Hospitals face rising drug costs, too

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Rising drugs costs have become a leading issue for consumer advocates who have pushed for laws to rein in sharp increases during the past several years. But hospitals have been forced to deal with the ramifications of higher drug costs on their budgets as well.

Costs for hospitals on inpatient drug spending have increased more than 20 percent annually, forcing hospitals to find ways to contain the rising prices as they try to balance their budgets.

“Drug prices go up every year,” said Bonnie Levin, assistant vice president for pharmacy services at MedStar Health. “In the past couple of years, the curve is a little higher than it had been over the previous decade.”

Annual inpatient drug spending increased 23.4 percent between the 2013 and 2015 fiscal years, according to a report compiled by independent research organization NORC at the University of Chicago. At the same time, inpatient drug spending on a per admission basis increased 38.7 percent.

Drug spending grew primarily because prices increased, not because the amount of drugs bought increased, the report found.

Hospitals spend more for new treatments

In the consumer market, decreasing competition among generic drug makers has led to an increase in prices, and that holds true for hospitals. But the new drugs entering the market tend to make up the bulk of hospital drug spending increases.

Those new medications are the ones that can really affect a hospital’s budget, said Joseph J. DiCubellis, senior director of pharmacy for the University of Maryland Medical Center.

He pointed to the use of chemotherapy medication. While chemotherapy remains a mainstay of cancer treatment, new treatments have come to the market that can be more targeted.

They also come with more tolerable side effects and can be taken over a longer period of time than traditional chemotherapy.

That means the hospital could be purchasing a more expensive drug over a longer period of time. But that would not stop the hospital from using the medication.

“The (new) drugs are so overwhelmingly positive that it is difficult to curb their use, and we don’t want to do that,” he said.

Managing hospital drug use

Hospitals turn to a variety of methods to keep costs down.

Internally, they set up guidelines and rubrics for when to use drugs and how much to use them. Doctors and nurses play a role in keeping those guidelines updated, Levin said.

“We often will shift prescribing from one drug to another, depending on a change in cost,” she said. “We are pretty flexible and we can make changes when we need to.”

Being a part of larger health systems also helps hospitals. It means they can purchase smaller amounts of little-used drugs and distribute it through multiple hospitals, decreasing the odds a drug goes unused.

Hospitals also keep a close eye on how patients are receiving medicine. For example, it is more expensive for a patient to receive medicine through an IV, so once they can take a medicine orally, their medication is changed.

“Doing the right thing in terms of medication management often turns out to be the most cost-effective thing,” Levin said.

One reasons IVs can be so expensive is that medicines are turned into an IV infusion after they have been acquired from the manufacturer. The process can be complex, requiring specific calibrations, so hospitals typically outsource to companies that specialize in creating IV infusions.

It also yields shorter expiration dates for the drugs, another cost inefficiency.

This spring, the University of Maryland Medical Center will bring the process in-house by turning to a process using robotics. It is expected to cost the hospital in the short-run but provide more long-term benefits.

“Bringing compounding back into the hospital, our concerns about expiration dating will be allayed by (using) robotics to do the process,” DiCubellis said.

Finding efficiencies in buying

Health systems also leverage their size and join with other health systems to form buying groups to negotiate with drug manufacturers. It allows them to buy in greater size with greater buying power.

The University of Maryland Medical System leverages its opportunities through both the system and a buying group. They can take the price from the buying group or seek to find a lower price.

“We can kind of take the best of both worlds,” DiCubellis said.

Many hospitals in Maryland also take advantage of a federal program called the 340b program. It allows hospitals to purchase outpatient drugs at deep discounts, as long as the hospital serves a disproportionate share of disadvantaged patients, including patients without insurance and patients on Medicare or Medicaid.

Drugs purchased through this program often include injectable drugs, like insulin and some common HIV medications.

The hospitals then must use the savings to reinvest in other hospital programs that serve low-income populations.

“We leverage it because we can use it to put dollars back towards patients in need,” Levin said. “It does save us a fair amount of money and so we can put that into community benefits and caring for patients with need.”