Blog: Analysis on Drug Prices Fails to Provide Full Context

The authors of a recent analysis published in JAMA themselves acknowledge that their sample size is very small, making it hard to draw any sweeping conclusions based on their data. In addition, the study does not provide direct insight as to what hospitals actually pay to acquire these drugs. While Average Sales Price (ASP) is the price drug companies charge wholesalers, it is not necessarily reflective of the price hospitals pay to acquire the drug. Some drugs do not even have an ASP and as a result, hospitals are forced to purchase the drug at the much higher Wholesale Acquisition Cost (WAC) price. Further, there are also instances where drugs are placed in limited distribution and/or are in shortage resulting in hospitals paying higher prices to acquire the drug. For many hospitals and health systems, this is a persistent and costly problem, and has been exacerbated during the COVID-19 pandemic, as evidenced by Kaufman Hall data that shows hospital drug expenses are 30% higher year-to-date compared to 2019.
 
It is also imperative to point out that it is drug companies alone who set the prices of drugs and enjoy double-digit profits at the expense of patients and the providers who serve them. One reason why drug prices can grow so much faster than other health sectors is that drug companies routinely suppress competition and are therefore able to singlehandedly set the prices of their drugs, often pushing the limits on what the market can bear. In any other health care sector, prices and reimbursement are either competitively negotiated between different sectors or regulated by the government. Finally, 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.

This underpayment, in particular, affects 340B hospitals that treat a disproportionately high number of patients that are uninsured, underinsured or on Medicare, Medicaid or both, all while having to absorb the many costs associated with carrying out their missions. On top of the pressures the pandemic has placed on them, it is important to remember that many 340B hospitals have experienced a nearly 30% payment cut for certain drugs by Medicare since 2018, which have threatened the important services they provide to their communities. The savings generated through the 340B program allow these hospitals to expand access to prescription drugs and comprehensive health care services to marginalized communities across the country, which amounted to $68 billion in community benefits in 2018, alone.

Aaron Wesolowski is AHA vice president of policy research, analytics and strategy