Reimbursement Reckoning: Specialty Infusion Therapy
Frequency of administration and biologics ASPs drive infusion clinic reimbursement
Infusion therapy is critical for millions of Americans - it’s very costly and complex though. Learn more about what infusion therapy is, the costs underpinning infusion therapy, reimbursement challenges, and the private equity investment environment.
1. What’s infusion therapy?
IN 2019, 3 MILLION PATIENTS were treated by home and specialty infusion providers. These are patients suffering from chronic conditions, receiving medication through complex, non-oral means. In the main, “infusion” refers to intravenous administration over a period of 15min – 2 hours, but I’m also broadly referring to certain intramuscular and subcutaneous (under the skin) injections. “Specialty” infusion refers to the complexity underlying treatment, and the specialized knowledge required by nurses and physicians to administer these drugs.
These are not simple pills you pop. Patients receive these infusions and injections in many cases once every few weeks, sometimes once a quarter, from a nurse or physician who has been specially trained in handling these medications. Ambulatory (outpatient) specialty infusion clinics sit outside the hospital setting and are dedicated to administering these infusions, relieving pressure on high-cost settings like acute care facilities and granting as much as 90% cost savings, per a Harris Williams study. To be more precise about what that means, these clinics can be laser-focused on providing treatment quickly and freeing up bed space for more patients; there is less overhead cost involved in getting the patient from pre-authorization to discharge. It is more efficient to exclusively handle infusions like clockwork.
Naturally, it’s a hassle for patients to get treated on such a regular basis like this, but clinics take efforts to provide in-unit WiFi, offer leisurely magazines and entertainment, and sometimes, turn infusions into social events, with each patient hooked up to an IV set in close proximity. If mild DME (durable medical equipment) such as portable IV infusion pumps suffice, infusions can be administered from home. But there, the onus is still on physicians, visiting nurses, and nurse practitioners to perform the injections themselves or advise the patient on proper injecting procedure. Medical professionals must also offer regular equipment check-ups.
Who are these patients? People suffering from rheumatoid arthritis, hepatitis, congestive heart failure, multiple sclerosis, or a variety of other complex chronic conditions. Often times, the drugs they receive are “biologics” – generated in a lab from living tissue or a cell line and expensive for Big Pharma to discover and manufacture. Currently, there are over 300 biologic drugs in circulation. According to Verywell Health, here are 10 of the most popular ones in 2017, rearranged in descending order by their 2019 sales (Lantus is a 2018 sales figure):
I’ve included common methods of drug administration in the colored column, so you can see how intensive the process is. In red are infusions or procedures that require outpatient treatment in a medical setting. The other ones in blue are injections, which can be done at home with proper supervision and guidance. You’ll notice these billion dollar sales in the far right column just pertain to the original biologic drug. The table doesn’t capture all the sales from competitive biosimilars (basically generic or copy-cat biologics). The point is, the biologic and biosimilars drug market together is huge and props up the $24Bn global home and specialty infusion services market, which is growing at over 7% per annum. Before understanding how specialty infusion providers are reimbursed, we need to understand their expenses…
2. Cost economics of infusion therapy
When it comes to infusion therapy, the dominant cost far and away is of course the drug, which is expensive for Big Pharma to discover, manufacture, and sell. However, the second greatest cost is labor. This includes physicians, nurses, nurse-practitioners (hold a Masters degree), pharmacy techs, and pharmacists who parse out the dosage.
Consider four medications for rheumatoid arthritis (an autoimmune disorder affecting joints): abatacept, infliximab, rituximab, and tocilizumab. Schmier et al (2017) put together a great model for approximating the costs of these therapies over a single calendar year where the above takeaways ring true. Check it out - 90% of the costs are in the infusion drug. This is why biosimilar competition and pharma negotiations reign supreme in combatting expensive healthcare costs:
What this also means though is the red-boxed ‘infusion services staff and infusion center admins,’ despite being a fraction of the overall cost, takes up the next largest cost bucket. It’s a large enough market segment, constituting more than half of the non-drug costs that scale with patient volumes, while still flying under the radar. Infusion nurse staffing companies like NursePro and Critchfield Specialty Infusion Group target this portion of the cost structure for specialty pharmacies. They have a rotation of registered nurses on standby, trained in infusion therapy. As chronic conditions become increasingly prevalent, and home infusion providers need to scale up quickly, the resulting increased demand for specially trained nurses could make these staffing companies attractive private equity investments.
