Drug Costs Hidden in Medical Claims

AHealthcareZ - Healthcare Finance Explained

@ahealthcarez

Published: November 9, 2025

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This video provides an in-depth exploration of how high-cost prescription drugs are billed within medical claims, revealing significant hidden costs for employer-sponsored health plans. Dr. Eric Bricker begins by introducing J-codes, a specific type of HCPCS (Healthcare Common Procedural Coding System) code used to designate medications, particularly high-cost infusions, on UB04 facility bills. He highlights that these codes allow for the identification and analysis of drug spend within overall medical claims, a crucial insight for self-funded employers.

The presentation then delves into specific examples, such as Rituxan (rituximab) for leukemia and lymphoma, costing approximately $12,000 per cycle, with a typical patient requiring 20 cycles, totaling $240,000 for the drug alone. Dr. Bricker explains the complex financial mechanisms behind these high costs, starting with "carve-out" reimbursement methodologies. Hospitals negotiate special terms with insurance networks for these J-coded drugs, securing exceptionally high reimbursement rates from commercial employer plans, often offsetting lower rates from Medicare Advantage plans.

A critical component of this financial dynamic is the 340B pharmacy program, a federal regulation that mandates pharmaceutical manufacturers to sell certain medications to eligible hospital systems at a significant discount (25-50%). Dr. Bricker illustrates how hospitals leverage this discount, combined with high commercial reimbursement rates, to achieve markups of 300-400% on these drugs. He addresses the hospitals' common justification—the need to subsidize care for uninsured, Medicaid, and under-reimbursed Medicare patients—but argues that this practice unfairly burdens employers and employees, leading to rising premiums and increased out-of-pocket costs, even contributing to personal bankruptcy for cancer patients. The video concludes with actionable advice for employers, emphasizing the importance of proactive patient steering to independent oncologists and infusion centers, which can offer the same quality of care at a substantially lower cost and potentially with zero out-of-pocket expenses for the patient.

Key Takeaways:

  • J-codes Reveal Hidden Drug Costs: High-cost medications, especially infusions, are identified on medical claims using specific J-codes (part of HCPCS codes) found on UB04 facility bills. This coding system allows for detailed analysis of drug spend within an employer's overall medical claims.
  • Significant Financial Burden on Employers: Medications like Rituxan can cost employer-sponsored plans hundreds of thousands of dollars per patient (e.g., $240,000 for 20 cycles of Rituxan), representing a substantial portion of healthcare expenditures.
  • Hospital "Carve-Out" Reimbursement: Hospitals negotiate specialized "carve-out" contracts with insurance networks for J-coded drugs, securing very high reimbursement rates from commercial employer plans to compensate for perceived underpayments from government programs like Medicare.
  • 340B Program Drives Hospital Profitability: The federal 340B pharmacy program mandates pharmaceutical manufacturers to sell certain drugs to eligible hospitals at a significant discount (25-50% off standard pricing). Hospitals then bill employer plans at marked-up rates, leading to substantial profit margins.
  • Exorbitant Drug Markups: Hospitals can mark up these discounted drugs by 300-400% (e.g., buying Rituxan for $4,000 and billing $12,000), contributing significantly to the high cost of care for commercially insured patients.
  • Hospitals' "Cry Poor" Justification: Hospitals often justify these high markups by claiming they need to offset losses from uninsured, Medicaid, and Medicare patients. However, this practice shifts the financial burden onto employers and their employees.
  • Negative Impact on Employees: The high cost of these drugs, especially for chronic conditions like cancer, can lead to employees hitting their out-of-pocket maximums ($24,000 annually in the example) and is a major contributor to personal bankruptcy among cancer patients.
  • Employers as the "Social Safety Net": The current system effectively positions employer-sponsored health plans as the primary funding source to cover shortfalls in other parts of the healthcare system, a role many employers do not feel is their responsibility.
  • Actionable Strategy: Proactive Patient Steering: Employers can mitigate these costs by establishing relationships with plan members and, in cases of diagnoses like cancer, steering them towards independent oncologists or infusion centers that offer lower-cost treatment options.
  • Benefits of Independent Care: Independent oncologists often have more flexibility in terms of site of service, allowing patients to receive infusions in physician offices or independent infusion centers, which are typically much less expensive than hospital outpatient departments.
  • Zero Out-of-Pocket Options: By proactively steering patients to lower-cost independent providers, employers can design plans that offer zero out-of-pocket costs for the employee, which is not only more financially viable for the plan but also protects employees from financial hardship and potential bankruptcy.
  • Early Intervention is Key: The ability to steer patients to alternative sites of care is most effective if done early, before a patient establishes care with an oncologist directly affiliated with a high-cost hospital system.

Tools/Resources Mentioned:

Key Concepts:

  • J-codes: Specific codes within the Healthcare Common Procedural Coding System (HCPCS) used to identify and bill for injectable drugs, chemotherapy, and other non-orally administered medications.
  • HCPCS (Healthcare Common Procedural Coding System): A standardized coding system used to describe medical procedures, services, and supplies provided to patients, primarily for Medicare and Medicaid.
  • UB04 Facility Bills: A standard claim form used by institutional providers (like hospitals) to bill for services provided to patients.
  • Carve-Out Reimbursement: A contractual agreement between a healthcare provider (e.g., hospital) and an insurance payer where specific high-cost services or drugs are reimbursed under terms separate from the general contract.
  • 340B Pharmacy Program: A federal program requiring drug manufacturers to provide outpatient drugs to eligible healthcare organizations and pharmacies at significantly reduced prices.
  • Rituxan (Rituximab): A monoclonal antibody medication used to treat certain autoimmune diseases and cancers, including lymphoma and leukemia.
  • Keytruda (Pembrolizumab): An immunotherapy drug used to treat various cancers, including multiple myeloma.

Examples/Case Studies:

  • Rituxan (Rituximab): Used to treat lymphoma and leukemia. Costs $12,000 per cycle in a hospital outpatient department, with a typical treatment course of 20 cycles totaling $240,000 for the drug alone.
  • Keytruda (Pembrolizumab): Used to treat multiple myeloma (a blood cancer similar to lymphoma and leukemia). While specific cost examples were not detailed for Keytruda, it was presented as another example of a high-cost J-coded drug.