4 medical drug payment integrity trends to track in 2024

Jonathan Edwards and Jonathan Starr, PharmD

Specialty drugs—many of which are biologics— serve as vital therapies for a myriad of complex and costly conditions. These lifesaving treatments are administered through multiple places of service (such as outpatient hospital, infusion centers, or at home), are often managed through a health plan’s medical benefit, and are often used to treat complex and costly conditions such as cancer, immune diseases, arthritis, and diabetes. Specialty and other drugs managed under the medical benefit are also known as medical drugs.

Most medical drugs pose significant challenges for payers seeking to maintain payment integrity within their healthcare systems. This creates a significant financial burden, comprising over 11% of a health plan’s total spending. As these therapies continue to evolve, presenting both clinical promise and financial complexity, payers face an ongoing challenge in maintaining payment integrity and containing costs.   

In this edition of Payment Policy Insights, we will delve into four key trends surrounding medical drug spend, illuminating the implications for payers and payment integrity programs.

Medical drug spend continues to rise

Over the past several years, we've witnessed a steady increase in the utilization and expenditure associated with medical drugs, with their spending share continuously growing. The utilization of medical drugs is multifaceted, spanning across various places of service including outpatient hospitals, infusion centers, and even home care settings. This upward trajectory in expenditure underscores the imperative for payers to adopt robust payment integrity measures to curb unnecessary costs and ensure fiscal sustainability.

Since 2021, the share of medical drug spending as a percentage of overall medical expenditures has gradually increased, reaching higher than 11%, as seen in Figure 1. 

Figure 1. Increase in medical drug spend as share of total spend.

This escalation was primarily propelled by commercial plans, which accounted for more than 65% of the total drug spend increase. Moreover, Figure 2 demonstrates that unit cost of medical drugs has increased at double the rate of other service categories. This significant increase in spending is likely attributed to various factors, including the introduction of new medical drug codes starting in 2021.

Figure 2. Percent change in paid per line (2021 vs. 2023).   

Unlike other ambulatory services where outpatient services account for only 36% of spend, medical drugs administered in outpatient settings account for 52% of spend (see Figure 3). This trend underscores the importance of implementing payment integrity policies that focus on both ambulatory claim types.

Figure 3. Distribution of ambulatory medical spend by claim type.

Analysis of professional claims reveals that the top 10 provider specialties account for approximately 80% of medical drug spending, with hematology/oncology alone driving approximately 30%, as shown in Figure 4. This emphasizes the importance of applying medical drug payment integrity policies to a variety of specialties.

Figure 4. Distribution of professional medical spend by specialty     

Medical drugs administered in an office setting currently drive up to 80% of professional expenditures in commercial and Medicaid lines of business, and as much as 94% in Medicare (Figure 5). Interestingly, despite many health plans shifting to more home-based care, medical drug spend has shifted away from home and back to the office setting for commercial and Medicaid business as the pandemic has unwound, whereas Medicare experienced no shift. These trends underscore the evolving landscape of medical drug spending and utilization, urging payers to adopt proactive strategies to manage costs effectively and ensure payment integrity.

Figure 5. Distribution of professional medical drug spend by Place Of Service (POS ).

A small number of drugs drive the majority of medical drug spend

Several key contributors to medical drug spending revolve around specialty medications used in the treatment of complex and chronic conditions such as cancer, immune diseases, arthritis, and diabetes. These drugs contribute substantially to medical drug spending due to their high costs. Furthermore, the introduction of new drugs and biologics into the market, along with changes in treatment guidelines and patient demographics, also impact spending patterns in this category.

Insights from Cotiviti data reveal that a small number of high-cost drugs drive most of the expenditure. Among more than 1,500 HCPCS codes assigned to drugs, less than 100 codes, representing just 6%, account for a staggering 80% of medical drug spend. Specifically, the top 5 drugs alone contribute a quarter of the category spending, with Pembrolizumab emerging as a major contributor, driving 10% of the expenditure alone (see Figure 6).

Notably, while the paid per line amount of the top five drugs has experienced a 13% increase, other drugs increased only 3%. This data underscores the concentrated nature of medical drug spending and sheds light on the specific drugs driving this trend, particularly emphasizing Pembrolizumab's remarkable impact on expenditure. Further analysis into the contribution of top five CPT codes to overall medical drug spending and their growth over time could provide valuable insights into the evolving landscape of pharmaceutical expenditure and its drivers, as seen in Figure 6.

