Payment Incentives and the Use of Higher-Cost Drugs: A Retrospective Cohort Analysis of Intravenous Iron in the Medicare Population

ABSTRACT

Objectives: Medicare Part B payment methods incentivize the use of more expensive injectable and infused drugs. We examined prescribing patterns in the context of intravenous (IV) iron, for which multiple similarly safe and efficacious formulations exist, with wide variations in price.

Study Design: We conducted a retrospective cohort analysis of IV iron utilization and payment in the Medicare population between 2015 and 2017.

Methods: This analysis used a national, random 20% sample of Medicare fee-for-service beneficiaries with Part B claims for IV iron between January 2015 and December 2017—a period before, during, and after a national shortage of iron dextran. This sample included 66,710 Medicare fee-for-service beneficiaries with at least 1 Part B claim for IV iron.

Results: The greatest increase in utilization occurred in the most expensive iron formulation, ferric carboxymaltose; its market share rose from 27.4% of use in 2015 to 47.7% in 2017. The use of a less expensive formulation, iron dextran, decreased from 26.7% to 18.7% over the same period. An alternative payment model in Maryland hospitals was associated with markedly less utilization of ferric carboxymaltose, accounting for 4.7% of IV iron utilization in Maryland hospitals.

Conclusions: There was an increase in the dispensing of a higher-priced IV iron formulation associated with a shortage of a less expensive drug that persisted once the shortage ended. These findings in IV iron have broader implications for Part B drug payment policy because the price of the drug determines the physician and health system payment.

Am J Manag Care. 2020;26(12):516-522. https://doi.org/10.37765/ajmc.2020.88539

Takeaway Points

When there was flux in the intravenous iron market, higher-cost formulations were adopted, potentially due to financial incentives in Medicare Part B to use higher-priced drugs.

• The external shock of a shortage in iron dextran led to shifts in market share, which did not return to baseline after resolution of the shortage.
• The market share of ferric carboxymaltose increased markedly, despite being one of the most expensive formulations.
• A novel hospital payment system in Maryland avoided the increase in utilization of higher-cost formulations of intravenous iron.
• Current Part B payment policies promote the use of more expensive drugs.

For drugs covered under Medicare Part B (physician-administered injectable and infused drugs), payment is based on the average sales price (ASP) for the prescription drug plus a percentage add-on payment.¹ Since the Medicare Modernization Act of 2003, the physician or hospital-owned infusion clinic administering the drug is paid the ASP plus 6%, which was reduced to 4.3% under the Budget Control Act of 2011. Although it was intended to cover variability in the purchase price of physician-administered drugs and costs to obtain and store the drugs, this additional payment has been criticized for incentivizing the prescription of more expensive formulations.^2-4

There is little research on the impact of payment incentives on clinical practices or the associated cost implications, particularly when multiple alternative drugs are available. Understanding the implications of financial incentives under Part B should inform ongoing policy debates around Part B drug payment policy. During periods of shifting market share due to an external shock (eg, drug shortages, new entrants into the market, expanded label indications), when clinical practice patterns change, payment incentives may be particularly influential.

Drug shortages have occurred with increasing frequency since 2001 and are related to multiple weather, industrial, and corporate factors.⁵ Drug shortages cause providers to seek alternative medications, resulting in new prescribing patterns. However, it is unclear if drug shortages influence physicians to reevaluate financial incentives favoring higher-cost drugs.

Iron deficiency anemia is the most common cause of anemia worldwide. Patients with poor tolerance or poor absorption of oral iron supplementation require intravenous (IV) iron.^6,7 Five types of IV iron are available in the United States: ferric carboxymaltose, low-molecular-weight iron dextran, ferric gluconate, iron sucrose, and ferumoxytol.⁶ These formulations are similarly safe and efficacious.^8-11 High-molecular-weight iron dextran was associated with potentially serious infusion toxicity and was removed from the market in the United States in 2009 (“iron dextran” throughout this article refers to low-molecular-weight iron dextran).¹²