3. Reimbursement for infusion services
What about reimbursement for the infusion therapy providers? They typically get paid fee for service. Drugs have a “J Code” that gets reimbursed per encounter per unit (e.g. milligrams). The rates paid by Medicare and private payors are linked to the average sales price of the drug- ASP. Infusion therapy providers can often purchase drugs in bulk at, say, ASP - 6%, and end up seeing reimbursement at ASP + 6%, capturing the spread between which helps offset lower reimbursement rates they fetch for physician and nurse services provided. End of the day, dollar is a dollar, so the separation of physician services and drug reimbursement isn’t all that important. What matters is that if ASPs stay net neutral, all else equal, the spread also stays unaffected.
So for a given clinic, reimbursement will be dictated by the ASP trends surrounding that clinic’s patient mix. More established drugs (e.g. Remicade) will see pricing pressure over time and biosimilar competition, whereas newer biologics carrying increasingly high prices will keep reimbursement rates buoyant. According to one expert, ASPs will stay net-neutral in many cases.
Growth in infusion therapy center revenues can then derive from volume-linked drivers:
Underserved markets: Apart from Dallas, the United States infusion therapy market is underserved. Chronic illness is increasing, and the resulting volume of patients filling new infusion centers will drive revenues.
Frequency of administration: Drugs like Tepezza, launched in March 2020, carry high value per patient. Thyroid eye disease patients receive Tepezza 8x; but upcoming guidelines could bump that figure up. Infusion drugs whose frequency of administration goes up could fetch higher total reimbursement over the increased lifetime of the drug.
4. A Private Equity Dominated Space
The private equity industry’s bet on infusion therapy providers is already underway. The next phase will be the expansion of clinic chains into regional and super-regional players and larger private equity firms (>$1Bn AUM) will carry stakes in these regional consolidators, vying for national presence. Take some time to peruse the lengthy list of infusion therapy investors below:
What’s notable in the list above is that so many of the larger investments are based on alternate site infusion therapy models as opposed to home infusion. Home infusion seems harder to scale on a grand level the way Option Care, Healix, and KabaFusion have dominated the outpatient infusion pharmacy space nationwide. Patients often need a sterile environment and nurse on standby. That said, the franchisor model for home infusion backed by Linden may be the recent exception that leads the way for other home-based infusion provider backers. Vital Care’s size (50+ sites) bodes well for Palmetto’s ability to scale their hybrid home and outpatient model (20+ sites). We’re still in early innings with such home-based providers, which may present more investment opportunities in the future.
Certain infusion therapy providers will also be increasingly reimbursed for infusion training, education, and remote patient monitoring activities. These regulatory protections will be afforded by Section 5012 of the 21st Century Cures Act. The legislation establishes a home infusion therapy benefit under Medicare that went into full effect Jan 1, 2021 (there was a transitional program in place in 2020). Now there are a litany of caveats to what drugs are included - complex biologics or parenteral nutrition drugs requiring an external infusion pump, not a disposable pump. But what’s clear is that if private payors follow suit, training, education, and tele-monitoring will become a more important piece of the infusion therapy offering.
The following roadmap would be of value to an investor in this space - a set of questions worth asking executives at these infusion therapy clinic networks when trying to determine reimbursement trends pre-investment:
What are your highest contributor drugs for infusion therapy reimbursement?
How have rates increased or decreased for these drugs over the past few years? What do you see happening in the near-term?
Will you be administering any upcoming new drugs on the market in the coming years and what does that do for your reimbursement?
Is the frequency of administration for any of your drugs going to be changing in the coming year? Will that increase or decrease your total reimbursement?
In the geographies you’re looking to expand in, how is the patient breakdown by condition evolving?
Infusion therapy will remain a relevant source of comfort for those suffering from complex, chronic conditions.