Impact on hospitals of price reductions for physician-administered biologics

The prices of physician-administered drugs and biologics are coming under downward pressures from Medicare price negotiations, Most Favored Nation policies, and competition from biosimilars. These will reduce manufacturer sales revenue but potentially increase revenues for the hospitals that acquire these products at one price and are reimbursed by insurers at a higher price. This paper uses 2020-2024 Blue Cross Blue Shield insurer data on expenditures, pricing, and utilization to estimate the impact of manufacturer price decreases for 20 major biologics. Hospital margins for these 20 products increased from $2.37 billion in 2020 (55% of insurer expenditures) to $2.97 billion in 2024 (59%). A 20% manufacturer price reduction would increase hospital buy-and-bill margins to $4.84 billion, 52% of insurer expenditures, while a 40% reduction would increase hospital margins to $5.97 billion, 64% of insurer expenditures. The shift in insurer expenditures from drug manufacturers to hospitals is estimated to reduce research and development (R&D) investments between $282 and $564 million in 2028. A large share of insurer expenditures for physician-administered drugs and biologics are retained by hospital intermediaries rather than accruing to pharmaceutical manufacturers.