Drug Costs

Insurers, Hospitals, and the Price of Drugs

October 30, 2018 9:51 am

We saw the poll, too. Earlier this month, Pew noted a recent survey that found 77 percent of Americans think the current cost of prescription drugs are “unreasonable.” Nearly nine in 10 think Congress should make lowering costs a priority. 


To fulfill that mandate, lawmakers would have to look at the entire supply chain.


As we noted earlier this month, spending on medicines rose just 0.6 percent in 2017 after taking into account rebates and discounts. Why, then, are most Americans certain they’re spending more for life-saving medicines? 


At least two factors within the supply chain contribute to this impression. 


What Americans pay for health insurance, and after health insurance kicks in, certainly influences consumers’ views on the cost of medicines. Health insurers ultimately decide what most Americans pay out of pocket and IQVIA has found “as benefit designs evolve, more patients [have been] exposed to more costs in the form of deductibles, coinsurance, and high cost-sharing plans.” 


According to the Peterson-Kaiser Health System Tracker, from 2006 to 2016, consumers’ overall average deductibles increased from $303 to more than $1,200. Additionally, according to IQVIA data, in the last decade, the proportion of covered employees who are enrolled in plans with deductibles rose from 22 percent to 51 percent. IQVIA also found these patients have their seen out-of-pocket costs for brand name medicines jump from $180 in 2014 to $270 in 2017.


Hospitals also contribute to the impression that Americans are spending more on life-saving medicines.  


A recent analysis by The Moran Company found, on average, hospitals inflate the cost of drugs by 479 percent. Moran said, 83 percent of hospitals “charge patients and insurers more than double their acquisition cost for medicine, marking-up the medicines 200 percent or more.” Fifty-three percent of hospitals mark up costs by 200 percent to 400 percent.


Those numbers only represent the average. Nearly one-fifth of hospitals (17 percent) inflate prices more than 700 percent. Eight percent of hospitals, according to Moran, had average charge markups greater than 1,000 percent, “meaning they are charging at least 10 times their acquisition cost for medicines, on average.”


Only two percent of hospitals were on the low end, inflating prices by 100 percent or less. 


In an August post, Axios noted hospitals “make up a much larger share of total health care spending” than drug costs. (Per capita spending on hospital care exceeds $3,300 annually; prescription drugs aren’t even one-third of that.) When Axios reporters tried to contact 27 hospital systems to ask if they plan to lower prices next year, “all of them were silent.”