Based on Medicare Part B Drug and Biological ASP data, these formulations have markedly different prices (Table 1).¹³ Iron dextran is among the lower-cost alternatives, with a January 2016 ASP for iron dextran of $243.80 per 1000 mg compared with $1057.00 per 1000 mg for ferric carboxymaltose.¹³ A 4.3% add-on payment in January 2016 would have been $10.48 per 1000 mg of iron dextran and $45.45 for 1000 mg of ferric carboxymaltose. Ferric carboxymaltose comes in 750-mg vials, with a cost of $792.75 based upon January 2016 ASP.¹³ Due to those cost differences and variations in dosage, median payment for the infusion of iron dextran was $73 (including ASP-based payment plus the add-on payment) compared with $782 for ferric carboxymaltose (eAppendix Table 1 [eAppendix available at ajmc.com]). Practices and hospital outpatient departments (HOPDs) also receive a separate payment to administer IV iron based on the duration of infusion.

A national shortage of iron dextran was identified by the American Society of Health-System Pharmacists (ASHP) from January to May 2016.¹⁴ Both the FDA and the ASHP maintain records regarding drug shortages. Shortages recognized by the ASHP represent a spectrum of scarcity, from absolute lack of supply to restricted ability for individual purchasers to consistently acquire new orders.¹⁵ The iron dextran shortage from January to May 2016 falls into this latter category of shortage; drug utilization declined with an identified shortage, but supplies did not run out entirely.

We used the case of IV iron to investigate the broader implications of payment policy on drug utilization, particularly when alternatives with different financial incentives are available.

We sought to answer 4 questions using IV iron as a case study: First, what IV iron market share changes occurred between 2015 and 2017? Second, what were the spending implications of any changes in short- and long-term prescribing patterns by physicians? Third, was product selection occurring at the practice group/HOPD level or at the beneficiary level? Finally, to increase our confidence in assessing the role of financial incentives (under the ASP-based payment system) in physician prescribing, we compared utilization trends in Maryland, which implemented an all-payer global budget program for acute care hospitals in 2014, with national trends.¹⁶ Under the Maryland global budget, hospitals do not face the same financial incentives embedded in the ASP-based payment system; instead, they are incentivized to choose the least expensive of clinically effective alternatives.

METHODS

Data and Study Period

Our primary data source for this study was a national, random 20% sample of Medicare fee-for-service (FFS) beneficiaries. We examined their claims data from the period of January 1, 2015, through December 31, 2017. We included claims from the Outpatient and Carrier files with Healthcare Common Procedure Coding System (HCPCS) codes for ferric carboxymaltose (J1439), iron dextran (J1750), iron sucrose (J1756), ferric gluconate (J2916), and ferumoxytol (Q0138 and Q0139). This resulted in a total of 1,713,068 Medicare claims. Consistent with the Medicare drug spending dashboard, we excluded claims where Medicare was not the primary payer (3754 claims) and claims associated with a critical access hospital (11,133 claims). In our national analysis, we also excluded claims where total spending was $0 (11,366 claims), claims where the IV iron infusion HCPCS code(s) had $0 in payment (1,432,483 claims), and those billed in Maryland (used as a comparison group to examine differences in payment policy in the state) (9420 claims). Claims where IV iron HCPCS codes had $0 spending were related to bundled payments, such as for dialysis services, and were excluded given differences in payment structure and incentives. Our primary analysis included 244,912 claims, covering 66,710 unique Medicare beneficiaries and 16,572 unique providers (based on unique National Provider Identifier numbers).

Analysis

We first examined the characteristics of beneficiaries receiving different iron formulations during the study period. We then analyzed utilization (measured in grams) and spending by HCPCS code for each iron formulation by month. We scaled estimates from the 20% sample by a factor of 5 to approximate total utilization and spending for all Medicare FFS beneficiaries. Two formulations, iron dextran and ferric carboxymaltose, were included in a detailed analysis because they accounted for most changes in market share during the study period. Changes in prescribing patterns for iron dextran and ferric carboxymaltose were tested for statistical significance using 2-sided t tests to compare average claim spending on the formulations in each of the 3 years before, during, and after a shortage of iron dextran (2015, 2016, and 2017).

