Overcharging Hospital Pharmacies: Unnecessary Hidden Costs

In 2023, drugmakers raised prices on 1425 drugs. This number is slightly down from 2022, when they raised prices on 1460 drugs.¹ There are thousands of drugs, including generic variants, for hospital pharmacies to order, manage, and track. Without constant price vigilance, patients could be paying far more than they should.

The cost-containment burden is complicated and growing. Health care organizations, already under acute financial pressures, are getting bigger and more complex with the United States averaging one significant health care merger or acquisition each week. These expanding health care systems often take on organizations with disparate demographics, subsidy eligibilities, and acuity levels, adding further complexity to pharmacy management.

Meanwhile, many drug prices change daily due to a variety of contracts, pricing terms, and contract expiration dates. It’s daunting for the pharmacy buyer to manage myriad, siloed data streams to get a complete picture of the hospital system’s drug procurement landscape.

Compliance across disparate data streams often leaves room for inaccuracy, mishaps, and oversights. For example, prices may spike when a contract expires, yet no one may notice for weeks. Pharmacy professionals need help with drug spend monitoring and management. It has direct implications on care and organizational performance.

Spreadsheets Don’t Suffice

In our experience working with hospitals, roughly 2% of pharmacy spend is sheer overcharge. Unfortunately, organizations can’t measure this until they can apply data and analytics to the problem. However, this rarely happens, as most of today’s health care systems are still attempting to monitor spending manually equipped only with spreadsheets, wholesaler portals, or 340B split billing software reports.

In our experience working with hospitals, roughly 2% of pharmacy spend is sheer overcharge. Image Credit: © Cagkan - stock.adobe.com

Hidden overcharges ebb and flow. Purchasing contracts often end in December, and delays are common before the drug wholesaler loads an updated contract. As a result, hospital systems can unwittingly pay elevated prices during that interval, failing to receive the negotiated discounts. January is a banner month for such spikes to hit.

There’s more pricing data to juggle than most outsiders realize. A hospital system typically has multiple drug-purchasing accounts of a few different types. On average, a hospital will have around 2500 different preferred NDCs that they routinely buy. Hospitals must then evaluate whether it makes sense to change to one of the 40,000 to 60,000 other NDCs the wholesaler carries based on pricing that is also continually changing. That’s virtually impossible for overextended teams to achieve manually.

There’s simply too much going on and too many siloed data streams for pharmacy staff to reliably detect anomalies and discover cost-saving opportunities in time to react. No one will alert the staff unless all the system’s invoices are examined every day.

Cost Containment Requires New Tech

On the positive side, hospital systems are aware of potential drug overcharges and are working to stop them. Fifty percent of pharmacy professionals listed reducing drug spending as their hospital’s top savings initiative for 2023. Nearly 25% listed improving operational efficiency as a priority.

Hospital and health care executives have said that data-driven improvements in supply chain management practices can increase margins by at least 1% to 3%, and 35% said they believed it can increase margins over 3%.

Innovative health systems are enlisting new technologies to automatically aggregate, integrate, analyze, track, and monitor drug spending data. The right technology can give pharmacy professionals a vigilant digital watchdog for price spikes, overcharges, and mischarges before they ever happen. Hospitals can achieve this goal with a surprisingly straightforward integration of wholesaler drug data with state-of-the-art analytics. The result is unprecedented insight into drug pricing, including GPO compliance, and 340B optimization. Organizations can net substantial hard-dollar drug savings from the start.

By tracking all these data streams automatically, the software can flag price spikes, overcharged invoices, 340B opportunities, pending shortages, and unexplained pricing differences (non-parity). A dashboard can present this information logically, putting the biggest anomalies at the top of the priority list and recommending cost-saving action.

The result? Critical financial analysis that used to take hours and happen only sporadically now takes place automatically in real-time.

Early adopters are benefitting

A 1043-bed integrated healthcare network (IDN) recently saved over $2.4 million in one year of using a spend-monitoring solution. Before implementing it, the IDN’s purchasing oversight and contracting team struggled to deal with more drug-contract data streams than they could manage.

The IDN worked with myself and a team of our software developers to automate the identification of overcharges and integrate potential savings into existing workflows. The result was a real-time pharmacy purchasing analytics platform that required no informatic resources and produced hard-dollar savings, streamlining processes to support its particular operations. The pharmacy team only needed to interact with the software for 45 minutes a week to achieve these results.

Drug overcharges are a fact of life in hospital systems, but they become unrecoverable if not caught in time. The right solution will help reclaim funding that could be used to optimize care and save lives.

Reference

1. Erman M, Wingrove P. Exclusive: Drugmakers set to raise us prices on at least 500 drugs in ... Reuters. December 25, 2023. Accessed January 25, 2024. https://www.reuters.com/business/healthcare-pharmaceuticals/drugmakers-set-raise-us-prices-least-500-drugs-january-2023-12-29/