Skip to main content

Hospital Drug Price Markups

By September 20, 2019Commentary

Oh boy, a report that combines two of my favorite entities in the health care world–hospitals and drug companies.   (PHAR Report)   The report looks specifically at payments by private health plans for physician-administered drugs, with the administration occurring in a hospital outpatient setting.  It is a well-known abusive practice for hospitals to employ or acquire physicians and then jack up prices for their services.  This category of drugs, which tends to be very expensive and is often used for cancer, arthritis and similar serious conditions, has seen a lot of misuse in this regard.  In addition to their general inclination to raise the prices for these medications, hospitals also sometimes get special pricing on them through programs like 340B, which lowers their cost and raises profits.  According to the report, 47% of patients receiving a physician-administered drug get it in a doctor’s office and 53% in a hospital outpatient department.  But hospitals keep 91% of all gross profits earned from the use of these drugs, while physicians get only 9%.  Shows you how great the spread in prices must be.  Furthermore, for every $100 spent on physician-administered drugs in the hospital setting, hospitals keep $58 while their cost, or the payment to the drugs’ manufacturer, represents only $42.  That $58 is basically all profit to the hospital–the costs related to the labor, etc. involved in administering the drug is paid by a separate fee.  So this is a line of business which is immensely profitable to hospitals, most of them supposedly non-profits, and which greatly raises costs to private health plans and to the members they serve, who often have extensive deductibles and copayments.  If you are a member of a non-profit health system’s board, and supposedly representing the public interest, I don’t know how you sleep at nite.  I know how the executives of these systems do–on pillows stuffed with cash from the excessive compensation they get as a result of the excessive prices the hospitals charge.

Leave a comment