Provider markups on specialty drugs increased commercial premiums

Provider markups on specialty drugs increased 2024 commercial health insurance premiums by $13.1 billion, according to research from Oliver Wyman commissioned by AHIP.

Provider-administered drugs can be delivered directly to providers from a specialty pharmacy—known as white bagging—or providers can purchase the drugs from the manufacturer or distributor and store the drug until the patient needs it, also called buy and bill.

In the buy-and-bill method, hospitals and physicians can add a markup to the drug, which patients are responsible for paying. Delivering drugs through white bagging is generally more affordable for patients and payers because pharmacies do not add markup charges.

The report reflects medical and pharmacy claims data for 19 million people from the 2021 MarketScan commercial data set.

Among the top ten specialty drugs by total claim dollars, the average cost of the drugs that were buy-and-bill was 50 percent to 103 percent higher when supplied by a hospital facility and 2 percent to 33 percent higher when supplied by a professional office compared to the cost when supplied by a specialty pharmacy.

The average markup was 42 percent, with the total amount of all markups representing 0.7 percent of total medical and pharmacy claim dollars. This rate resulted in an average premium increase of $48 per contract per year for individual and small group plan members, $61 for large group single plan members, and $175 for large group family plan members.

Based on 2023 enrollment numbers, the total estimated increase in premiums across all commercial markets is $13.1 billion in 2024.

Given the price differences and the negative impact on consumer premiums, AHIP has advocated for legislation that supports price competition among providers and specialty pharmacies. Similar data that the payer organization released in 2023 found that physician offices marked up drug prices by $1,559 and hospitals marked up prices by $8,278.