October 2018 Edition Vol.11, Issue 10

Total Cost of Care: Site-of-Care Shift and 340B Drive Total Cost

By Chase Doyle

The truth behind the total cost of cancer care is a complex puzzle that involves the increased prevalence of people living with cancer, a shift in the site of oncology care, the approval of over 70 new drugs and biologics between 2004 and 2014, and incentives provided in the 340B drug discount program.

By 2020, an estimated $173 billion will be spent on the cost of cancer care, a nearly 40% increase from 2010.1 As evidenced in our previous Total Cost of Cancer Care article, specialty pharmacies, oncologists, office practice managers, and employers sited the ‘control of overall cancer costs’ as the most pressing challenge facing cancer care stakeholders in 2017.2

According to a landmark study by Milliman, published in 2016, there is not a single culprit driving costs.3 Meaningful progress in reducing spending requires a holistic examination of all drivers, including site of service, Medicare’s 340B program, and drug prices, said study team member, David Eagle, a practicing oncologist at Lake Norman Oncology, Mooresville, NC.

Shift in Chemotherapy Site of Care

A major trend contributing to the increase in cancer care costs has been a shift in the site of care delivery from community-based to hospital-based settings. Milliman’s retrospective analysis of Medicare and commercially insured population claim data between 2004 and 2014 identified a dramatic increase in the percentage of chemotherapy infusions administered in hospital outpatient facilities and a corresponding decrease in chemotherapy infusions provided at physician offices. This is problematic because most payers, including Medicare, pay less for chemotherapy infusions delivered in the physician office setting versus hospital outpatient facilities. During the study period, both spending and volume of chemotherapy infusion drugs shifted to more expensive, hospital-owned oncology practices.



As shown in Figure 1, from 2004 to 2014, the portion of chemotherapy infusions delivered in hospital outpatient departments increased from 15.8% to 45.9% in the Medicare population and 5.8% to 45.9% in the commercial population. Furthermore, within the Medicare population, the percentage of chemotherapy infusions being delivered in hospitals participating in the 340B drug purchasing program increased from 3.0% to 23.1% during the study period. In 2014, data showed that 340B hospitals accounted for 50.3% of all chemotherapy infusions in hospital outpatient departments.

“We did find that if you look at patients under active treatment, spending was higher in the hospital setting both in the commercially insured and the Medicare population,” said Dr. Eagle, who noted that the gap in spending may be driven by the “spread” between 340B pricing and third-party reimbursement.

According to a recent study cited by the analysis,4 hospitals participating in the 340B drug pricing program receive nearly 50% higher Part B oncology drug reimbursement per-beneficiary per-day than community oncology practices.

“The federal 340B drug pricing program was intended to support providers that furnish services to low-income people, allowing them to provide care to more patients using sometimes scarce federal resources,” noted Milliman researchers. “However, providers can purchase drugs at these reduced prices for non-low-income patients, including those with Medicare or private insurance, and generate revenue if their reimbursement exceeds the price of the drug.”

In addition to the site-of-service shift, the researchers identified a substantial consolidation among outpatient providers and hospitals or health systems. Since 2008, a 121% increase in community-based practice clinic closures and a 172% increase in community practices being acquired by hospitals has been seen.

“Our data doesn’t exactly prove it,” said Dr. Eagle, “but it’s consistent with the hypothesis that as more of the hospital care gets consolidated, they’re having an increasing leverage with the insurers, and the cost differentials are increasing even wider.”

Cost of Cancer Care in the Outpatient vs. Community Oncology Setting

A study conducted by Lucio Gordan, MD, Medical Director in the Division of Quality & Informatics at Florida Cancer Specialists & Research Institute, and Xcenda, a global health economics consultancy, examined the financial ramifications associated with the site-of-care shift in patients diagnosed with breast, lung, or colorectal cancer.5

After conducting a matched analysis of patients treated in the community or hospital setting, the researchers found that across all cancers, the mean total cost paid per month was significantly lower in patients who were treated in a community-based practice compared with those who were treated in a hospital-owned practice ($12,548 vs. $20,060, respectively; P<0.0001).



According to the report, compared with community-based practices the higher costs of cancer care in the hospital outpatient setting were primarily driven by the 71% increase in the cost of chemotherapy [$8,443 vs. $4,993], but physician visits were also shown to be 333% more expensive per month in the hospital outpatient setting [$3,316 vs. $765].

These results were maintained irrespective of treatment regimen or tumor type. Moreover, the researchers also found that patients with cancer treated in the hospital outpatient setting were more likely to visit the emergency department within 72 hours or 10 days of chemotherapy administration than patients treated in the community practices.

“Overall, this study demonstrates that total and chemotherapy-specific costs in breast, lung, and colorectal cancer patients are consistently lower in the community practice setting compared to the hospital setting,” said Dr. Gordan.

