Blog Post

Hospital-based vs. freestanding chemo: A close look at Medicare costs

October 22, 2018

    The difference in costs between hospital-based and freestanding or private practice settings is one of the hottest topics in cancer care—and health care more broadly. It's a complex issue that is fraught with tension. Here, we review the latest studies comparing Medicare chemotherapy costs in these two settings and what hospital-based infusion centers must do to succeed in the future.

    New study reveals total Medicare chemo spend lower in HOPDs

    In a new study published this year, Yamini Kalidindi, a research assistant at Pennsylvania State University, and colleagues found that total Medicare spending on chemotherapy was lower in the hospital outpatient department (HOPD) than in the physician office setting. Their analysis used a random sample of Medicare fee-for-service claims for cancer patients who received chemotherapy exclusively in either setting from 2010-2013.

    They evaluated spending on chemotherapy drugs and administration. Spending included both Medicare reimbursements and patient out-of-pocket spending. They also looked at the number of and spending per chemotherapy drug and administration claims per beneficiary. Importantly, the researchers controlled for cancer type, since this can dramatically alter the type and amount of chemotherapy delivered.

    Kalidindi and colleagues found that there was a significant difference in the mix of cancer cases treated between HOPDs and physician offices. For example, prostate cancer patients accounted for more than half of physician offices' total chemotherapy patients compared to only 25% of HOPDs'.

    Risk-adjusted chemo drug spending per beneficiary was $2,451 (19%) lower in the HOPD setting than in physician offices. Risk-adjusted chemo administration spending per beneficiary was higher in the HOPD setting, but only by $322 (26%).

    Taken together, net chemotherapy spending per beneficiary (chemo drug plus administration spending) was lower in the HOPD setting.

    Chemo use drives difference in drug spend, cost drives difference in chemo administration spend

    Kalidindi et al. found that spending per chemotherapy drug claim per beneficiary was higher in the HOPD setting, which likely reflects differences in out-of-pocket spending since Medicare reimbursement for drugs is the same across both care settings (106% of the manufacturer's average sales price at the time the claims occurred). However, physician offices had a higher number of drug claims per beneficiary. Because total drug spend was higher in physician offices, this means that the difference in chemotherapy utilization per beneficiary was a bigger driver of chemotherapy drug spend than spending per claim.

    The number of chemotherapy administration claims per beneficiary was also somewhat higher in physician offices than HOPDs, but average spending per claim was almost twice as much in HOPDs compared with spending per claim in physician offices. This means that spending per claim rather than number of claims was the primary driver of the higher chemotherapy administration costs per beneficiary in HOPDs. This is likely largely driven by the fact that Medicare typically reimburses HOPDs more than physician offices for the same administration codes (although Medicare reimbursement for these codes is not standardized), but differences in out-of-pocket spending may also contribute.

    This study differs from previous literature

    These findings are in direct contrast with much of the other literature comparing chemotherapy spending in the HOPD and physician office settings. For example, a 2013 analysis by The Moran Company found that annual Medicare spending on both chemotherapy drugs per beneficiary and chemotherapy administration per beneficiary were higher in HOPDs than physician offices in 2009-2011. Chemotherapy administration spending ranged from 42%-68% higher in HOPDs, and drug spending ranged from 25%-47% higher in HOPDs.

    In 2016, an analysis by Milliman found that the average annual Medicare per-patient-per-year allowed cost for infused chemotherapy patients in 2014 was 34% higher in HOPDs than physician offices.

    The key difference between these two studies and Kalidindi's recent study: Neither of the two earlier studies controlled for patient case mix, which Kalidindi and colleagues showed is different in the HOPD than physician office setting.

    What should we make of all of this?

    More research is needed to definitively declare which site of care is lower cost for chemotherapy when it comes to Medicare. However, Kalidindi's findings still have important takeaways for cancer program leaders, payers, and policymakers:

    • The cost differential for chemo delivered in HOPD and physician offices is not clear-cut;
    • Case mix differs between sites of care and should be considered in future research on cost differences between sites of care; and
    • Differences in utilization of chemo between sites of care warrant further investigation.

    To this last point, it will be critical to understand the drivers of differences in chemotherapy utilization and standardize care across settings when appropriate as hospitals and private practices continue to merge. Developing and implementing clinical pathways will be an important part of this effort for both cancer programs and payers.

    Read our latest research on how to reduce unwarranted care variation in oncology

    Although this study focused on Medicare spend, private payers are increasingly seeking to shift infusions out of HOPDs and into freestanding centers and private practices. In the same 2016 Milliman analysis, researchers found that the cost of chemotherapy for commercial payers was 42% higher ($46,272) in the HOPD setting than the physician office setting in 2014. To develop a viable financial strategy for your infusion center, review our resources to optimize infusion center business and operations.

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