Medicare Chemo Costs Are Lower in Hospital Clinics Once Cancer Type is Considered, AJMC® Study Finds

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Critics of healthcare consolidation have cited higher costs of chemotherapy administration as an example of how mergers drive up costs. A new study in The American Journal of Managed Care®finds that while drug administration costs in hospitals are higher, chemotherapy drug spending among Medicare patients is lower, driven by less frequent use of therapy.

Does it cost more to have chemotherapy in a hospital clinic? A new study in The American Journal of Managed Care®(AJMC®) that compares Medicare costs for chemotherapy drug and administration in different settings says no, once one adjusts for cancer type.

The findings conflict with analyses cited by community oncology advocates, who have argued that healthcare consolidation, driven in part by the 340B discount drug program, has pushed more patients with cancer into hospital outpatient clinics for care—and higher chemotherapy costs are the result.

In this new study, funded by the National Institutes of Health, researchers led by Yamini Kalidindi, MHA, of Penn State University, compared raw Medicare per capita chemotherapy costs between hospitals and physicians’ offices, as well as per capita costs controlling for cancer type.

“Spending differences in commercial settings are driven by price differences between [hospital outpatient departments] and physician offices rather than differences in quantities of services,” the authors write. “Medicare uses the same reimbursement rates for chemotherapy drugs in both settings,” and this is the first study to compare costs by setting and cancer type in Medicare.

Analyzing costs by cancer type showed that once one controls for the different types of cancers seen in the two settings, Medicare per capita drug costs are lower in the hospital. However, chemotherapy administration costs are higher in hospitals, as community oncology advocates claim. The researches do note that the chemotherapy spending per claim is higher in the hospital compared with physician offices—most likely driven by differences in treatment mix between the settings.

An accompanying editorial by the Brookings Institution’s Kavita Patel, MD, MPH, and the University of Michigan’s A. Mark Fendrick, MD, co-editor-in-chief of AJMC®, notes that the analysis covers years before Medicare launched the value-based Oncology Care Model (OCM), and that “early findings from the OCM have demonstrated signs of progress.”


Using claims data from 2010 to 2013 for a random sample of Medicare fee-for-service members with cancer, the researchers found:

  • The two settings had different patient populations: Prostate cancer accounted for more than half (56 percent) of the cases seen in physician offices, compared with 25.5 percent in hospital clinics. Breast cancer accounted for 20.8 percent of the hospital clinic cases and only 12.9 percent of the physician office cases.
  • Spending on chemotherapy drugs was $2451 lower for Medicare beneficiaries who received chemotherapy in a hospital outpatient clinic compared with those treated in physician offices.
  • Spending on chemotherapy administration was $322 higher for Medicare beneficiaries in hospital clinics than in physician offices.
  • Differences were driven by the fact that patients in hospital clinics received chemotherapy less frequently than those treated in physician offices.

Patel and Fendrick say the findings have important implications as the Trump administration weighs whether to consolidate Medicare Part D with Medicare Part B, as the latter program pays for physician-administered chemotherapy drugs. The Trump administration’s proposal is part of a broader effort to rein in drug costs. At the same time, hospitals are resisting changes to the 340B program that community practices say would even the playing field and halt the wave of consolidation.

The editorial also notes that the results come as the 21st Century Cures Act calls for site-neutral reimbursement to new Medicare facilities. “The interpretation of the results of site-of-care research may have even more far-reaching consequences as pressure grows to extend site-neutral payment policies from new to existing facilities,” Patel and Fendrick write.

About The American Journal of Managed Care®:

The American Journal of Managed Care® (AJMC®) is a peer-reviewed, MEDLINE-indexed journal that keeps readers on the forefront of health policy by publishing research relevant to industry decision makers as they work to promote the efficient delivery of high-quality care. is the essential website for managed care professionals, distributing industry updates daily to leading stakeholders. Other titles in the AJMC® family include The American Journal of Accountable Care®, and two evidence-based series, Evidence-Based Oncology™and Evidence-Based Diabetes Management™. These comprehensive offerings bring together stakeholder views from payers, providers, policymakers and other industry leaders in managed care. To order reprints of articles appearing in AJMC® publications, please contact Jeff Prescott at 609-716-7777, ext. 331.


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Surabhi Verma