In 2015, Martin Shkreli, then-CEO of Turing Pharmaceuticals, became the most “hated man in America” for increasing the price of Daraprim, a drug used to treat AIDS and cancer patients, from $13.50 to $750 a dose. The Shkreli story is perhaps the most alarming example of an issue that has become an increasing focus for media, consumers, and industry alike: rising drug costs. In fact, Daraprim is just one of many cases of skyrocketing drug prices, which increased 10 percent overall – faster than U.S. inflation – in 2015 (Truveris).
Experts expect this trend to continue, and if they’re right, few groups (apart from consumers) will be hit harder than hospitals and health systems – many of which are already struggling to manage new regulations and accreditations which have added unprecedented complexity to the healthcare environment and, in many cases, severely dampened bottom lines in the process. As hospital leaders consider strategies to combat rising drugs costs, it’s important for them to understand the factors that are driving them, including:
- Polypharmacy: More and more patients in the U.S. are overmedicated, taking multiple drugs to treat a single ailment or condition. Not only does this practice create unnecessary expense for both patients and hospitals, but it may also increase the risk of adverse drug events.
- Lack of Regulation: The U.S. government doesn’t currently regulate pharmaceutical prices, citing concerns that doing so might hinder innovation, stifle competition, and/or stall investment; however, research suggests that in countries with such regulation, patent medications are priced 18-67 percent lower than in the U.S (International Business Times).
- Lengthy Patents: In the U.S., pharmaceutical patents may last for up to 20 years, a relatively long time (compared to other countries), during which competition is limited and monopolies are created. Worsening matters, pharmaceutical companies tend to mark up drugs on average five percent per year throughout the life of a patent (Business Insider).
- Limited Competition: In recent years, drug makers have responded to dwindling revenues for older generics by discontinuing them. This decrease in competition has directly contributed to significant price increases for drugs, such as Isuprel, a common cardiovascular medication, which saw a price increase of 500 percent in 2015 (USA TODAY).
- Consumer Advertising: Pharmaceutical companies spend $3 billion a year on consumer promotions alone (American Medical Association). This investment may help to educate consumers, but critics argue it increases costs by prompting requests for brand name drugs and promoting newer prescriptions with high-profit margins.
While many of these key drivers of rising drug costs are outside of any individual hospitals’ control, administrators may consider proactive tactics, such as those below, to minimize their effects:
- Consider biosimilars: Many experts believe biosimilars, drugs designed to have active properties similar to ones that have previously been licensed, are the “generics of the future.” Hospitals and health systems should review their formularies for opportunities to substitute them for brand name drugs, which cost 30 to 50 percent more.
- Negotiate prices: Pharmacies may work proactively to control costs by negotiating better prices based on utilization with their group purchasing organization (GPO) or manufacturers. For example, CompleteRx worked with specialty pharmaceutical company Medicure to receive more favorable pricing by switching its standard antiplatelet drug from Integrilin to Tirofiban.
- Participate in 340B: The U.S. government created the 340B drug discount program to require drug manufacturers to provide outpatient drugs at significantly reduced prices. Eligible hospitals that participate in the program receive 15-20 percent discounts on drugs, and enjoyed a combined $3 billion in savings in 2013 (Health Resources and Service Administration).
- Enroll in patient assistance/indigent programs: Two out of every three visits to the doctor end with a prescription, but many Americans – more than 46 million of whom don’t have health insurance – can’t afford to fill them (National Council on Patient Information and Education). State and corporate patient assistance programs provide qualifying individuals with free or low cost drugs, subsidizing drug costs, improving compliance, and reducing the risk of readmissions.
- Maximize reimbursements: Hospitals and health systems may also consider other tactics – such as using Jcode modifiers to increase billing accuracy, collecting co-pays and coinsurance upfront, and providing patient education to reduce readmissions – to maximize reimbursement and mitigate the financial effect of rising drug costs.
Julie Rubin, PharmD, BCPS is the director of clinical services for CompleteRx, a leading pharmacy management company. She has 20 years of clinical pharmacy experience, advising hospital and health executives across the country on critical issues such as rising drug costs, and is board certified in Pharmacotherapy.