Dartmouth, other NH hospitals hit by rising costs of pharmaceuticals

  • One of the rooms at the Yellow Pod in the emergency department of Concord Hospital. Yellow Pod is not intended to be an inpatient unit. The rooms are meant to be a place where people suffering from mental illness that pose a threat to themselves or others can wait for an opening at the state hospital. Stays in the room have become longer and longer because of a shortage of availability. Andrea Morales

Monitor staff
Published: 10/23/2016 10:55:45 PM

Random and unpredictable spikes in drug costs are biting into the operating budgets of New Hampshire hospitals, and consumers ultimately end up paying the price, health care officials say.

Whether drugs with high price tags are filled at the pharmacy or used during a hospital stay, the rising costs hit patients in the form of direct out-of-pocket expenses, or indirectly through higher insurance rates.

“Medications have really become expensive,” said Dartmouth-Hitchcock Hospital CEO Dr. James Weinstein. “That really wasn’t part of the Affordable Care Act, so what we actually have to pay for drugs has gone way up.”

When Dartmouth-Hitchcock announced last month that it would have to lay off dozens of staffers due to overestimating its revenue while overspending, one of the factors owing to the high spending was expensive pharmaceuticals.

“We’re trying to get paid more, they’re trying to pay less,” Dartmouth-Hitchcock Chief Pharmacy Officer Tom Siepka said of insurers. “The increases obviously have an effect.”

Indirectly, patients end up picking up the tab.

Rising costs “erode our margin and we end up trying to negotiate higher payments with the insurers, who then likely offset those by increasing premiums to employers and employees,” Siepka said.

New Hampshire already has some of the highest insurance premiums in the country, and rates continue to go up.

For example, premiums on plans available on the health insurance market place through the Affordable Care Act are expected to increase by more than 10 percent for two of the state’s largest insurers (13.9 percent for Anthem and 11.1 percent for Harvard Pilgrim), according to healthinsurance.org.

And executives from both Anthem and Harvard Pilgrim told New Hampshire Business Review they blame drug costs for some of the increases.

Beyond premiums, patients are more directly affected by drug price right at the pharmacy. The cost of common, everyday prescriptions including EpiPens, asthma inhalers, antibiotics and insulin can increase exponentially, and without warning.

“Patients will be at the pharmacy and say, ‘Gee, did you know this inhaler is so expensive, do I have any other options?’ ” said Dr. Tanja VanderLinde, Concord Hospital’s physician adviser for population health. “Same thing for antibiotics, ‘I can’t afford this antibiotic, what else can I take?’ ”

That situation “makes all of us choose less expensive medicines but a lot of times there are not less expensive medicines,” VanderLinde said.

Rising drug costs

A recent study commissioned by two of the country’s biggest hospital lobbies found that inpatient drug spending increased an average 23.4 percent annually, and on a per admission basis, by 38.7 percent.

Furthermore, the study found the spending increase was driven by price, rather than the quantity of drugs consumed.

At Dartmouth-Hitchcock, medication costs have risen about 43 percent over the past few years, not including drugs at its in-house pharmacy. Reimbursement rates haven’t kept up, and the hospital is losing about 8 percent per year in reimbursements from Medicare, Medicaid and commercial insurers.

Siepka said he’s seen the cost of pharmaceuticals and generics rise over the past decade.

“I think it’s been a steady increase over the past 10 years,” Siepka said, adding that in the decades before, prices had actually been trending downward.

“That’s kind of reversed (in) the last eight to 10 years,” he said.

Some of the drugs that carry high price tags are more advanced, specialty medications like Harvoni – a drug developed to cure Hepatitis C. Harvoni costs about $100,000 for an eight-pill treatment.

Others are for more routine ailments.

Mylan Pharmaceuticals, the maker of EpiPen, came under fire this year when the price of the life-saving auto-injector increased six-fold.

In addition, heart medication Isuprel used to cost $180 per vial. In recent years, that price has grown to more than $1,000 after the drug was acquired by Valeant Pharmaceuticals.

“The only change they had was new ownership,” Siepka said. “That becomes difficult for organizations. It becomes difficult for employees, dependents and insurers.”

Valeant came under fire last year for increasing its drug prices and was the subject of an investigation of state attorney’s offices in New York City and Massachusetts.

Lakes Region General Hospital in Laconia and Franklin Regional Hospital combine to spend about $1 million per month on pharmaceuticals. Together, the two hospitals make up Lakes Regional General Healthcare.

“The price goes from a few dollars to sometimes hundreds and thousands of dollars,” said LRG Healthcare Vice President of Clinical Services Marge Kerns. “It’s just unbelievable what that does when you need that particular drug.”

Kerns said she sees three factors contributing to rising costs, including less competition, drug shortages and the increase of newer “specialty drugs.”

Shrinking numbers of generics have led to drug companies having monopolies on certain drugs and the ability to set prices accordingly.

“It allows one company to get the whole market so you’ve decreased competition,” she said.

Special drugs, extra special prices

The Pew Charitable Trusts define specialty drugs as medications that cost more than $600 per month. For some chronic health conditions, the price tag for a year of treatment with a specialty drug can cost more than $100,000.

Specialty drugs also account for a huge portion of drug expenditures; analysis from Pew showed that while specialty drugs amounted to less than one percent of all prescriptions written, they made up about 32 percent of total drug expenditures. In 2012, that drug spending clocked in at $87 billion; it’s estimated to rise to $400 billion by the end of the decade.

Furthermore, the use of specialty drugs has been on the rise over the past decade and is expected to keep going up.

In 1990, just 10 specialty drugs were on the market but by 2015, there were about 300. Today, nearly 700 more are under development.

For smaller health systems like LRG Healthcare in Laconia, that forecast is not good.

“We’re not a teaching hospital. We’re following standards of care from larger institutions,” said Henry Lipman, senior vice president of financial strategy and external relations at the Lakes Region system.

Lipman and Kern said they aim to always have doctors treat patients with the cheaper drugs, as long as those drugs are effective.

“If one is clinically superior, you don’t really have a choice,” Kern said. “You’re going to bear the brunt of those costs in drug pricing, but that’s the pathway to better treatment.”

LRG Healthcare also sometimes partners with other hospitals to reduce drug prices.

Dartmouth-Hitchcock is the largest health system in New Hampshire, and because of its size, there are ways it can deal with rising costs.

It is part of Vizient Inc., a member-owned health care services company that can negotiate drug prices on behalf of its members.

The hospital is also a rural referring center, which means it is eligible for special pricing.

Though they are able to manage some costs, Siepka said the hospital still gets hit with high price tags and inflation.

“The definition of expensive seems to be getting redefined,” he said.

Key findings

The amount hospitals spent on inpatient drugs per admission rose by an average of 38.7 percent between 2013 and 2015.

In the same time period, the average annual inpatient drug spending increased by 23.4 percent.

Researchers said the price hikes “appear to be random, inconsistent and unpredictable.”

About half of the drug price hikes reported were for drugs with no generic competitors.

(Ella Nilsen can be reached at 369-3322, enilsen@cmonitor.com or on Twitter @ella_nilsen.)




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