Drug Revenues Expected to Continue Falling in 2014

After a period of relative stability from 1991 to 2004, oncology practices can expect a continued drop in drug revenue in 2014, according to findings of the National Practice Benchmark (NBP) issued by Oncology Metrics. The benchmark survey aggregates financial, operational, and staffing data from community oncology practices in all practice settings across the United States. Oncology practices can use the NPB as a tool to measure against other comparable practices. The survey is based on data collected in 2012.

Net drug revenue (total revenue collected from drug sales less the cost of drugs)—or drug margin—decreased in 2012. In other words, payment for drugs did not keep pace with the increase in the cost of drugs. Further, when the margin for injectable drugs was explored, the NPB indicated that the margin for injectable drugs fell from about 16% in 2011 to 13% in 2012.

Despite the falling margins, the authors note that overall net drug revenue continues to significantly contribute to total medical revenue, rising from 23% in 2011 to 26% in 2013, and suggest that drugs will be making a comeback as a significant cost driver. Drugs are an important component of an oncology practice’s overall operating revenue. As such, it makes the interplay between billing and collection crucial to practice stability because of the slim margins and high costs.

In an e-mail, Thomas Barr, MBA, a general manager at Oncology Metrics warned that “all users of these data consider drug revenue net of drug cost. This convention acknowledges the fact that the cost of the drugs provided to patients dramatically reduces the actual amount contributed from drug revenue that is available to cover other practice expenses.” The survey says that the cost of drugs must be subtracted from top-line gross revenue to accurately understand the revenue structure of oncology practices.

Findings are published in the Journal of Oncology Practice. The 2014 report on 2013 data will be published in November 2014. Source: Barr TR, Towle EL. The oncology ecosystem: Oncology practice trends from the National Practice Benchmark. J Oncol Pract. 2013; 9(6s):39s-44s.