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The rising cost of medicines is making some hospitals feel ill.

While much of the attention over prescription drug prices is focused on consumers, a survey released on Tuesday finds that hospitals are also spending much more than in the past. Between 2013 and 2015, the average annual drug spending for patients who stay in community hospitals increased by of 23.4 percent, from $5.2 million to $6.5 million. And on a per admission basis, hospital spending on drugs jumped nearly 39 percent, to $990.


Moreover, the increase in prices outpaced reimbursement rates from payers, retail spending on medicines, and the pharmaceutical price inflation calculated by the US Bureau of Labor Statistics. As a result, the survey found that more than 90 percent of the hospitals surveyed reported that recent price hikes for inpatient drugs had a moderate or severe effect on managing costs.

“With these drug prices so far outpacing the consumer price index, hospitals are struggling to come up with trade-offs to preserve access to affordable care for our patients,” said Scott Knoer, chief pharmacy officer at the Cleveland Clinic, who spoke at a press briefing held by the American Hospital Association and the Federation of American Hospitals, which conducted the survey.

Last year, one hospital claimed that the price increases for four commonly used medications, which ranged between 479 and 1,261 percent, cost the same amount as the salaries of 55 full-time nurses, according to the trade groups, although they did not identify the hospital. But even 10 percent to 20 percent hikes on drugs that are widely used can have an impact, the survey noted.


The survey, which last spring gathered pricing data from 712 US community hospitals and two group purchasing organizations, adds to the growing chorus of anger and concern over increasing prescription drug costs. The issue, as noted previously, has becoming a talking point in the presidential campaign and prompted federal and state lawmakers to introduce bills designed to curb rising prices.

The furor has put the pharmaceutical industry on the defensive as many drug makers are scrambling to justify their price hikes. Some drug makers are pointing fingers at pharmacy benefits managers, and the convoluted pricing system in which rebates that are paid to win coveted placement on lists of drugs for which insurance coverage is provided.

We asked the pharmaceutical industry trade group for a reply and will update you accordingly.

Hospitals generally pay for drugs that are administered and then look to get reimbursed for patient care that covers expenses. But the Bureau of Labor Statistics updates its pharmaceutical index every five to seven years, which means Medicare reimbursement rates cannot keep pace with large or unpredictable price hikes. And some commercial insurers also follow the Medicare payment method and rates.

Hospital concerns over rising drug costs are hardly new, though. Early last year, hospitals raised a ruckus after Valeant Pharmaceuticals bought the rights to a pair of lifesaving heart drugs, which are often used in emergency settings, and on the same day, raised their list prices by 525 percent and 212 percent, respectively.

The episode triggered controversy as hospitals began pointing to similar instances, often noting that price hikes followed deals in which drugs changed hands, but little or no research was done to improve the value or effectiveness of the medications. In fact, the Valeant drugs — Nitropress and Isuprel — were cited in the survey as prime examples of the phenomenon.

The survey found that growth in unit price — not increased volume — was primarily responsible for the rise in total inpatient drug spending. Many of the 28 medicines that were sampled for the survey were high volume drugs, but these also experienced what were described as “substantial” increases in unit prices.

One example cited was calcitonin-sodium, a drug used to treat high levels of calcium in the blood or bone pain related to osteoporosis and other diseases. In 2013, the two group purchasing organizations reported they spent about $2 million, but in 2015, spending climbed to $55 million, mainly because the price per unit increased more than 3,000 percent.

Among the drugs for which hospitals experienced the most significant price hikes was Daraprim, which is sold by Turing Pharmaceuticals. The company, which was run by Martin Shkreli, raised the price of the lifesaving parasitic medicine by 3,695 percent.

“Hospitals are under incredible pressure to maintain or decrease drug spending, yet this is a virtually impossible task given the huge increase in prices of the most basic drugs,” said Erin R. Fox, director of the Drug Information Service at the University of Utah Health Care.

“The drugs that are increasing in price generally are not new and are off patent. There is no competition, so hospitals are forced to pay in order to make the best patient care decisions,” she continued. “These price increases are unsustainable for hospitals who are taking care of sicker and sicker patients.”

However, Adam Fein of Pembroke Consulting, who tracks the pharmaceutical distribution chain, noted that the study examined a two-year period in which the cost of many generic drugs rose considerably and also pointed out that many hospitals can mark up the cost of drugs submitted for reimbursement in order to recoup price hikes and offset losses in Medicare.

“They cherry-picked the time period and the drugs, and ignored the opportunity to recapture revenue that hospitals have,” he said. “I think it’s more of a political study than an actual measurement of drug costs.”

Later, a spokeswoman for the Pharmaceutical Research & Manufacturers of America, an industry trade group, sent us this: “Focusing on a set of unrepresentative, older and off-patent medicines at a time when new generic drug applications had a record backlog gives a distorted portrayal of medicine spending. In fact, hospitals’ own data show that medicine costs rose from 6.5 percent of total costs in 2012 to 6.9 percent in 2015.

“Further, the report fails to acknowledge that hospitals often significantly markup medicines charged to patients and payers. A recent Health Affairs study shows hospitals charge almost six times more, on average, than they pay for medicines.”

This post was updated to include a comment from Adam Fein and the Pharmaceutical Research & Manufacturers of America.

  • Having just helped a relative review insurance billings, while I understand the hospitals price pressure woes re Rx, it is by no means a large part of the picture. The charge I am thinking of was for an out-patient procedure (followed by an over-night for ‘observation’) performed at a well-regarded local medical center. The total billing for what was actually a 90 minute procedure was $50,000+ USD. That is surgeon, OR and hospital included. It does take your breath away.

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