Hospital budgets challenged by unpredictable increases in drug costs

Hospital spending on inpatient drugs went up by an average of 38.7 percent per admission and 23.7 percent annually between 2013 and 2015, according to a study from the American Hospital Association (AHA) and the Federation of American Hospitals (FHA).

The jump in prices is creating challenges for almost all of the 712 hospitals surveyed, with 90 percent saying the increases “had a moderate or severe effect on their ability to manage costs,” all while Medicare reimbursement failed to keep pace.

“Hospitals bear a heavy financial burden when the cost of drugs increases,” the report said. “Hospitals are significant purchasers of prescription drugs, such as anesthesia and antibiotics to prevent infections during surgery. They also treat patients suffering the repercussions of being unable to afford or otherwise access their medications, often when these individuals return through the emergency department.”

In their role as large purchasers, hospitals have been targeted by pharmaceutical companies, according to the report. In one example, the study said Valeant raised the list prices of two heart medications, Isuprel and Nitropress, by an average of more than 200 percent and 500 percent, respectively, in 2015. Certain hospitals paid even more, with the Cleveland Clinic reporting it spent more than $5.3 million on the two drugs that year.

The report said CMS reimbursement only made matters worse, saying its system “cannot keep pace with changes in drug prices” when Medicare’s pharmaceutical index is only refreshed every five to seven years. In both 2014 and 2015, the report said the growth in inpatient drug spending was well ahead of both inflation and reimbursement. In 2014, for example, spending per admission went up by 24.1 percent, while pharmaceutical price inflation increased by 6.2 percent and the Inpatient Physician Payment System update rose by 0.9 percent.

The rising costs could have major impacts on hospital budgets.

“No hospital administrator wants to make the choice between keeping the lights on, paying doctors’ and nurses’ salaries, making necessary infrastructure upgrades, or paying for drugs, especially when these price increases are not linked to new therapies or improved outcomes for patients.” FHA President and CEO Chip Kahn and AHA President and CEO Rick Pollack said in a joint blog post.  

What makes the increase more challenging, according to the report, is its unpredictability. Why many of the drugs with the biggest increases were high-volume prescriptions, that wasn’t true across the board, and the report said the rationale for pharmaceutical companies raising prices “is not immediately clear,” and sometimes may be only be caused by a change in ownership.