Healthcare Finance: Hospitals keep 91 percent of profit from physician-administered drugs

There’s a stark contrast between physician practices and hospital outpatient clinics when it comes to the share of gross profits from drugs administered by physicians to commercially insured patients, finds a new analysis from the Partnership for Health Analytic Research.

While both groups see about the same number of commercially insured patients, hospitals rake in a much larger share of the profits, collecting 91% of the gross profit margin while serving only 53%of patients receiving physician-administered drugs.

Compare that to physician offices, which treat 47% of patients in the commercial market and pocket just 9% of the gross margin.

WHAT’S THE IMPACT

Injectable and infused drugs — such as those for rheumatoid arthritis and oncology — are typically administered in an outpatient setting by physicians, either in a physician office or at a hospital outpatient clinic.

The research indicates that not only do commercial payers reimburse hospital clinics at a higher rate than physician offices, but hospital clinics also are eligible for discounts not offered to physician practices, such as the 340B Drug Pricing Program.

Prior estimates of margins in the pharmaceutical supply chain don’t make the distinction between hospitals and independent physician practices.

Hospital clinics retain more than biopharmaceutical manufacturers for medicines administered in the outpatient setting. For every $100 spent on physician-administered medicines in the hospital outpatient setting, the hospital retains $58, while the manufacturer receives less than $42.

This suggests that hospitals are earning more from administering medicines than the manufacturers who created the medicines, and is consistent with recent research published by the Moran Company, which found that in the commercial market, hospitals retain 2.4 times their acquisition cost for a basket of 20 brand medicines.

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