Hospitals take steps to control drug costs

When physicians and administrators at Christiana Care Health System in Wilmington, Del., saw how many newly approved specialty and orphan drugs had price tags in the tens of thousands of dollars, they decided in 2011 to form a committee that uses a 20-point scoring system to decide if a drug should be listed on the system's formulary.

All drugs that cost more than $10,000 for a course of treatment—about 5% of the medications dispensed through the system's inpatient and outpatient settings—are now assessed by the medication value subcommittee, which includes 12 physicians, administrators, nurses, pharmacists and finance executives.

The subcommittee looks at a wide range of factors, including the drug's efficacy and risk and the financial impact on the patient and the healthcare system. A group of five community leaders, including a local high school teacher, a pastor and a community activist, also evaluate factors such as a drug's tolerability, cost and safety to provide input on quality-of-life issues. Of 27 drugs assessed by the subcommittee, 17 ended up on the system's formulary list.

The panel's scoring system assesses both inpatient drugs that are reimbursed as part of a diagnosis-related group and outpatient drugs. About one-tenth of Christiana Care's supply costs are generated by drug costs, which are going up about 7% each year, said Teresa Corbo, Christiana Care's vice president of pharmacy services.

“It sends a message to drug developers that you have to prove that your drug is really valuable to patients,” said Dr. Mitchell Saltzberg, a cardiologist who chairs the formulary committee. “We just don't approve everything.”

Costs for specialty drugs, which are used to treat less common diseases and conditions such as cancer and inflammatory conditions, are rising, due to both higher prices and the increasing number of such drugs on the market, experts say. The growing number of approvals of specialty and orphan drugs—which are designed to treat conditions or diseases that affect fewer than 200,000 people in the U.S. and often come with even higher price tags than specialty drugs—have pushed insurers and pharmacy benefit managers to question the value and costs for these medications.

Hospitals traditionally have been less concerned with drug costs in the outpatient setting. But the move away from a fee-for-service model, the broader push to improve value for patients, and the potential for health systems to end up shouldering all or part of the cost of some pricey medications is driving more interest in controlling the costs of outpatient drugs.

Hospital leaders are growing increasingly concerned about the financial implications of higher outpatient drug costs for patients as health plan deductibles, coinsurance and copays increase and some drugs come to market with limited or uncertain benefits for patients.

Top drug expenditure categories for hospitals usually include cancer drugs, antiretroviral therapies to treat HIV and AIDs, inflammatory conditions such as rheumatoid arthritis and intravenous immunoglobulin, said Lauren Barnes, senior vice president with consulting firm Avalere Health.

But drug costs are rising across the board. Pharmaceutical spending by clinics grew 4.5% and rose 1.8% at nongovernment hospitals in 2013, according to a study published in March in the American Journal of Health-System Pharmacy. Spending on immunoglobulin, a human blood plasma product, topped $713.8 million in 2013.

U.S. spending on specialty drugs, is expected to rise by 19% in 2014, according to Express Scripts. A little more than half of the 27 new drugs approved by the Food and Drug Administration in 2013 were specialty drugs. In the past, physicians have been willing to prescribe specialty drugs. But as more doctors become employed by hospitals, this can mean they lose some autonomy in choosing what drugs they prescribe for patients as their hospitals implement stricter rules for getting drugs listed on the formulary. This can put doctors at odds with hospital administrators.

“If it's your drug that's not getting approved, it creates tension,” Saltzberg said.

Some systems such as Christiana Care have set stricter parameters around what drugs end up on the formulary, while others have sought rebates and payment assistance from manufacturers for patients who qualify. “In light of healthcare reform, hospitals have no choice but to select drugs that are effective and have value,” a group of Christiana Care leaders wrote in a 2012 study looking at its cost-scoring system for pricey new drugs.

“In the past, it was a contracting decision,” Avalere's Barnes said. “Now it's more of an evidence-based discussion.”

In 2012, oncologists at Memorial Sloan Kettering Cancer Center in New York pulled cancer drug Zaltrap from the hospital's formulary, arguing in a New York Times op-ed that the drug wasn't worth its monthly treatment cost of $11,000. The manufacturer Sanofi eventually halved the price of the drug. More recently, Gilead Sciences' Sovaldi, which has high cure rates but costs $84,000 for a course of treatment, has become emblematic of the high drug-cost debate, triggering criticism from health insurers as well as lawmakers over the cost of a drug that could be used to treat millions of patients with hepatitis C.

Harris Health System, a public hospital system in the Houston area, is using an additional approach beyond its formulary to make sure outpatient drugs are affordable to its indigent and uninsured patients.

Since 2012, Harris has employed 18 full-time drug replacement analysts, who apply for patient financial assistance programs established by pharmaceutical companies on behalf of patients who meet the qualifications. The program expects to save about $26 million on drug costs this year, up from the roughly $1.2 million it formerly saved on drug replacement costs when it outsourced that function, said Tam Nguyen, Harris Health's director of pharmacy operations.

Harris does not have Gilead Sciences' hepatitis C drug Sovaldi on its formulary. But it has treated 94 patients with Sovaldi after helping them apply for assistance. Gilead provides up to $16,000 for deductibles and coinsurance for patients who qualify. Most pharmaceutical firms offer financial assistance programs that will cover the entire or partial cost of treatment for patients. Drug replacement analysts also work with cancer patients.

“We have to make sure that the resources we use are for the right patient, are the right treatment and the right clinical outcome,” Nguyen said.

Few hospitals say they base their formulary decisions solely on the price of a drug, no matter how expensive it is. Doing so can raise the ire of patients and physicians. “The comparison of clinical effectiveness is always our primary goal,” Nguyen said. “Cost will come as secondary in our decision-making process.”

Harris Health spent about $81 million on drugs in fiscal 2014, with about 60% of that spending going toward outpatient drug costs. It spends about $18 million each year on cancer drugs alone.

The increased alignment between hospitals and physicians, as well as the broader consolidation among hospitals and health systems, has given hospital systems more leverage in seeking to curb cost growth for drugs. For one, it has changed the way pharmaceutical companies market to healthcare providers.

Some drug companies have developed teams of detailers that target hospital administrators, rather than sending sales representatives to meet only with physicians. The drug companies often refer to integrated delivery networks or accountable care organizations as “organized customers,” Barnes said.

An analysis conducted by Capgemini Consulting and Quantia and released in October found that roughly half of 2,200 doctors who work in organized health systems are limited to prescribing drugs that are on the formulary or require prior authorization. Those restrictions tend to be more strict in inpatient settings, where the hospital strives to control costs, the survey particularly found.

Physicians aren't necessarily happy about this trend. In the study on its scoring system for high-cost drugs, Christiana Care said most of its physicians—the majority of whom are independent practitioners—think assessing value is important but disagree about whether the value assessment should take place at the administrative level.

“There are some who view FDA approval as evidence that the medication has value,” they wrote.

Christiana Care's Saltzberg said his system's formulary committee process for vetting drugs hasn't always been easy, especially for the physicians who are requesting certain drugs. “It's been incredibly effective but not without political costs,” he said.

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