Employers target pharmacy benefit managers (PBMs) to curb drug costs but often miss a big issue—specialty drugs billed under medical benefits.
Many of the most expensive drug treatments—such as chemotherapy, immunosuppressants, and infusion therapies—are categorized as “J-code drugs” for billing purposes and are often subject to significant markups, particularly at hospital facilities.
Hospitals buy J-code drugs—often at steep 340B discounts—then bill them with large markups. Employers and employees ultimately bear these costs through their health plans.
J-codes are used by hospitals and other medical facilities when they administer non-oral medications
Self-funded employers should scrutinize J-code drug billing for three key reasons:
J Code drug billing often lacks transparency: drug costs are based upon an entirely different sales price than drugs dispensed from a pharmacy.
J Code drugs are often very expensive: costs are increased or “marked up” by the hospital or doctor’s office before the medical claim is submitted.
The infusion site can drive up the cost: where the drug is infused (hospital, infusion center, doctor’s office, at home) can vary in cost by as much as 3X.
Alternative Solutions
Disciplined sourcing can save money, but the options are complex:
Standalone Infusion Centers: Offer specialty drug administration at lower costs by eliminating hospital facility fees and using “buy-and-bill” contracts to save the provider money and pass some on to patients. This approach can enhance convenience and reduce costs, though it requires careful evaluation to become part of a direct contracting strategy.
Home Infusion Therapy: Administering specialty drugs at home under professional supervision can reduce costs compared to hospital-based infusions. Studies indicate infusion therapy can save thousands per patient by avoiding hospital facility fees and associated expenses.
White Bagging: The specialty pharmacy ships the drug directly to the provider for administration. While this method can lower costs by avoiding hospital markups, some hospitals push back, citing concerns about supply chain disruptions and patient safety.
Brown Bagging: The patient picks up the medication from a pharmacy and brings it to the provider for administration. While this approach can reduce costs, it introduces risks related to proper storage, chain of custody, and liability, making it a controversial practice.
Inflated drug costs aren’t inevitable. Employers can act now to take control.
All these methods can offer cost savings but require careful consideration of quality, provider willingness, and legal implications.
Case Study: Excessive Hospital Markups
Stelara, a costly J-code drug, treats psoriasis, psoriatic arthritis, Crohn’s, and ulcerative colitis. This medication treats symptoms of these conditions and it isn’t a cure. A healthcare provider usually delivers this injection in a hospital or clinic setting.
A Crohn’s disease patient requires six doses of Stelara per year. A hospital in their area can acquire the drug for approximately $12,000 per dose but charges more than $270,000 per dose. This 22x markup highlights the financial burden J-code drugs can impose on employer-sponsored plans.
This example is an extreme outlier but very real. Depending on their contract, the patient’s health plan may be able to reduce the charges substantially. But it’s possible a poor plan design and bad contract terms without close monitoring of their claims data could result in staggering costs for the health plan and patient.
By contrast, independent infusion centers within 30 minutes of this hospital charge a fraction of this amount, often below $30,000 per dose, making site-of-care optimization and effective contracting a critical strategy for cost containment.
This case highlights how J-code drug pricing, particularly in hospital settings, can lead to excessive markups directly impacting employers and employees.
Key Takeaways for Employers
Analyze J-Code Drug Spending: Review claims data to identify high-cost specialty drugs and determine whether plan design or contracting strategies can reduce costs.
Explore Infusion Center and Home Infusion: Alternative sites of care typically charge far less than hospital departments, often with improved comfort and convenience.
Encourage Self-Administration When Feasible: For drugs that allow it, self-injection can provide cost savings and convenience when patients are properly trained.
Assess White and Brown Bagging Policies: While these methods can lower costs, they must be evaluated for feasibility, provider participation, and patient safety concerns.
Engage in Vendor Negotiations: Work with service providers to establish policies prioritizing cost-effective drug sourcing while ensuring continuity of care.
Monitor Pricing Developments: As new biosimilars come to the market, there are opportunities for cost savings particularly when delivered via the medical benefit.
Final Thoughts
J-code drug pricing can be a hidden driver of excessive healthcare costs for employers. By examining procurement and contracting strategies, exploring alternative infusion sites, and understanding white and brown bagging risks, employers can take proactive steps to reduce costs while ensuring employees receive the treatments they need.
Explore Direct Contracting With Infusion Centers and Home Infusion Services
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