OBJECTIVES : Providers (both physicians and hospitals) retain a portion of spending on medicines in the form of markups when administering injectable and infused drugs. In this analysis, we aimed to estimate the amount retained by providers, and the share retained by hospitals compared with physicians, both within all medicines and when focusing on oncology drugs.

METHODS : We developed a Microsoft Excel based model to estimate markups received by hospitals and physician offices from any physician administered drugs as well as from oncology drugs only, for commercially insured patients in 2017. Total provider surplus on medical pharmacy as well as profit margin for hospital and physician offices were obtained from published literature. Site of service mix between physician office and hospital outpatient department was estimated by share of reimbursement whenever available and by share of utilization otherwise, with data obtained from an industry report developed by Magellan.

RESULTS : In 2017, $30 billion of commercial medical pharmacy spending was retained by providers in the form of markups. Of this total, we estimated that $27.3 billion (91%) were received by hospitals while the remaining $2.7 billion (9%) went to physician offices, despite only 53% of patients being treated in the hospital setting. When focusing on oncology drugs, we estimated that $8.9 billion (87%) and $1.3 billion (13%) in commercial medical pharmacy spending were received by hospital outpatient departments and physician offices, respectively, due to markups on physician-administered medicines.

CONCLUSIONS : In the commercial market, hospitals retain a disproportionately large share of the gross profit relative to physicians, and a substantial amount of total spending within both all physician-administered medicines and within oncology physician-administered medicines. Further efforts to consider all parties along the supply chain should be made when trying to address health care spending in the U.S.