So far this year, higher pharmaceutical prices and expansion added to Memorial Sloan Kettering Cancer Center's expenses, which have grown faster than revenue and weakened the system's margin.
The New York-based system ended the first nine months of the year on Sept. 30 with an operating margin of 5.3% as drug costs soared nearly 19% and labor costs climbed 11%. That's compared with an operating margin of 6.6% for the same period a year ago.
Newly approved treatments and a “significant market price increase” for a drug used by many chemotherapy patients boosted the system's spending. The system said it also saw a higher volume of patients. That spike was in part due to the expansion of Memorial Sloan Kettering in West Hanison, N.Y., and Manhattan.
Memorial Sloan Kettering brought on more full-time staff to meet new capacity, and compensation and fringe benefit expense increased 11% to $1.46 billion. Another new location, the Josie Robertson Surgery Center in Manhattan, is scheduled to open next year and also added to the system's rising labor costs through September, according to the financial statements.
Nationally, drug price growth has accelerated and healthcare hiring has grown in the last year. Other systems have reported how those same trends are hurting margins. Nashville-based HCA said in the third quarter that the improved economy has created more labor demand. Providence Health & Services in Renton, Wash., said the system relied more on contract labor, which increased its costs by $85 million.
Memorial Sloan Kettering said labor costs increased by $144.8 million compared with the prior year. Overall, the system's operating expenses grew at the same rate to $2.54 billion.
Supply costs rose by $96.9 million, an increase of about 13%. Fast-growing pharmaceutical spending accounted for more than half that year-over-year increase, or $53.9 million.
Volume pushed revenue up by 9.4% to $2.69 billion for the nine-month period.