Hospital mark-ups of drug costs—which can be as high as 1,000 percent—is the subject of a new analysis sponsored by the Pharmaceutical Research and Manufacturers of America (PhRMA).

The report, conducted by The Moran Company but commissioned by PhRMA, finds that nearly one in five hospitals in the U.S. mark up medicine prices 700 percent or more. The analysis found that eight percent of hospitals marked up some medicine prices more than 1,000 percent.

“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.”

Using data from the Centers for Medicare and Medicaid services (CMS) the study reviewed costs at 3,792 hospitals and found that on average, hospitals increase the price of medicines nearly 500 percent. The study singled out hospitals that are part of the Medicare 340B drug-pricing program, noting that hospitals on the program receive an average discount of 50 percent on drug prices.

“Markups on medicine prices often lead to higher reimbursement by health plans,” PhRMA said in its release. “More than half of commercial payers reimburse hospital outpatient departments as a percent of billed charges, and uninsured patients face the full charge. Hospitals have incentives to increase markups, as higher charges are associated with greater profitability.”

The American Hospital Association fired back at PhRMA, saying, “This is typical finger-pointing by drug companies to try to divert attention away from their own skyrocketing prices.”

However, questions about the 340B program have been raised before. As reported by STAT, a website that covers the pharmaceutical industry, the program has become controversial and that Congress is considering changes. “The program, enacted with bipartisan support in 1992, has noble intentions. Estimates suggest the program saved participating entities up to $6 billion on drug acquisition costs in 2015. These savings provide a critical buffer to the cost of taking care of high-risk, high-need populations,” the STAT article says.

However, the article adds that lawmakers are worried that despite the good intentions of the program, it has grown large and unwieldy. A bipartisan bill to overhaul the program is currently being considered. “Sen. Bill Cassidy (R-La.), … warned that 'too often the program's discounts are used to pad hospitals' bottom lines instead of helping disadvantaged patients afford their treatments,'” the article said.

The AHA, for its part, supports regulatory changes that would punish manufacturers for overly-high drug costs. In an article posted last spring to HealthCare Dive, an AHA official noted that the regulatory fixes designed to bring more transparency to drug pricing has been opposed by PhRMA.

“The 340B ceiling price and civil monetary penalties rule were intended to shine needed light on drug manufacturer price increases and hold drug manufacturers accountable for price overcharging,” said Tom Nickels, executive vice president at AHA. “The irony is not lost on us that drug manufacturers continue to lobby for increased reporting for hospitals and others while refusing any transparency on their part.”

Instant Insights /

Pharmaceutical industry takes aim at hospital drug markups in new study

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