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October 13, 2016

Report: Hospital spending on inpatient drugs up nearly 25% annually over two years

Daily Briefing

Hospitals' spending on prescription drugs rose by nearly 25 percent annually between fiscal years (FY) 2013 and 2015, according to a hospital industry-sponsored report released Tuesday.

The American Hospital Association (AHA) and the Federation of American Hospitals (FAH) commissioned the report, which was conducted by the National Opinion Research Center at the University of Chicago. The report was based on data from 712 community hospitals, as well as data on 28 drugs from two group purchasing organizations that represent 1,400 community hospitals.


The report found that hospitals' average spending on inpatient drugs increased by 23.4 percent annually between FY 2013 and FY 2015. According to the report, hospitals' prescription drug spending increased by an average of 38.7 percent per admission, from $714 in FY 2013 to $990 in FY 2015. In comparison, retail drug spending increased by an average of 9.9 percent annually during the same period.

The researchers attributed the spending increases to rising prescription drug prices.

For example, the report stated that hospitals spent nearly $95 million on the drug nitroprusside in FY 2015, up from $48.3 million in FY 2014. During that time, Valeant Pharmaceuticals, which acquired the brand-name version of nitroprusside in early FY 2015, increased the drug's price from $150 per unit to $790.46 per unit.

The report also noted that from FY 2013 to FY 2015 unit prices for:

  • Acetaminophen increased by 135 percent;
  • Calcitonin, a drug used to treat bone pain, increased from $67.98 to about $2,286.23;
  • Daraprim, an infection-control medication owned by Turing Pharmaceuticals, increased by 3,695 percent, from $919.10 to $34,882.24; and
  • Hydralazine, a blood pressure medication, increased from $4.72 to $41.32.

According to the report, generic versions are not available for about half of the drugs reviewed that experienced price hikes during the study period. The researchers said the price hikes "appear to be random and inconsistent from one year to the next."

Further, the report found that 57 percent of hospital administrators said high drug prices had a moderate effect on their budgets, while 33.8 percent said the prices severely affected their budgets.


Hospital industry leaders slammed the price hikes.

Scott Knoer, chief pharmacy officer at the Cleveland Clinic, said hospitals were "caught ... off guard" by price increases for drugs that have been used "for decades." He explained, "For a long time, old generic drug prices were so stable we didn't even think about that."

FAH CEO Chip Kahn said, "It would be one thing if price increases were associated with clear and important clinical improvements, but they're not." He called the findings "a real wakeup call on health care spending."

AHA President and CEO Rick Pollack said, "An unaffordable drug is not a lifesaving drug and a price increase resulting from market manipulation is simply wrong."

Knoer called on the federal government to do more to regulate prescription drug prices. He said, "If these kinds of increases took place in the sale of gasoline in the U.S., you'd be paying $30 a gallon. And if that was the case, the federal government or somebody would decide enough is enough."

However, drug industry leaders refuted the report's findings.

Holly Campbell, a spokesperson for Pharmaceutical Research and Manufacturers of America, said the report focused on "older and off-patent medicines" during a time when "new generic drug applications" are tied up in a "record backlog." She said doing so resulted in a "distorted portrayal of medicine spending," adding, "In fact, hospitals' own data show that medicine costs rose from 6.5 percent of total costs in 2012 to 6.9 percent in 2015."

Campbell also said hospitals typically mark up drug prices in their charges to patients (Lupkin, Kaiser Health News, 10/11; Rubenfire, Modern Healthcare, 10/11; Alonso-Zaldivar, AP/Washington Times, 10/11; Young, CQ HealthBeat, 10/11 [subscription required]; AHA release, 10/11).

How health systems can respond to rising drug spending

Join Advisory Board experts on Monday, October 24, for a webconference, where we'll explore why drug prices and health system drug spending are rising so rapidly, which drug pricing policy reforms are likely to be viable and effective, and how health system leaders can manage rising drug costs.

Register now

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