Advisors who are monitoringhospitals' drug supply tactics are skeptical that thehospitals are seeking out these options with the intentions todrive down costs. (Photo: Shutterstock)

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

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

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Related: Vermont's first-in-nation law facilitates import ofCanadian drugs

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

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

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Deborah Ault, president of medical management firm AultInternational Medical Management, says the hospitals she has beenworking with are seeking new avenues to purchasing drugs throughdiscounted rates, such as purchasing in bulk supply orpurchasing from wholesale outlets.

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For the employees of the hospital, Ault says the provider cancharge themselves whatever the cost of the procurement of the drugsrather than paying at retail price.

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

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

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“For the most common drugs, it really makes sense for thehospitals to pay the manufacturers their procurement costs ratherthan pay average wholesale price plus or minus depending on how atraditional pharmacy benefit manager contract would be setup,” Aultsays.

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While many benefit advisors discourage the use of PBMs due tosneaky business practices such as claiming drug rebates from the manufacturers and otherthird party revenue costs, some independent PBMs, such as Kyle andKen Fields, brothers and CEOs at Appro Rx, say they encouragehospitals to seek out any drug cost saving strategies they can findwhether it is manufacturing their own generic drugs or usingwholesale supply chains like Ault's clients.

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

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Ken Fields says when it comes to manufacturing and wholesalepurchasing to drive down cost, he is seeing only half his hospitalclients take advantage of these options. “Some hospitals are justmore engaged with pricing than others, and I do not mean that in anegative way; it comes down to funding and the availability tostaff employees to oversee these areas,” he says. “Most of thehospitals are purchasing for their in-patient patients from thatlevel; however they are beginning to crossover into hospitalemployee health plans in order to purchase and dispense at theirown pharmacies.”

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Ault and the Fields brothers agree that there are still notenough hospitals utilizing manufacturing or wholesale bulk pricingfor Big Pharma to take notice. Advisors who are monitoring thesepractices are also skeptical that the hospitals are seeking outthese options with the intentions to drive down cost.

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“Have you ever seen a hospital charge a low fee for a genericdrug?” posits Matt Irvine, vice president of sales for the easternUnited States at HealthEquity. “They will simply amplify the priceand keep all the profit.”

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Robson Baker, employee benefits and HR advisor at ClarusBenefits Group, says there is a possibility patients will see adrop in drug cost through these methods, but the amount of changesrequired from the hospital manufacturers to be considered on thegenerics list must be considerable.

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

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Read more about the battle to tame drugcosts:

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