Hospitals, Payers

Health systems are taking action as drug spending steadily climbs

Almost all C-suite leaders surveyed reported that their inpatient pharmaceutical spending is on the rise, triggering a range of cost-saving initiatives through the organizations.

Tug of war, opposition

A majority of health systems have weathered a significant increase in drug spending costs over the last five years and with further increases on the horizon, most have implemented a range of initiatives to counteract the escalating costs.

That’s according to a new survey by Premier Inc, a NASDAQ-listed “healthcare improvement company” that works with approximately 3,750 U.S. hospitals and more than 130,000 other providers.

Sponsored Post

Physician Targeting Using Real-time Data: How PurpleLab’s Alerts Can Help

By leveraging real-time data that offers unprecedented insights into physician behavior and patient outcomes, companies can gain a competitive advantage with prescribers. PurpleLab®, a healthcare analytics platform with one of the largest medical and pharmaceutical claims databases in the United States, recently announced the launch of Alerts which translates complex information into actionable insights, empowering companies to identify the right physicians to target, determine the most effective marketing strategies and ultimately improve patient care.

According to a company statement, the survey sought to “understand the financial and care delivery implications of rising drug prices.”

While the findings are food for thought, it’s important to stress that this wasn’t a large study. Conducted online, it surveyed 47 healthcare C-suite leaders; chief executive, operations, medical, financial, information, and technology innovation officers. The study ran from April 18 to May 22, 2017.

Among the findings, 64 percent of participants said their inpatient pharmacy supply spend had “increased significantly” over the past five years. A further 32 percent indicated that it had “increased somewhat.” Just two people (4 percent) responded that it had “decreased somewhat” or stayed the same.

Who’s to blame? While the problems are complex, some 95 percent of C-suite leaders agree that the overall increase in drug prices has contributed to their financial pain.

As have specialty pharmaceuticals. Of those surveyed, 91 percent said an uptick in the use of expensive specialty drugs has put pressure on their health system’s inpatient pharmaceutical spend. The category includes precision therapies for cancers, autoimmune, and rare diseases. Many carry list prices of over $100,000 per year, per patient and require labor-intensive infusions. Typically, the drugs are still too new to face any generics competition. 

“What a lot of people don’t realize is patients will always have access to these drugs and they will be available, but it’s the health systems that are taking the hit,” explained Premier COO Michael Alkire in an email forwarded by a company representative. “With fixed reimbursement from Medicare for inpatient hospitals, skyrocketing drug prices affect budgets of providers and jeopardize their future viability. These expensive drugs are putting increased stress on already financially challenged systems.”

As a result, C-suite healthcare leaders are not taking the pricing increases lying down. When asked, over a majority of respondents used the following techniques to cut costs.

Conscious use of biosimilars and generic alternatives was the most popular measure. In the survey, 89 percent of participants reported increasing their use of generic drugs, when available. Three-quarters had also invested in physician education around high-cost drugs, encouraging them to use generics and high-value therapeutic alternatives whenever possible. The same number deployed pharmacists to provide guidance on expensive drug use patterns and offer therapeutically equivalent alternatives.

Just over half (59 percent) used a generic auto substitute. Around the same number (55 percent) adopted and used biosimilar drugs when available — a number that will surely rise as biosimilars become more widespread.

On a macro level, two-thirds of those surveyed said they put extra emphasis on group purchasing organization contracts as a way to manage rising prices. Along the same lines, 73 percent had expanded their specialty and retail pharmacy services.

Strategies and substitutions go a long way, but not far enough. Most health systems are directly tightening their belts. In the survey, 82 percent of C-suite leaders had intensified the tightening of their formulary. Premier also reported that 61 percent had expanded their use of restrictive drug prescribing protocols through electronic health record alerts.

The undercurrent with all these actions is the C-suite leaders’ outlook for the future.

“I think what most surprised us was the fact that almost all respondents expect fairly large increases in pharma spending (anywhere from 10-29 percent) over the next five years,” Alkire said. “With all the reimbursement cuts providers already are coping with, the rapid pace of price growth they expect is simply unsustainable for hospitals and health systems to manage.”

Only one respondent believes drug spending will decrease over the next five years.

At the end of the day, there are many factors out of a healthcare system’s control. Acknowledging that, Premier connected the survey results with its wider call for policymakers to act and to fix the flaws in the system “that enable drug monopolies and directly contribute to unsustainable pharmaceutical expenses.”

Update: This article was updated at 5:30 pm E.T. to include additional comments from Premier.

Photo: Ieremy, Getty Images