We estimated spending implications for the Medicare program due to changing prescribing patterns. We calculated the estimated spending based on total units of all IV iron formulations administered from 2015 to 2017 if market share across formulations had remained constant. Using mean ASP plus 4.3% for each quarter, we calculated expected spending and compared this with actual spending to identify excess spending within the Medicare program attributable to changes in formulation market share.

We then examined the percentage of practice groups or HOPDs where a single IV iron formulation was used. We restricted this analysis to practice groups and HOPDs that had at least 5 claims for IV iron in the 20% sample of FFS claims during the beginning and ending periods of the study (January-June 2015 and July-December 2017).

Finally, utilization from the state of Maryland was analyzed separately given the unique payment system for hospital-based services.¹⁶ We compared utilization by IV iron formulation in HOPDs vs physician offices because regulated spaces such as HOPDs in Maryland were subject to the global budget whereas physician offices were not.

This study used a retrospective, deidentified, national data set and was exempt from institutional review board review.

RESULTS

Beneficiary Characteristics

In the 20% sample, 66,710 Medicare beneficiaries, after taking into account the exclusion criteria, had at least 1 paid claim for IV iron during the study period. Beneficiaries who received IV iron were more likely to be women than men and had a mean age of 74 years, similar to the overall Medicare Part B population (Table 2). There were no clinically significant differences in mean Charlson Comorbidity Index score between beneficiaries prescribed iron dextran and ferric carboxymaltose (Table 2).¹⁷

Trends in IV Iron Utilization

Figure 1 shows utilization of the various IV iron formulations over the study period, January 2015 to December 2017. In 2015, an average of 14,358 g per month was reported for all formulations of IV iron. In 2016, overall utilization of IV iron increased to 16,772 g per month. In 2017, utilization of IV iron continued to increase to an average of 18,600 g per month. Corresponding with the increase in units administered during the study period, there was an increase in the number of beneficiaries receiving IV iron (eAppendix Figure 5).

The market share of different formulations of IV iron shifted during the study period. Ferric carboxymaltose, iron dextran, and ferumoxytol had the greatest use during the study period, accounting for 235,512 g (39.5%), 127,276 g (21.3%), and 168,468 g (28.2%), respectively. Iron sucrose represented 55,427 g (9.3%) of claims, whereas ferric gluconate claims totaled 10,071 g (1.7%).

Despite being one of the less costly formulations, iron dextran utilization fell both absolutely and as a percentage of claims. In 2015, an average of 3839 g of iron dextran was administered each month (26.7% of utilization). This utilization dropped to an average of 3293 g per month (19.6% of utilization) in 2016. Finally, absolute usage rose slightly in 2017 to an average of 3474 g per month of iron dextran, but usage as a percentage of total IV iron continued to decline (18.7% of utilization).

Ferric carboxymaltose experienced the greatest increase in utilization during the study period. Use of ferric carboxymaltose increased from an average of 3938 g per month (27.4% of utilization) in 2015, to 6807 g per month (40.6% of utilization) in 2016, to 8880 g per month (47.7% of utilization) in 2017. Use of the other IV iron formulations stayed relatively consistent over the study period, with the exception of ferumoxytol, which had stable monthly utilization but a decline in market share (Figure 1).

Trends in IV Iron Spending

Spending on IV iron over this period rose with the overall increase in utilization and the shift toward more expensive formulations (Figure 1). Total observed IV iron spending was $432.7 million from 2015 to 2017. Had IV iron formulation market share remained stable from the beginning of the study period, the total cost for the units of iron used in this sample would have been $393.3 million. Thus, we estimate that shifting prescribing patterns during the study period led to an additional $39.4 million in Medicare Part B spending from 2015 to 2017.

