Report Misleads on Drug Prices

The Pharmaceutical Research and Manufacturers of America (PhRMA) released yet another report designed to obfuscate the issue of sky-rocketing drug prices. Once again, PhRMA turned its sights on hospitals in just another example of PhRMA choosing to blame others rather than looking inward at the double-digit profits its members enjoy at the expense of patients and the providers who serve them. In a two and a half page “full analysis,” paid for by PhRMA, The Moran Group supposedly examined how much hospitals spend to acquire a drug, how much hospitals charge commercial payers for those drugs, and what those payers ultimately reimburse hospitals for drugs.  Among other flaws, the study admits that it actually “estimated” hospital’s acquisition costs, the primary data point in determining the difference between what a hospital spends to acquire a drug and what it is reimbursed upon administering the drug.

The study contains several other gaps that make it impossible to draw firm conclusions or replicate their analysis. First, PhRMA’s bold assertions that hospitals are being paid more than two and a half times the cost of a drug are based on an analysis of just 20 drugs. Shockingly, none of these drugs are identified by name, which prevents further evaluation of these assertions. Without knowing which drugs were evaluated, we cannot know whether their estimates of acquisition price are accurate or whether the estimates are representative across all hospital drug purchases. The analysis does not attempt to give a complete picture by estimating an aggregate cost-to-charge or cost-to-reimbursement ratio.

In contrast, The NORC at the University of Chicago last year found that hospitals experienced significant increases in drug spending specifically because of rising drug prices.[1] This study looked at both a subset of 26 drugs, all of which were identified in the report, as well as aggregate inpatient drug spending. The study not only identified a number of drugs where the unit price increased by more than 100 percent from FY 2013 to FY 2015, it also showed that, in aggregate, total inpatient drug spending in hospitals increased 38.7 percent on a per admission basis during that same two-year period. One of its primary findings – that continued growth in drug spending is a result of growing drug prices – is supported by other research, including that conducted by the Altarum Institute. In the Institute’s Price Brief for August 2017, it notes that “…the annual price growth for prescription drugs, at 2.5 percent, was the fastest growing category.” In contrast, Altarum found that hospital price growth was half that of the drug industry during the same period.[2]

One reason why drug prices can grow so much faster than other health sectors is that the pharmaceutical industry is not subject to these same restraints on pricing and reimbursement as other providers. The vast majority of services that hospitals and health systems provide to patients are reimbursed under fixed prices that pay less than the cost of care. For example, both Medicare and Medicaid pay less than the actual cost of providing care, leaving hospitals with a reimbursement shortfall from a large portion of the services provided.

Hospitals, and the clinicians who work in them, know firsthand the lifesaving potential of drug therapies. Instead of simply pointing fingers, the AHA continues to work to develop real solutions to protect access to these therapies by addressing the high costs that have created barriers for patients and the entire health care system. We urge PhRMA to do the same.