About 1 in 5 hospitals mark up drug prices at least 700 percent, study finds

Nearly one in five hospitals mark up medicine prices 700 percent or more, according to a new analysis from The Moran Company, prepared for The Pharmaceutical Research and Manufacturers of America. 

This means that if a hospital purchased a medicine for $150, a 700 percent markup could result in patients being billed $1,050, according to the study. And the analysis also found that 320 hospitals – eight percent of those included in the study – marked up some medicine prices more than 1,000 percent.

The analysis used Centers for Medicare and Medicaid Services data that included total costs and charges for all medicines from 3,792 hospitals. On average, those hospitals marked up the price of medicines nearly 500 percent, consistent with an analysis of 20 medicines previously conducted by Moran.

"Hospitals receive billions of dollars every year in negotiated and mandatory discounts from biopharmaceutical companies while simultaneously increasing the price of these medicines to insurers and patients," said Stephen J. Ubl, president and chief executive officer of PhRMA. "In order to make medicines more affordable for patients, we must address the role hospital markups play in driving up medicine costs."

PhRMA said that while biopharmaceutical companies set the list price for a brand medicine, more than one-third is rebated back to payers and the supply chain. Insurers negotiate large rebates, but do not share these discounts with patients who pay a deductible or coinsurance. Ultimately the insurer determines what patients pay for medicine out-of-pocket. PhRMA said.

The PhRMA report was released a month after America's Health Insurance Plans released its own study by Milliman and results from the Pharmaceutical Care Management Association. AHIP said that big pharma was largely responsible for rising drug prices.

Since high drug costs have come under the spotlight this year, many insurers such as UnitedHealthcare, which previously used the rebates to lower premium costs for all beneficiaries, are giving the rebates directly to the individual at the pharmacy counter or through home delivery.

Markups on medicine prices often lead to higher reimbursement by health plans. More than half of commercial payers reimburse hospital outpatient departments as a percent of billed charges. Hospitals have incentives to increase markups as higher charges are associated with greater profitability.

Physicians blame both the pharmaceutical and insurance companies for rising healthcare costs, according to a July survey from the University of Utah Health.

In May, President Trump released a "blueprint" for lowering the cost of prescription drugs followed by the Department of Health and Human Services releasing a series of legislative and regulatory proposals. At the top of initiatives was a call for the development of more generics to spur market competition. 

America's Health Insurance Plans and the American Medical Association weighed in, agreeing with certain proposals and taking issue with others.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com