Results from t tests confirm that the increase in ferric carboxymaltose spending over time is statistically significant. When comparing all IV iron claims in 2016 vs 2015, there was an average per-claim increase in spending on ferric carboxymaltose of $90 (95% CI, $85-$94; P < .001). The t tests also confirm that there was a statistically significant drop in iron dextran spending in 2016 relative to 2015. The average per-claim spending on iron dextran decreased by $7 (95% CI, $6-$8; P < .001). In 2017, spending on iron dextran increased but did not return to earlier levels despite resolution of the shortage. Spending on ferric carboxymaltose continued to rise in 2017 but at a slower rate (eAppendix Table 2). These increases in per-claim spending for ferric carboxymaltose reflect the increased utilization during this period.

Single-Product Utilization by Practice Groups/Hospitals

To understand the decision-making approach that providers used to select IV iron formulations, we examined the percentage of practice groups and hospitals utilizing only 1 formulation of IV iron (Figure 2). From January to June 2015, 78.1% of hospitals and 66.7% of practice groups administered only 1 formulation, decreasing to 52.7% of hospitals and 56.1% of practice groups by July to December 2017. Decreasing use of iron dextran and ferumoxytol accounted for most of the decrease in single-formulation utilization. Single-formulation utilization for the 2 most expensive agents, ferric carboxymaltose and ferumoxytol, were more common in hospital-based systems than independent practice groups (with 45.0% of hospitals and 21.9% of groups exclusively administering 1 of the 2 most expensive agents from July-December 2017).

Effect of Removing Cost-Based Incentives on IV Iron Utilization in a Novel Payment System in Maryland

Because Maryland hospitals are not subject to the same cost-based financial incentives in Part B, we compared utilization of IV iron formulations in Maryland HOPDs with utilization in the rest of the country. In HOPDs, which were subject to a global budget in Maryland, utilization trends in Maryland were distinct from the non-Maryland Medicare Part B population. Compared with other states over the entire period, HOPDs in Maryland were much more likely to use the less-costly iron dextran than the more-costly ferric carboxymaltose (Figure 3). Specifically, ferric carboxymaltose accounted for 4.7% of all iron units in Maryland HOPDs compared with 42.7% of the non-Maryland HOPD sample. In physician offices, where payment incentives were the same in Maryland as in other states, utilization trends were similar between the Maryland and non-Maryland providers (Figure 3).

DISCUSSION

This study has 4 main findings. First, we found that iron dextran’s market share fell during the study period while a more expensive formulation, ferric carboxymaltose, gained in market share. The external shock of the iron dextran shortage catalyzed rapid shifts in market share; however, prescribing did not return to baseline after resolution of the shortage. Second, we found that the shift in prescribing patterns led to an increase in Medicare spending on IV iron by $39.4 million. We also found that more than half of hospitals and practice groups administered only 1 formulation of IV iron and that hospital systems were more likely than practice groups to utilize the most expensive agents.

Finally, we found lower utilization of higher-cost ferric carboxymaltose in HOPDs in Maryland compared with the rest of the country, consistent with the financial incentives that Maryland hospitals face under global budgets. This finding supports the hypothesis that the financial incentives in ASP-based payment promote the use of higher-cost Part B drugs.

Limitations

This study has several limitations. First, this analysis is limited to the Medicare FFS population, and prescribing patterns in this population may not be generalizable. Second, IV iron is often included in bundled payments, as with end-stage renal disease, and these outpatient infusions are not reflected in the current analysis.

A national shortage of iron dextran from January to May 2016 correlated with a period of rapid shifts in the IV iron market. It is difficult to determine the extent to which this shortage contributed to the changing market for IV iron, although the market share did not return to baseline after resolution of the shortage. The period of shortage in iron dextran would have exposed physicians and hospitals to more expensive options, particularly ferric carboxymaltose and ferumoxytol. Once exposed to the higher add-on payments associated with these more expensive agents, physicians may have been reluctant to return to their previous practice patterns. Maryland’s global budget policy avoided the dramatic increase in ferric carboxymaltose market share, further supporting the role of financial incentives in the IV iron market.

