resize_shutterstock_318429077On October 11th, 2016 it was reported that a new analysis of drug pricing data finds that inpatient hospital drug costs increased more than 38% per admission between 2013 and 2015. Today’s report is based on inpatient drug pricing data, as analyzed by the University of Chicago’s NORC, an independent research institution1-4. The NORC study for the American Hospital Association and the Federation of American Hospitals found higher prices were primarily responsible for the spending increase, not the quantity of medications used4.

The price of prescription drugs has skyrocketed over the past several years. It seems that every day there is a new report of how the cost of drugs hurts patients. When the price of a two-pack of Epipens® jumped from $100 to $600 between 2007 and 2016, an increase of 500 percent, parents around the country wondered if they would be able to acquire this life-saving medication for their children. The cost of the infection-control drug Daraprim® went from $13.50 to $750 pill overnight which resulted in patients ending up in the hospital when they could not follow their treatment regimens4. These price increases are extremely troublesome throughout the health care system. They not only threaten patient access to drug therapies, but also challenge providers’ abilities to provide the highest quality of care. Drug costs also are a major factor in the rising cost of health care coverage and a burden to hospital budgets everywhere.

Hospitals bear a heavy financial burden when the cost of drugs increases and must make tough choices about how to allocate scarce resources. One hospital put the challenge starkly: last year, the price increases for just four common drugs, which ranged between 479 and 1,261 percent, cost the same amount as the salaries of 55 full-time nurses4. While nearly everyone can agree that price increases in the hundreds or thousands of percent are unjustifiable, many hospitals report that annual price increases of 10 or 20 percent on widely-used older generic drugs can have an even greater effect, given the large quantities that a hospital must purchase4.

In conjunction with the American Hospital Association and the Federation of American Hospitals, NORC conducted a survey of all U.S. community hospitals and analyzed survey results of 712 responding to the survey. Additionally, two group purchasing organizations (GPOs) representing over 1,400 community hospitals contributed price and spending data on a subset of drugs. The drugs sampled were identified by expert hospital pharmacy workgroups as being high-spend due to volume, price, or both, or as having experienced substantial price increases in recent years. Between FY2013 and FY2015, inpatient drug spending increased an average 23.4 percent annually, and on a per admission basis, by 38.7 percent. Over 90 percent of responding hospitals reported that recent inpatient drug price increases had a moderate or severe effect on their ability to manage the overall cost of patient care, with one-third of the respondents indicating that the impact was severe. Many of the sampled drugs that experienced substantial unit price increases in CY2014 and CY2015 were high volume drugs. In most cases, the sampled drugs were not new entrants. The NORC report provides a valuable look at a section of the pharmaceutical market that affects hospitals and the patients for which they serve4.

For the purpose of this study, NORC utilized the following target population and sample size:

Population and Sample Definition Number of Hospitals
All U.S. Community Hospitals* 4,369
U.S. Community Hospitals Responding to AHA-FAH Drug Survey^ 712
All Community Hospitals Belonging to Two Sampled GPO Networks*~ More than 1,400

The key findings and insights from this report found4:

  1. Inpatient drug spending increased significantly between FY2013 and FY2015. Average annual inpatient drug spending at U.S. community hospitals increased by 23.4 percent between FY2013 and FY2015 (from $5.2 million to $6.5 million).18 Over the same period, average inpatient drug spending increased 38.7 percent on a per admission basis (from $714 to $990)
  2. Over 90% of hospital administrators reported that higher drug prices had a moderate or severe impact on their budgets
  3. Growth in inpatient drug spending has far outpaced payer reimbursement and pharmaceutical price inflation
  4. Inpatient drug spending growth eclipsed retail prescription drug spending growth
  5. Drug price increases had a larger impact on hospital drug spending than utilization between CY2013 and CY2015
  6. Drug price increases appear to be random and inconsistent from one year to the next
  7. Drugs with the highest spending experienced significant price increases in 2014 and 2015
  8. Drugs with the highest price increases between 2013 and 2015 also experienced significant spending increases

This study examines trends in inpatient drug spending for hospitals nationwide in order to determine the quantitative impact and to discover how such changes may have impacted hospitals’ ability to manage costs. The conclusions drawn from this study by the NORC investigators were that4:

  1. Drug spending in the hospital inpatient setting is quickly increasing. Growth in annual inpatient drug spending between FY2013 and FY2015 increased on average 23.4 percent, and on a per admission basis, 38.6 percent. Growth in spending in the inpatient setting exceeded the growth in retail spending, which increased 9.9 percent during this period. In contrast, CMS’s update to hospital rates through the IPPS increased by only 2.7 percent. Large and unpredictable increases in the price of drugs used in the inpatient setting significantly impacted hospitals’ ability to manage costs within a fixed price based payment system.
  2. Many of the sampled drugs that accounted for a substantial proportion of total inpatient drug spending experienced dramatic unit price increases in CY2014 and CY2015. In most cases, the identified top ten drugs were not new entrants.23 About half of the 28 drugs had no active generic competition, leaving hospitals no lower cost alternatives. For most of the drugs, growth in unit price – not volume – was primarily responsible for the increase in total inpatient drug spending.
  3. Stakeholder interviews suggest that significant budgetary accommodations are needed to keep up with rising drug prices. Most of those interviewed raised concerns about older generic drugs whose prices have increased unpredictably and the lack of alternatives available in order to provide high quality care to their patients.

It is readily evident from this recently released report that vigilant efforts by pharmacy directors and administrators, financial officers and hospital executives must keep a vigilant eye on drug costs within their organizations in an attempt to maintain financial stability in order to continue to give the highest quality care possible to their patients. Drug pricing and its heavy burden to healthcare institutions is likely to be one of the greatest threats to ensuring continued quality care and operational functionality of healthcare institutions. It appears paramount that pharmacy management and hospital administrators pay close attention to rising pharmacy budgets and take whatever steps necessary to find drug costs savings and maximize proper drug utilization within their institutions.

Readers of this blog are especially encouraged to read the complete NORC report just released to gain the full perspective of its findings and the implications to pharmacy directors, hospital administrators, hospital executives and others in the healthcare delivery system. The complete NORC report can be found by clicking on Link #4 below