Hospitals Mark Up Drugs 500%: Report

Hospitals are hiking up the costs of drugs six-fold, with consumers feeling the pinch in their healthcare premiums and wallets, a new report finds.

A team at the Pharmaceutical Research and Manufacturers of America (PhRMA) found that drugs were being marked up by an average of 500% by hospitals, and up to 724% in some cases. Among the 20 drugs included in the study, all were marked up at least three-fold by hospitals.

The study, released online this month but not published in a peer-reviewed journal, used the drugs that accounted for the largest share of spending per person covered by insurance companies in the United States. The names of each drug were not revealed.

Using claim data, they compared the average price hospitals are charged to the amount that is billed to a patient or their insurance after they receive it for treatment. Each of the 20 drugs had a markup of between 234% to 724%. For the largest markup, hospitals pay $8,117 to pharmaceutical companies to acquire the drug before passing off an average cost of $58,782 to patients.

The PhRMA team found commercial health insurers on average end up paying twice of what hospitals paid for the drug. Insurers and health providers often negotiate down rates.

Drug prices have become a hot-button political issue in the United States, with research finding Americans pay more than double other developed nations for prescriptions. This is on top of monthly premiums and other payments needed for services Americans pay for their care. 

The PhRMA study points out that many of these costs insurance covers for patients are transferred back to them through higher premiums and deductibles.

However, a leading hospital group disputes the findings of the study, and instead says it is an effort from the pharmaceutical industry to pin the blame of rising costs on hospitals. PhRMA is a trade group that represents leading manufacturers, and has a financial interest in blaming hospitals for rising drug costs.

Bharath Krishnamurthy, director of policy at the American Hospital Association, which represents hospitals around America, told The Messenger: “The drug industry’s latest ‘report’ is an obvious attempt to divert attention away from a problem of their own making: skyrocketing drug prices. The report is a brazen misrepresentation of the facts and conveniently fails to explain that, unlike drug manufacturers, hospitals are subject to fixed reimbursement amounts for much of the care they provide.”

He continued: “to curb the skyrocketing prices of drugs, the AHA has put forth specific recommendations to further increase competition, transparency, access and value, while fostering innovation. It is time for drug companies to stop attacking others and come to the table with solutions on how to rein in their out-of-control prices.”

The federal government is trying to crack down on drug prices. Pharmacy benefit managers, middlemen between pharmaceutical companies and insurers who negotiate drug prices, have been the target of Congressional scrutiny in recent weeks — with the government hoping to limit “spread pricing,” which is an amount the middlemen markup drugs for their own collection.

New regulations could also allow the government to negotiate the prices of drugs purchased by Medicare. The pharmaceutical industry has opposed this legislation and referred to it as “price fixing”.