Annual inpatient drug spending was up an average of 23.4% between 2013 and 2015, and 38.7% on a per admission basis, according to the study. Payer reimbursement can’t keep up and nearly all hospitals surveyed said it affected their ability to manage overall healthcare costs.
The study was sponsored by the American Hospital Association, the nation’s biggest hospital lobby, and the Federation of American Hospitals, which represents investor-owned hospitals. The report surveyed 712 hospitals and included prescription drug purchasing information from two group purchasing organizations which are kept anonymous. It was conducted by NORC at the University of Chicago, an independent social research organization.
The study’s authors determined that, for most drugs, spikes in cost drove spending increases, rather than more people using drugs. The authors said the reasons why manufacturers have chosen to raise prices vary and aren’t always clear, but can come from changes in ownership or shortages.
Although blockbuster drugs tend to get most of the attention, extreme price hikes were observed in both high-volume drugs used frequently in hospitals as well as low-volume drugs, both generic and brand-name. Most of the drugs reviewed in the GPO sample were non-innovator drugs, which means they lack any patent protection against competition. Yet, about half had no generic competition.
Fifty seven percent of hospital administrators reported that higher drug prices have had a moderate impact on their budgets, while 33.8% said the impact was severe. The impact can be lower if a hospital is part of a larger, regional system that can order in bulk and share drugs across its hospitals.
The high drug prices paid by hospitals has gotten little public attention this year, even as advocates and media organizations have sounded the drum on a number of retail medications that have seen dramatic price increases, including cancer drugs, EpiPens and Turning Pharmaceutical’s Daraprim. The study shows that growth in inpatient drug spending per admission grew by nearly 12 percentage points more than retail prescription spending in 2014 and 4 percentage points more in 2015.
The study’s authors point out early on in their report that consumers aren’t the only ones being targeted. They mention that Valeant Pharmaceuticals – which is under federal investigation for its business practices – looked to specifically increase the prices of hospital-administered drugs, including heart drugs Isuprel and Nitropress, the prices of which were raised by over 200% and 500% respectively in 2015. Some hospitals reported even higher price hikes.
AHA CEO Rick Pollack acknowledged during a conference call with reporters that manufacturers frequently say profits go to research and development. However, the high costs make them inaccessible to consumers and hospitals.
“We understand the value of innovation, but an unaffordable drug is not a lifesaving drug,” Pollack said. “And price increases in drugs that come from market manipulation is just wrong.”
Pollack said the AHA has called for legislators and regulators to enact a number of solutions, including requiring more transparency from manufacturers on drug pricing and R&D spending from manufacturers, limiting direct-to-consumer advertising, shortening competition exclusivity periods, embracing comparative-effectiveness research and expanding value-based deals.
Data show that growth in inpatient drug spending has far outpaced payer reimbursement, and the pharmaceutical inflation rate. The researchers argue that Medicare’s reimbursement rates – which are used by some commercial payers — can’t keep up with price increases. The pharmaceuticals index used by the CMS is updated every five to seven years for existing drugs, which means it doesn’t necessarily capture sudden price increases that have come each year for some drugs.
“Hospitals are caught in the middle between our payers and the costs we have to pay to treat our patients,” said Chip Kahn, president and CEO of the Federation of American Hospitals.
Scott Knoer, chief pharmacy officer at the Cleveland Clinic, and David Vandewater, president and CEO of Nashville-based Ardent Health Services, told reporters that they’ve seen drug prices increase by hundreds of percentage points without clear justification. They pointed to a number of high-volume drugs, including Neostigmine, a drug used to reverse the effects of anesthesia, the price of which increased 421% between 2014 and 2015, and Isoproterenol, which saw an increase of 189% from 2013 to 2014, and 101% the next year. Though they pointed out that supply chain best practices like bulk purchasing of drugs across as system can help, they noted many of the highest-priced drugs have no competition, and therefore providers are stuck with a very high price for essential drugs.
“We’ve got to stop these (companies) from taking advantage of consumers today,” Vandewater said. “As we look at it, it makes zero sense to what this industry is doing to us.”