When drug costs rose $20 million in one year for Beaumont Health in suburban Detroit, CEO John Fox asked executives like Kathy Pawlicki, vice president for pharmacy, why and what could be done about it.
The answer? Not much. Leading factors for drug price increases are mostly out of providers' control, including such recent trends as hedge funds acquiring generic-drug companies and then forcing up prices.
Double-digit price increases have not affected just hospitals, but also clinics, insurers and retail pharmacies, experts said.
Bob Kirby, corporate director for Chicago-based Fitch Ratings, said prices of such injectable heart medications as Nitropress and Isuprel doubled after Valeant Pharmaceuticals acquired the parent companies last year.
Pfizer, Amgen, Allergan, Horizon Pharma and others have raised U.S. prices by up to 10 percent for dozens of branded drugs since last fall. Some drug prices might be discounted with rebates offered to insurers, other payers and group purchasing organizations.
"We are seeing specialty pharma firms buying products or companies and then jacking up the price significantly," Kirby said. "In some cases, consolidation is driving up the increases. Some drugs used in hospitals are only manufactured by a small number of companies."
Total U.S. prescription-drug spending rose 12.2 percent in 2015, accelerating from 2.4 percent growth in 2014, the Centers for Medicare and Medicaid Services said.
But rising drug costs also can be attributed to an increased volume of patients because of Healthy Michigan Medicaid expansion, an improving economy and newer specialty, biotech and personalized medicine drugs, Pawlicki said.
"We have really seen significant increases the past few years. Last year was just intensified and much larger than in the past," Pawlicki said.
Last year, Beaumont spent about $250 million for pharmaceuticals, but this year costs are projected to rise above $270 million, an 8 percent increase, she said.
"The majority of the price increases are for existing drugs, but we also are paying higher prices than usual for newer biotech drugs that are coming into the market," she said. "We have approved 13 new biotech drugs, and we estimate spending about $14.3 million. This is to treat 476 patients, usually in an infusion center, for a chronic disease or oncology."
Executives at St. John Providence Health System and St. Joseph Mercy Health System in Ann Arbor also confirm high drug prices are becoming a problem. St. John's average pharmacy prices are up 13 percent this year, and St. Joe's projects more than a 10 percent increase, up from 5 to 7 percent in recent years, executives said.
Generics made only by a single source, such as Daraprim, are increasing in price without warning due to lack of competition, said Chris Cook, St. Joseph Mercy's regional director of pharmacy.
"Specialty medications for complex disease states such as HIV or cancer are high-technological products and very expensive," said Cook, adding that oncology medications are "not only expensive but the utilization is rising as we get better at detecting and treating more cancers."
Experts project that by 2020, specialty drugs will make up 50 percent of all medication costs nationally, including hospital, retail and clinics, rising from $98 billion spent in 2016 to $212 billion in 2020.
Last year, the Food and Drug Administration approved 45 novel medicines for marketing. Biologics accounted for 12 of the 2015 approvals versus 10 during 2014. More than half were drugs to treat cancer (33 percent), cardiovascular disease (17 percent) and infections (8 percent).
In May, Pfizer agreed to acquire Anacor Pharmaceuticals for $5.2 billion to gain control over its eczema treatment, Crisaborole, which has projected annual sales of $2 billion. But U.S. regulators recently nixed the merger of Pfizer and Allergan.
Other recent targeted transactions include Bristol-Myers Squibb's acquisition of Padlock Therapeutics, which could expand its presence in the treatment of rheumatoid arthritis, and Eli Lilly's acquisition of Glycostasis Inc., which is seeking to develop a form of insulin that self-releases when a diabetic patient's blood sugar level is too high. In addition, Merck bought IOmet earlier this year, adding new immune-oncology technology to its portfolio.