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Drug Costs and Hospitals

By January 29, 2019January 31st, 2019Commentary

Another piece of research with two of my favorite sub-sectors: drug manufacturers and hospitals.  This one examines the effect drug pricing and shortages are having on hospitals.   (AHA Study)   The study was conducted by surveying hospitals and group purchasing organizations.  When patients are admitted to hospitals they almost always will have some drugs involved in their treatment and they usually are on some pre-existing medications which must be continued during the stay.  Hospitals are the purchaser of many of the drugs used during hospital stays and therefore have been exposed to price increases, with the average hospital spending about $1.8 million on medications during the study period.  The researchers found that average total drug spending per admission increased 18.5% between 2015 and 2017, composed of outpatient spending that rose 28.7% and inpatient spending that grew 9.6%.  These increases were far more than the rise in Medicare reimbursement over the same period, putting strain on the hospitals’ finances.

Most of the spending growth was due to price increases, with many of the most commonly used drugs having unit price growth of over 15%.  There were other drugs that had price rises of over 50%.  Hospitals have attempted to use many of the tactics that health plans adopt in response to drug costs, including use of formulary and step therapy, but there is only so much you can do where prices are rising rapidly.  Even the addition of competing products had a limited effect on pricing, according to the hospitals.  In addition to the increase in costs, hospitals dealt with a greater number of supply shortages, which threaten patient care.  80% of the responding hospitals said they had experienced a shortage.  Dealing with shortages eats up substantial additional staff time.   While hospitals have to eat much of the increase in their drug spending in regard to Medicare and Medicaid patients, they don’t have that issue with commercial patients and undoubtedly are doing their best to raise prices on those patients enough to cover any excessive spending across their entire patient base.  The timing of the research suggests it may be part of the ongoing battle over the 340B program.  I kind of enjoy seeing this two sectors, each of which engages in egregious conduct at times, exposing each other’s behavior.

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