Providers pinched by rising drug costs, looming policy changes
Not-for-profit and public hospitals are reining in their spending as they cope with rising drug prices and proposed cuts to the 340B program that threaten to batter their margins.
The gap between growth in not-for-profit and public providers' revenue and supply costs widened between 2015 and 2016, according to a report from Moody's Investors Service. Total drug spending rose by 8.5%, which marks a slight decline in sharp spending spikes, but could trend higher if the CMS' proposal to reduce outpatient drug reimbursement to 340B hospitals by about 30% comes to fruition.
More than 90% of surveyed hospitals said recent drug price increases have had a moderate to severe effect on their ability to manage patient-care costs, Moody's found. Providers said these factors, coupled with looming policy uncertainty, are causing them to cut back capital expenditures that would help them operate more efficiently and effectively.
"It's hard to envision the kind of capital expenditures necessary to modernize a lot of aspects of our healthcare system that advantage patients," said Dr. Kenneth Davis, CEO of Mount Sinai Health System in New York City.
Even bigger systems in large metro markets are dealing with operating margins that are stretched thin, according to Valerie Breslin Montague, a partner at the law firm Nixon Peabody.
"Rising drug costs add to the challenge of remaining competitive and being able to serve patients with complex medical conditions," she said.
Providers like the University of Utah Health system will keep working to identify high drug costs, minimize their use or find alternatives that do not compromise outcomes, said Erin Fox, who directs the Drug Information Center at the university.
"Some drug prices for hospitals are beginning to slow, but I am still very concerned," she said.
There are issues like the Food and Drug Administration's Unapproved Drugs Initiative that still need to be addressed, Fox said. The initiative, which aims to protect patient safety by pulling drugs not cleared by the FDA off the market, increases drug prices by about 37%, research shows.
Inpatient drug spending has been rising by an average 23.4% annually, according to the Moody's report. Moody's researchers said they expect that incline to soften amid the growing scrutiny of drug companies' pricing strategies and increased competition from generic drugs.
"Still, prices are rising way ahead of inflation," said Scott Knoer, chief pharmacy officer at the Cleveland Clinic.
If the 340B drug discount program is rolled back, the consequences would be particularly devastating for safety-net providers, experts said.
"The deep cuts proposed for the 340B program will have a significant impact on those facilities that treat low-income patients and may impact their ability to provide other safety-net services if more resources need to be allocated toward drug costs," Montague said.
An edited version of this story can also be found in Modern Healthcare's Oct. 9 print edition.
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