The total usage of IV iron increased throughout the study period, driven primarily by increasing use of ferric carboxymaltose. Several clinical and market factors potentially contributed to this increase. Increased usage may be related in part to increasing confidence in the safety of IV iron after removal of high-molecular-weight iron dextran from the market in the United States in 2009.¹² Increased provider awareness of availability of IV iron may have contributed, particularly with marketing for more expensive formulations. During the study period, ferumoxytol had a narrow FDA label limited to iron deficiency associated with chronic kidney disease, whereas ferric carboxymaltose had a broader label, which may partially explain the preferential shift toward ferric carboxymaltose.¹⁸

Although clinical infusion protocols vary, infusion duration is generally 15 minutes for 750 mg of ferric carboxymaltose and several hours for 1000 mg of iron dextran, which may contribute to patient and clinician preference for ferric carboxymaltose in some situations.¹⁹ The observational nature of this study prevents establishing causation, and it is possible the use of ferric carboxymaltose would have increased without payment policies in place under Part B. Additionally, the shorter duration of ferric carboxymaltose infusions may reduce time-based infusion costs compared with iron dextran (eg, for nursing staff, infusion center capacity). Regardless, the significantly lower utilization of ferric carboxymaltose in HOPDs in Maryland indicates that payment policies have a strong role in selection of IV iron formulation. Although clinician and patient preferences for factors such as shorter infusions are present in Maryland, without the same Part B financial incentives, utilization of high-cost IV iron formulations has remained low in Maryland.

CONCLUSIONS

The IV iron market provides valuable insights into the role of payment incentives in driving utilization within injected and IV drugs in the Part B system. Although few other drugs have the same number of similarly safe and efficacious alternatives as iron, these incentives likely influence the utilization of other injectable and IV medications under Part B. A recent report highlighted the rapid uptake of denosumab after FDA approval in multiple myeloma, despite higher costs than and equivalent clinical outcomes to less expensive bisphosphonate therapy.²⁰

Several policy interventions could be considered to align payment with cost-effective care. A payment system in clinical scenarios such as IV iron, where multiple agents are equally safe and effective but currently billed under separate HCPCS codes, would be to set the add-on payment based upon a weighted average across the 6 HCPCS codes for iron formulations. Such a policy would increase the incentive to use the most cost-effective medications and encourage price competition. Second, delinking payment incentives from drug cost (such as add-on payments based solely upon time and complexity of infusion services) may remove a powerful enticement to use ferric carboxymaltose. Third, policies such as Maryland’s global budget system may contain costs across many different medications by aligning incentives with cost-effective care.

These findings indicate that financial incentives for physicians to use more costly formulations played a significant role in shaping the current market for IV iron. The impact of payment policies within Part B is important to consider as providers and policy makers debate optimal strategies for ensuring a stable supply of generic medications and payment strategies that promote high-value prescribing.

Acknowledgments

Bryan C. Hambley, MD, MPH, and Kelly E. Anderson, MPP, served as co–first authors, each with equal contribution to the manuscript.

The authors would like to thank Michael Ganio, Erin Fox, and Michelle Wheeler from the American Society of Health-System Pharmacists and the University of Utah for their input regarding drug shortage reporting and database interpretation.

Author Affiliations: The Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins (BCH, SPS), Baltimore, MD; Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health (KEA, APS, GA), Baltimore, MD.

Source of Funding: Arnold Ventures and the Agency for Healthcare Research and Quality (grant No. T32HS000029). Neither funding organization had any role in study design or data analysis.

Author Disclosures: Dr Shanbhag reports consulting for Takeda Oncology and GlaxoSmithKline and grants received from Daiichi Sankyo/American Regent. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (BCH, KEA, SPS, APS); acquisition of data (GA); analysis and interpretation of data (BCH, KEA, SPS, APS); drafting of the manuscript (BCH, KEA, SPS); critical revision of the manuscript for important intellectual content (KEA, SPS, APS, GA); statistical analysis (KEA); obtaining funding (GA); and supervision (SPS, GA).

Address Correspondence to: Kelly E. Anderson, MPP, Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health, 624 N Broadway, Baltimore, MD 21205. Email: kelly.anderson@jhu.edu.

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