fah hospital policy blog

Perspectives on health policy affecting America’s hospitals and the patients we serve.

A Dose of Facts: FAH, AHA Examine the Effects of Skyrocketing Drug Prices on Patients and Hospitals

October 11, 2016 | Chip Kahn, President and CEO, FAH and Rick Pollack, President and CEO, AHA

Category: FAH News

The price of prescription drugs has skyrocketed over the past several years. It seems that every day we hear a new report of how the cost of drugs hurts patients. When the price of a two-pack of Epipens jumped from $100 to $600 between 2007 and 2016 – an increase of 500 percent – parents around the country wondered if they would be able to acquire this life-saving medication for their children. When the cost of the infection-control drug Daraprim went from $13.50 to $750 a pill overnight, real patients ended up in the hospital when they could not follow their treatment regimens.

These price increases are wreaking havoc throughout the health care system. They not only threaten patient access to drug therapies, but also challenge providers’ abilities to provide the highest quality of care. Drug costs also are a major factor in the rising cost of health care coverage.

Hospitals bear a heavy financial burden when the cost of drugs increases. They are not only major purchasers of drugs, but patients often end up in the hospital when they cannot afford to take their medications as prescribed.

When the cost of drugs increases, hospitals must make tough choices about how to allocate scarce resources. One hospital administrator put the challenge starkly: last year, the price increases for just four common drugs, which ranged between 479 and 1,261 percent, cost the same amount as the salaries of 55 full-time nurses. And while nearly everyone can agree that price increases in the hundreds or thousands of percent are unjustifiable, many hospitals report that annual price increases of 10 or 20 percent on widely-used older generic drugs can have an even greater effect, given the large quantities that a hospital must purchase. No hospital administrator wants to make the choice between keeping the lights on, paying doctors’ and nurses’ salaries, making necessary infrastructure upgrades, or paying for drugs, especially when these price increases are not linked to new therapies or improved outcomes for patients.

The American Hospital Association and the Federation of American Hospitals commissioned a study, entitled - Trends in Hospital Inpatient Drug Costs: Issues and Challenges, to better understand how drug prices are changing in the inpatient hospital setting. Given that inpatient hospital services are generally reimbursed under a bundled payment model, there is no single source for information on how much hospitals spend on drugs and how that amount has changed over time. We intend for this study to help inform policymakers and other stakeholders about the challenges hospitals face in acquiring life-saving treatments, and serve as a basis for further evaluating how drug prices impact the patients we serve.