oncologist. The practices earn a 15% gross margin on these purchases.
  • About one-third of practices dispense medicine through a practice-affiliated pharmacy. Outpatient pharmacy revenues average about $360,000.
  • Specialty pharmacy white bagging is making inroads to buy-and-bill, although this survey is inconsistent with other sources.
If your internal teams need to boost business acumen on this topic, check out Drug Channels Institute's e-learning module on the economics of provider-administered specialty drugs.

THE DATA

The 2012 data, based on 2011 financial results, come from 103 U.S. oncology practices. Three-quarters were physician-owned practices. Survey participants reported an average of 8.1 FTE hematology/oncology physicians per practice.

Unfortunately, the data are presented in a very confusing manner, so your eyes will glaze while looking at a seemingly endless series of bar charts. There are 87 figures in the 20 page article!

DRUG SPENDING AND PROFITS

Total drug revenue per full-time equivalent hematology/oncology physician was about $3.4 million, per Figure 53. Gross profit on these drugs was about one-fifth of practice revenues. The chart below shows practice revenue mix. Note that the article refers to gross profits as “net drug revenue (less COGPF),” which is defined as “revenue net of the cost of the good paid for.”


Net drug revenue per full-time equivalent hematology/oncology physician was about $500,000, per Figure 54. Combining this data with the drug revenue data implies a gross margin of about 15% (=0.5/3.4).

PRACTICE-AFFILIATED PHARMACIES

Oncology practices and clinics are increasingly dispensing oral oncology drugs and such ancillary products as anti-nausea drugs and anti-emetics. According to the JOP survey, about one-third of practices have affiliated pharmacies. The survey looked at two types of practice-affiliated pharmacies:
  • A closed-door pharmacy is a licensed entity that provides retail pharmacy services to patients and employees of the practice but is not available to the public at large.
  • A dispensing unit is a nonlicensed entity that allows physicians to stock and dispense medications (generally oral) to patients of the practice.

Only 12 practices reported pharmacy revenues, so I'm cautious of overextrapolating the results. FWIW, these practices reported average revenue of about $45,000 per physician, implying total pharmacy revenue of about $360,000. (See Figure 60.) Based on my own consulting research, I know of some very large practices operate pharmacies that are comparable in size to a typical independent pharmacy.

Note that third-party payers will often not cover prescriptions dispensed by practice-based pharmacies, instead mandating the use of specialty pharmacies for oral oncology drugs. Payers also report a strong preference for specialty pharmacies to become oral oncology products’ primary channel, per Oral Oncology Channel Battle: Payers vs. Providers.

BUY-AND-BILL

Figure 8 shows responses to the question: “How are drugs purchased/procured by your practice?”


A specialty drug is “white bagged” when it is dispensed to the patient by a specialty pharmacy but drop-shipped directly to the provider, such as a hospital pharmacy or a physician office. At 8% of total purchases, this survey showed white bagging to be much less common than other, more focused sources.

In contrast, surveys by the Zitter Group and ICORE  surveys show white-bagging to be about 25% of oncology practice sourcing. Genentech’s most recent oncology trend report also shows greater use of specialty pharmacy.

Given the explosive growth of the 340B drug discount program, I was also surprised to see that 340B’s share was only 8%. I speculate that academic and hospital-owned practices (20% of the sample) are better able to take advantage of 340B, although there are no cross-tabs in the paper.

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