Pharmaceutical drug pricing continues to be a high cost driver for many health plans in America, and hospitals are attempting to curb that cost by manufacturing their own generic drugs, as well as seeking out more affordable bulk order supply chains.

According to a recent ABC News report, Civica Rx plans to start manufacturing 14 widely used hospital drugs that have long been in short supply. The company is not disclosing the drug names for competitive reasons, but they include a mix of generic pills, patches and injectables for treating infections, pain and heart conditions.

Another company, Boston-based Partners HealthCare, has launched its own specialty pharmacy and is expecting to save health systems $23 million annually by offering the service in-house, according to The Boston Business Journal.

Partners also plan to improve access to specialty drugs by tracking down how patients currently receive their prescriptions, changing their fulfillment methods and improving oversight of how frequently specialty drugs are prescribed, which is one of the biggest cost drivers for health care.

Deborah Ault, president of medical management firm Ault International Medical Management, says the hospitals she has been working with are seeking new avenues to purchasing drugs through discounted rates, such as purchasing in bulk supply or purchasing from wholesale outlets.

For the employees of the hospital, Ault says the provider can charge themselves whatever the cost of the procurement of the drugs rather than paying at retail price.

“When a hospital buys a drug, depending on what type of pharmacy they are, they are purchasing that drug typically direct from the manufacturer or through a company like Cardinal Health,” Ault says. “The pricing on those options is usually somewhere in the vicinity of wholesale acquisition cost.”

The wholesale acquisition cost is generally the price hospitals must pay to acquire a drug. If the health care provider is purchasing the drug in a higher volume, Ault says it is likely that they will receive an even lower price then that of wholesale.

“For the most common drugs, it really makes sense for the hospitals to pay the manufacturers their procurement costs rather than pay average wholesale price plus or minus depending on how a traditional pharmacy benefit manager contract would be setup,” Ault says.

While many benefit advisors discourage the use of PBMs due to sneaky business practices such as claiming drug rebates from the manufacturers and other third party revenue costs, some independent PBMs, such as Kyle and Ken Fields, brothers and CEOs at Appro Rx, say they encourage hospitals to seek out any drug cost saving strategies they can find whether it is manufacturing their own generic drugs or using wholesale supply chains like Ault's clients.

“We do not have a vested interest in what drugs are filled, where they are filled or how they are filled,” Kyle says. “If a hospital—or a pharmacy, for that matter—can supply their own employees with their own medications that they can produce and buy at a lower rate, why not?”

Ken Fields says when it comes to manufacturing and wholesale purchasing to drive down cost, he is seeing only half his hospital clients take advantage of these options. “Some hospitals are just more engaged with pricing than others, and I do not mean that in a negative way; it comes down to funding and the availability to staff employees to oversee these areas,” he says. “Most of the hospitals are purchasing for their in-patient patients from that level; however they are beginning to crossover into hospital employee health plans in order to purchase and dispense at their own pharmacies.”

Ault and the Fields brothers agree that there are still not enough hospitals utilizing manufacturing or wholesale bulk pricing for Big Pharma to take notice. Advisors who are monitoring these practices are also skeptical that the hospitals are seeking out these options with the intentions to drive down cost.

“Have you ever seen a hospital charge a low fee for a generic drug?” posits Matt Irvine, vice president of sales for the eastern United States at HealthEquity. “They will simply amplify the price and keep all the profit.”

Robson Baker, employee benefits and HR advisor at Clarus Benefits Group, says there is a possibility patients will see a drop in drug cost through these methods, but the amount of changes required from the hospital manufacturers to be considered on the generics list must be considerable.

“The ability for branded manufacturers to make minuscule changes to their drugs will always keep them off the generic list,” Baker says. “For example, changing the coating of the pill. I am sure there will be additional input on the subject as it develops.”

Read more about the battle to tame drug costs:

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Will hospital disruption drive down drug costs?

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