PhRMA Report Sheds Light on How Hospital Practices Increase Costs for Employers, Patients

Date: February 9, 2021 | Country: UNITED STATES | Region: NORTH AMERICA | Type: Policy | Keywords: #340bprogram #cms #consolidation #eversana #healthplans #healthstrategiesinsights 
#hospitals #markups #outpatientsetting #pbms #phrma #prescriptiondrugs #pricetransparency

PRICENTRIC BRIEF:

  • The Pharmaceutical Research and Manufacturers of America (PhRMA) has published a new report that “sheds light” on the distribution and pricing of medicines administered in the hospital outpatient setting, an area in which “little information is available,” said the bloc
  • The report highlights three areas of concern: hospitals markup medicines, making two or three times the amount initially paid for the medicine; hospital consolidation has led to price increases; and hospital profits generated through the 340B program actively incentivize further consolidation and costlier care
  • Stephen J. Ubl, President and CEO of PhRMA, commented, “Many actors – including hospitals, insurers and other middlemen – influence what patients pay out of pocket for prescription medicines,” adding, “This new report brings transparency to the role hospitals often play in determining the cost of medicines and ultimately what patients pay out of their own pockets”

 

THE DETAILS

WASHINGTON, D.C., United States – The Pharmaceutical Research and Manufacturers of America (PhRMA) has published a new report that “sheds light” on the distribution and pricing of medicines administered in the hospital outpatient setting, an area in which “little information is available,” said the bloc.

Following a previous investigation into the impact of pharmacy middlemen on prescription drug costs at the pharmacy, today’s report outlines how hospitals are generating increased profit through markups and consolidation, which result in higher costs for health plans, and, ergo, employers and patients. The report highlights three areas of particular concern.

First, hospitals were found to often inflate the costs of medicines administered to commercially insured patients in outpatient settings, leading to health plans reimbursing hospitals at rates nearly 250% of the amount paid by the hospital for the medicine—meaning, routine markups increase costs that may exceed the net revenue earned by the manufacturer, explained PhRMA.

Second, hospital consolidation was found to cause increased prices, as hospitals used their market power to extract higher payments from commercial health plans, which results in higher costs not only for plans but also for employers and patients.

And third, hospital profits generated through the 340B program were found to be incentivizing consolidation and more costly care. While the 340B program was created by Congress to help increase access to medicines for vulnerable patients, PhRMA said it has since evolved to financially benefit large hospital systems, for-profit pharmacies, and other middlemen.

The problem is, hospitals purchase deeply discounted medicines but then charge higher prices—further, the ability for hospitals to generate a profit has spurred hospitals to bring in even more profit by registering offsite outpatient sites to expand the program. Through this, the number of 340B offsite outpatient sites has jumped to 28,000 in 2020 from 34 in 1994.

PhRMA’s Ubl: “Status Quo Isn’t Working for Patients”

Stephen J. Ubl, President and CEO of PhRMA, commented, “Many actors – including hospitals, insurers and other middlemen – influence what patients pay out of pocket for prescription medicines. In recent years, nearly half of spending on brand medicines went to someone other than the research companies that developed the medicines. This new report brings transparency to the role hospitals often play in determining the cost of medicines and ultimately what patients pay out of their own pockets.”

Ubl added that since the “status quo isn’t working for patients,” PhRMA is committed to working with policymakers and health care stakeholders to come to a holistic resolution.

Hospitals, Health Plans, PBMs Facing Greater Regulatory Scrutiny

PhRMA’s report comes amidst an environment where hospitals, health plans, and PBMs have been facing slightly greater regulatory scrutiny to business practices that contribute to the rising costs of healthcare, explained Lisa Idzik, Senior Consultant, Market Access Insights, EVERSANA.

At the beginning of this year, the Centers for Medicare and Medicaid Services (CMS) implemented new pricing transparency requirements mandating hospitals to publish on their website a consumer-friendly list of prices for 300 shoppable services. And beginning in 2023, health plans will need to offer an online shopping tool that will allow consumers to see the negotiated rates between their provider and their plan. Concerning 340B, CMS recently finalized a rule that reduces payments for 340B drugs to an Average Sales Price (ASP) minus 22.5%.

Nevertheless, governmental scrutiny of drug pricing will likely remain focused on international reference pricing—however, the direction the new Biden Administration will take is yet to be determined. The “Most-Favored Nations (MFN)” rule introduced by former US President Donald Trump was stalled by the courts, and Biden, shortly after taking office, enacted a 60-day freeze on all Trump’s Executive Orders (EOs)

Health Strategies Insights by EVERSANA is closely tracking these issues in 2021. Please reach out to HSIclientservices@eversana.com for more information.