Hospital outpatient departments are marking up the prices for biologic medicines more than physician offices, particularly for “innovator biologics” that have clinically equivalent and lower cost alternatives on the market, according to a new analysis from the Employee Benefit Research Institute (EBRI).
These higher charges for these products among hospital outpatient departments (HOPDs) are “roughly doubling costs for employers and minimizing savings that could be achieved through biosimilar competition,” the independent research group found in its review of a proprietary commercial claims database of 25 million people with private health insurance.
“While HOPDs tend to charge higher prices for all medicines relative to the [physician office], higher HOPD markups on biologic medicines are roughly doubling costs for employers and minimizing savings that could be achieved through biosimilar competition,” Paul Fronstin, director of health benefits research at EBRI, and M. Christopher Roebuck, CEO of health policy research firm RxEconomics, wrote in the brief.
In 2019, for instance, allowed charges for all seven examined innovator biologics averaged 98% higher among HOPDs than in physician offices, per EBRI’s issue brief. In 2020, the allowed charges increased to an average 121%.
The gap was slightly smaller, but still prominent, for the cheaper alternatives. Compared to physician offices, HOPDs’ biosimilar markups were an average 87% higher in 2019 and 101% higher in 2020.
Use of lower-cost biosimilars among those with employer-sponsored coverage is generally growing, the authors wrote, and a robust pipeline of additional biosimilar products in development means that the market's potential savings are “still in its infancy.”
Uptake rates across the different outpatient care sites went back and forth depending on the specific biosimilar product, they found, and the recent release of many measured biosimilars meant there was little utilization trend data to review. Regardless, the consistently higher markups at HOPDs are a damper on the promise of lower costs for payers.
“[These markups] can significantly undermine the potential savings that could be achieved through biosimilar competition," Roebuck said in a release. "Given the robust pipeline of biosimilars, employers and other plan sponsors should closely monitor HOPD markups, biosimilar uptake and overall market trends."
Any evidence of higher prices and reduced savings among HOPDs is bad news for the hospital lobby, which is fighting back against policymakers’ proposals to bring their prices in line with non-hospital sites of care.
Hospitals argue that the increased rates at HOPDs fund additional services that aren’t offered at other outpatient locations, and that trimming pay rates would limit access to those services.
Critics, much like EBRI, say the higher prices at HOPDs are contributing to greater healthcare spending. They also say that the higher rates incentivize physician practice consolidation with hospitals.
The Medicare Payment Advisory Commission (MedPAC) aligned with the latter's side of the argument in recent recommendations to Congress. There, the advisory panel wrote that adjusting rates for certain services delivered in higher-cost settings to more closely align with lower-cost rates (i.e., site-neutral payments) could be budget-neutral and would “lower Medicare program spending, lower beneficiary cost-sharing to [provide] an incentive for providers to improve efficiency by caring for patients in the lowest-cost site that is appropriate for their condition.”
Shortly after, the American Hospital Association (AHA) wrote that it opposed MedPAC’s site-neutral policy recommendation and highlighted the impact current proposals would have on rural hospitals. The 2.5% Medicare revenue cut would bring these centers' average total Medicare margin down from -17.8% “to an even more alarming -21%,” potentially fueling closures and harming rural communities, the AHA said.