Tuesday, August 01, 2017

New Part B Buy-and-Bill Data: Physician Offices Are Losing to Hospital Outpatient Sites

The Medicare Payment Advisory Commission (MedPAC), the independent agency that advises Congress on the Medicare program, recently released its June 2017 Data Book: Health Care Spending and the Medicare Program. The report is a 201-page wonktastic data dump. Chapter 10 focuses on prescription drugs.

In 2015, the most recent year available, Part B spending on drugs reached $25.7 billion. Hospital outpatient sites now constitute more than one-third of Medicare spending and have been crowding out physician offices. Part B payments to physician practices are growing much more slowly than payments to hospitals.

For some time, I have been tracking the evolution of the buy-and-bill system for provider-administered drugs. These new data confirm my predictions that physician offices’ will account for a declining share of the buy-and-bill market. Still unknown: Is this good or bad for patients?

HONEY, I SHRUNK THE SHARE!

Physician offices and hospital outpatient clinics are the primary sites of administration for such provider-administered drugs as biologicals, injectables, IVIG, immunoglobulins, and other products.

Medicare is the primary government payer of provider-administered drugs. Its Part B program covers provider-administered injectables and certain other drugs. Part B also covers: certain self-administered drugs, such as oral anticancer drugs and immunosuppressive drugs; drugs used in conjunction with durable medical equipment; and some vaccines.

The MedPAC data show that Part B spending continues to shift from physician practices to hospital outpatient departments. Hospital outpatients’ share of Part B spending has grown, from 21% in 2005 to 34% in 2015.

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The annual growth rate has been higher in every year from 2005 to 2015. (See chart below.) From 2005 to 2015, the compound average growth rate (CAGR) of spending was 4.8% per year for physician offices, compared with 12.0% for hospital outpatients.

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In contrast to Part B, commercial payers have already experienced the shift away from physician practices. More than half of outpatient commercial medical benefit drug spending occurred in hospital outpatient locations. See page 6 of the 2016 Medical Pharmacy Trend Report from Magellan Rx Management.

For a more complete analysis of the buy-and-bill market, see Chapters 3 and 6 of our 2016–17 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. (Now on sale! The new 2017-18 report will be released in early October.)

HONEY, I BLEW UP THE BUY-AND-BILL MARKET!

As I noted in April’s news roundup, the share of oncology practices owned by hospitals and health systems has doubled in the past five years, from less than 30% in 2010 to nearly 60% in 2015.

Economic pressures have encouraged physicians in community oncology practices to sell their practices to hospitals and health systems. Two key financial incentives have motivated hospitals to acquire these practices:
  • Lower drug acquisition costs due to 340B pricing. Hospitals are much more likely to be eligible to purchase drugs at sharply discounted prices via the 340B Drug Pricing Program. The 340B program lets eligible hospital outpatient departments earn tremendous profits from the Medicare Part B program. See New OIG Report Shows Hospitals’ Huge 340B Profits from Medicare-Paid Cancer Drugs. Physician offices are not as fortunate.
  • Higher reimbursements from commercial payers. Hospitals can generate more revenue from specialty drug administration than can independent physician-owned facilities, as we show in Latest Data Show That Hospitals Are Still Specialty Drug Profiteers. Note that this issue is less relevant for Medicare, which pays comparable amounts to different sites of care.
The surviving independent practices are generally larger and more professionally managed than the practices that have been absorbed by health systems. They are working hard to make sure that they don't shrink themselves.

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