Study: Hospitals Mark-Up Drugs Significantly

With the cost of prescription drugs on the rise, the supply chain has been intensely scrutinized. Some legislators and members of the media have stated that manufacturers are solely responsible for the increasing costs, while pharma stakeholders charge other entities with having the final say in pricing.

A new analysis commissioned by the Pharmaceutical Research and Manufacturers of America (PhRMA) found that hospitals increase medication costs by 500% on average.

The study showed that after negotiations with payers, hospitals receive an average of more than 250% more than what they paid for the drug, according to the study. The study authors found that hospitals are being paid 2.5 times what the manufacturer receives for the drug, which may threaten access to affordable treatments and drive up premiums.

The price insurers pay depends on whether the medication is dispensed in a hospital outpatient setting or through a pharmacy. Many hospitals purchase cancer drugs that are administered in the facility. The hospitals can place a steep mark-up on the drug and are reimbursed by insurers, according to the study.

The price a hospital charges and what they are reimbursed is largely based on the local hospital and insurers, according to the authors. When hospitals consolidate, they are able to request higher reimbursement due to a larger market share.

Included in the study were 20 different medications that treat cancer, autoimmune disorders, and arthritis, and are administered by physicians.

The investigators found that hospitals receive significantly more for these medications than they pay. Even after negotiations, hospitals receive tens of thousands of dollars more than the acquisition cost, according to the study.

For a single drug, the investigators found that hospitals marked up the price 776%, according to the study.

The authors note that these findings may be muted since they did not take 340B discounts into account. This program provides discounted drugs for hospitals that care for vulnerable populations with the aim of expanding access to affordable treatments. Typically, 340B prices are approximately 22.5% lower than the average sales price.

These mark-ups may lead to higher out-of-pocket costs for patients, employers, and payers, while lowering earnings for manufacturers; however, the authors said that this is frequently overlooked in discussions about drug costs.

A recent report published by the Community Oncology Alliance (COA) found that the cost of chemotherapy for patients with cancer was nearly 60% more expensive at hospitals than at independent community oncology practices. The difference in treatment location could cost patients up to $90,144 per year for treatment, according to COA.

With more drugs administered at hospitals, the mark-ups should be scrutinized, according to the current study. The authors said that the entire drug supply chain should be examined to determine how each play a role in the access and affordability of medications, the study concluded.