This marked surge in Pembrolizumab's spend and utilization can be attributed to several factors. Since FDA approval in 2014 for a single indication of advanced melanoma, Pembrolizumab's usage has soared as dozens more cancer indications (bone, lung, breast, colorectal, lymphomas, and many more) have been added.   In fact, the total number of approved labeled and off-labeled indications has nearly doubled since 2021. On a different note, the unit cost for Pembrolizumab has also seen a substantial uptick, rising by 12% since 2021. This dual effect of increased utilization and rising prices has propelled its dominance in medical drug spending. 

Figure 6. Top five drugs’ contribution to total drug spend and growth over time.

Payment policies that target medical drugs are important components of a comprehensive payment integrity strategy

Assessing the accuracy of medical drug claims is essential for ensuring payment integrity within the healthcare system. While many providers strive for precision in their billing practices, discrepancies and errors can still occur, presenting opportunities for payment integrity. Common billing inaccuracies in medical drugs claims may include incorrect coding, inappropriate indications, excessive doses and frequency of administration, and improper   drug administration. 

Cotiviti's Drugs and Biologics (D&B) payment policies target payment integrity opportunities on medical drugs that impose the greatest financial strain on health plans, addressing 90%  of medical drug spend. This comprehensive coverage underscores the effectiveness and importance of implementing targeted payment policies to mitigate unnecessary expenditures and ensure integrity in healthcare payment systems.
    
Cotiviti's D&B payment policies looking at indications, dosing, administration, and coding contribute to nearly 50%  of overall prepay savings on medical drugs,  as shown in Figure 7 below. In addition, adoption of Cotiviti’s D&B policies among our clients has grown by 5% since 2021.   

Figure 7. Cotiviti’s top policies share of medical drug savings (2023) and change in payer adoption rate.

These policies collectively aim to optimize medical drug spend and utilization, thus generating savings for health plans: 

• The Drugs and Biologicals Policy implements edits to ensure appropriateness in drug utilization across various dimensions such as indications, dosing, administration, and coding. 
• The Duplicate Services Policy targets instances of redundant billing for drug administrations, preventing overpayment for services billed multiple times. 
• Similarly, the Maximum Units Policy identifies and regulates instances where the number of HCPCS units exceeds specified limits, curbing excessive billing for drugs. 
• Customized health plan policies cater to specific client needs, further refining drug utilization practices. 
• Finally, the Diagnosis Code Guideline Policy ensures accurate diagnosis coding, promoting adherence to clinical guidelines and preventing improper billing. 

Together, these policies enable health plans to optimize drug utilization, minimize unnecessary expenditures, and achieve significant savings in medical drug spend.

Regional variability in edit rates may reflect differences in payment policy adoption

Cotiviti's data reveals that health plans in the Northeast region exhibit the highest edit rates on medical drug claims, suggesting a more comprehensive payment policy strategy implemented by these plans. Figure 8 below shows that Northeast plans apply an average of 24 edits per 1000 claims, more than twice the frequency of plans in the Midwest and West. One driver of this is policy adoption—Northeast plans have implemented nearly twice as many D&B Decision Points as other regions, as seen in Figure 9. In addition, our analysis shows Northeast plans apply nearly 2.5x edits to outpatient claims compared to plans in other regions. There may be additional factors driving the regional differences in policy adoption, but these findings emphasize the importance of applying payment policies that target medical drugs, especially for outpatient claims. 

Figure 8. Edits per 1000 medical drug claim lines by region.

Figure 9. Average count of decision points adopted for top five medical policies.

About the authors

Jonathan Edwards Vice President, Opportunity Intelligence  Jon leads a talented team of analytic professionals that deliver actionable insights powering Cotiviti’s most important growth opportunities.  With more than 15 years of healthcare analytics and consulting experience, Jon harnesses the power of data to develop leading-class analytic products and services that inform decision-making, accelerate growth, and differentiate Cotiviti’s value proposition.

Jonathan Starr, PharmD Senior Consultant Jonathan supports Cotiviti’s vast library of Drugs and Biologicals payment policies and aids in presenting these policies to clients. He fills the important role of bridging the gap between client teams and researchers developing Cotiviti’s D&B policies. Jonathan has also managed and operated Cotiviti’s pharmacy fraud, waste, and abuse product since 2016. Prior to joining the D&B team, he worked as a retail pharmacy manager for over 12 years and has been a licensed pharmacist for 13 years.