According to Dr. Gordan, given the increased costs associated with the delivery of chemotherapy in the hospital outpatient setting, it stands to reason that, for these patients, the preferred treatment setting for providers, payers, and patients should be the community-based setting.

He also noted that new models of care and performance incentives may be needed to encourage oncology stakeholders to change these trends to support community-based care.

340B Incentivizes Use of Higher Cost Drugs

The 340B drug discount program, which, according to a recent Health Affairs’ policy brief, may be incentivizing higher costs.6 Meaning the “spread” between the 340B drug discount acquisition cost and reimbursement may be promoting excessive use of medications, especially in the Medicare cancer patient population.

“Arguably, 340B pricing encourages providers to choose a higher-cost agent, even when a lower-cost therapy is available, because the spread will be larger and the profit margin therefore higher,” noted the authors. “The concern exists generally in Medicare Part B, but it is magnified by the size of the spread for 340B providers.”

Medicare reimbursement for physician-administered drugs is based on ASP +6%, regardless if the drug is purchased at the 340B discount price at 340B covered entities or purchased at a non-discount price at a non-340B facility. Because 340B hospitals purchase the drugs at a significantly lower price, they earn significantly higher profits than non-340B hospitals on the same drugs. As reported by Health Affairs, 340B providers receive an average discount of 34% off the calculated Average Manufacturer Price, and often it may be much higher (up to 100%)—but receive the same Medicare reimbursement as non-340B providers.

According to an analysis by Berkley Research Group, this dynamic creates a financial incentive for 340B hospitals to administer a higher volume of oncology drugs purchased at a 340B price.7 What’s more, this incentive has increased significantly since 2010.



Figure 3 shows a historical trend in Medicare reimbursement and 340B prices for oncology drugs, as well as the profit margin realized by 340B hospitals on oncology drugs. Non-340B hospitals’ drug costs track closely to the ASP, resulting in a 6% margin versus the 49% margin realized by 340B hospitals in 2015.

The study also highlighted how growth in 340B discounts and Medicaid rebates puts upward pricing pressure on oncology drugs. According to the researchers, statutory discounts and rebates paid by manufacturers between 2010 and 2015 have nearly tripled, from approximately $1 billion (7.4% of total gross sales) to more than $3 billion (14.4% of total gross sales) on the same set of drugs.

The authors noted that as the statutory discounts and rebates increase, net sales for drug manufacturers decline, which places price pressure on drugs. These pressures may potentially lead to higher prices or reductions in discounts and rebates for commercial purchasers, such as group purchasing organizations and community oncology practices.

Given the increased enrollment of new 340B hospitals and the expansion of oncology services at existing hospitals, manufacturers will like factor these trends into launch prices, the authors added.

Congress is starting to act. In November 2017, the Centers for Medicare and Medicaid Services finalized the Hospital Outpatient Prospective Payment System (HOPPS) final rule and reduced payment by almost 27% for certain physician-administered drugs purchased at a 340B price. It remains to be seen, however, whether these efforts will have an impact on current trends.

“Absent additional legislative and/or regulatory action, we believe the trends identified in this study will not only continue but potentially accelerate in the coming years,” the authors concluded.


  1. Mariotto AB, Yabroff KR, Shao Y, Feuer EJ, Brown ML. Projections of the cost of cancer care in the United States: 2010-2020. Journal of the National Cancer Institute. Jan 19 2011;103(2):117-128.
  2. The 2017 Genentech Oncology Trend Report. 9th Edition. https://www.genentech-forum.com/content/dam/gene/managedcare/forum/pdfs/Oncology-Trends/2017_Genentech_Oncology_Trend_Report.pdf. Accessed April 17, 2018.
  3. Fitch K, Pelizzari PM, Pyenson B. Cost drivers of cancer care: A retrospective analysis of Medicare and commercially insured population claim data 2004-4014. Milliman, April 2016.
  4. Berkley Research Group. 340B growth and the impact on the oncology marketplace. Washington DC: Berkley Research group; 2015.
  5. Gordan L; Community Oncology Alliance; Xcenda. The value of community oncology: site of care cost analysis. Community Oncology Alliance website. communityoncology.org/wp-content/uploads/2017/09/Site-of-Care-Cost-Analysis-White-Paper_9.25.17.pdf. Published September 25, 2017. Accessed December 20, 2017.
  6. Mike McCaughan. Health Policy Brief: The 340B Drug Discount Program,” Health Affairs, September 14, 2017. DOI: 10.1377/hpb2017.10.
  7. Vandervelde A, Blalock E. The oncology drug marketplace: Trends in discounting and site of care. Berkeley Research Group, LLC. December 2017.

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