In a recent three-year period, total hospital drug spending increased by 18.5 percent while overall medical inflation increased by 6.4 percent.


Jan. 15—Most hospitals have had to juggle their budgets in recent years to accommodate increasingly expensive drugs, according to a new survey.

From FY15 to FY17, almost two-thirds of hospitals responding to a recent survey reported that changes in drug prices had a moderate or severe impact on their budgets, with over 15 percent of hospitals indicating that the increase in drug prices impacted their budgets “to a large extent.”

The survey was accompanied by interviews with some responding executives, who reported that increased drug spending impacted many aspects of their operations. In response to drug prices, they implemented a range of approaches to control spending, including changes in day-to-day operations and systemwide strategies.

“This report confirms that we are in the midst of a prescription drug spending crisis that threatens patient access to care and hospitals’ and health systems’ ability to provide the highest quality of care,” Rick Pollack, president and CEO of the American Hospital Association (AHA), said in a release. “Solutions must be worked on to rein in out-of-control drug prices and ease the drug shortages that are putting a strain on patient care.”

The survey, interviews, and an accompanying study on hospital impacts from drug prices were analyzed by NORC at the University of Chicago for several national hospital advocacy groups, including AHA.

According to the survey of 1,184 hospitals, among measures taken to address budget pressures associated with increasing drug prices were identifying alternative therapies (90 percent); doing more in-house compounding (69 percent); delaying investments in or replacement of equipment (28 percent); reducing staffing (25 percent); and reducing services offered (17 percent).  

“All interviewees described intensive efforts and close collaboration with healthcare providers to establish formularies for drugs used at their facilities and, when possible, to pursue therapeutic interchange,” the report stated.

Additionally, pharmacy department staff work with other hospital clinical staff to change the delivery frequency of drugs to patients and patient care areas to avoid unnecessary waste.

Larger operational impacts of drug price increases, as identified in the survey, included a reduction in the services available to patients. For instance, one medical center curtailed plans to open an outpatient chemotherapy site, citing uncertainty around payment relative to the acquisition cost for the drugs.

The accompanying study found that from FY15 to FY17, total spending for inpatient and outpatient hospital drugs at U.S. community hospitals increased by 18.5 percent per adjusted admission (from $468.5 to $555.4). That increase cost the average hospital $1.8 million. The increase also eclipsed the 6.4 percent increase in overall medical inflation during the same period.

Specifically, spending on outpatient drugs during the period increased by 28.7 percent on an adjusted admission basis, while inpatient drug spending per admission increased by 9.6 percent. That followed a 38.7 percent increase in inpatient drug spending from FY13 to FY15, according to a previous NORC study for hospital advocates. That study did not evaluate outpatient spending.

Trump Administration Actions

The new findings came the same day that Alex Azar, secretary of the U.S. Department of Health and Human Services (HHS), told a Washington, D.C., healthcare policy gathering that drugmakers are not doing enough to control their prices.

Azar said “some manufacturers are still in denial about whether bringing down list prices is even an important goal. They claim that these skyrocketing prices don’t matter. But these prices do matter to patients, and our programs, in a number of important ways.”

Azar said President Trump’s drug-pricing blueprint, which was released in 2018, aims to encourage competition, improve negotiation, create new incentives for lower list prices, and bring down out-of-pocket costs. Hospitals were concerned about the blueprint’s impacts on the 340B discount drug program. Comments on the blueprint were due to HHS by Dec. 31, 2018.

Azar identified the various ways the administration has acted to implement the blueprint. For instance, he cited the record number (59) of new drugs and biologics the Food and Drug Administration approved in 2018.

He also renewed the push to implement the International Pricing Index (IPI) model, under which Medicare would receive a share of the discounts that drug companies give other countries. The administration plans to implement a demonstration project of IPI through the Center for Medicare and Medicaid Innovation.

“The IPI model aims to cut the cost of the most expensive drugs in Medicare Part B by 30 percent,” Azar said. “That means going from paying 80 percent more than what other wealthy countries pay for these drugs to 26 percent more.”

Providers also drew criticism from Azar for their spending under Medicare Part B.

“Today in Part B, physicians face an incentive to prescribe more-expensive drugs, because they are compensated as a percentage of a particular drug’s average sales price,” Azar said.

Azar also welcomed ideas from congressional Republicans and Democrats that “preserve drug safety and keep the patient at the center.”

“Nothing that meets that standard is off the table until prices come down,” Azar said.

Congressional Action

Having regained control of the House of Representatives this year, Democrats launched an investigation of rising drug prices for medications that treat diabetes, arthritis, cholesterol, and other ailments, according to published reports.

For instance, the chairman of the House Oversight and Reform Committee wrote 12 drug companies to try to determine the reasons for steep price increases, how drug companies are using their profits, and what can be done to reduce costs for patients.

Hearings later this month may lead to legislation to cut pharmaceutical prices.

Earlier this month, a group of prominent Democrats released a series of bills aimed at lowering drug prices. Sponsors included Sen. Bernie Sanders (I-Vt.) and Reps. Elijah Cummings (D-Md.) and Ro Khanna (D-Calif.).

Their bills include:

  • The Prescription Drug Price Relief Act, which would peg the cost of certain drug treatments sold in the United States to an index of payment rates from other nations
  • The Medicare Drug Price Negotiation Act, which would allow federal price negotiations in Medicare Part D
  • The Affordable and Safe Prescription Drug Importation Act, which would allow the federal government to import medicines from abroad


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Email Rich at rdaly@hfma.org. Follow Rich on Twitter: @rdalyhealthcare 

Publication Date: Wednesday, January 16, 2019