Hospital Markups of Prescription Drugs Are Really Pretty Unbelievable

Yeah, I know I said yesterday that we should all prepare for a slowdown. I shouldn’t have taunted the universe like that. There’s nothing huge today, but that doesn’t mean there isn’t a fair amount catching my eye. Anyway …

The drug-pricing issue with the lowest publicity-to-impact ratio is probably hospital markups. I mean, if you think that drugs are overpriced (I don’t think that, but maybe you do), then you should be beyond livid that hospitals are taking those prices and tripling them. Or quadrupling them. Or whatever-comes-after-quadrupling them.

PhRMA has been on the case here for a while, and they’ve updated their semi-regular analysis of the space with a new Moran Company report that looks at the 20 hospital-delivered medicines with the biggest spending footprint.

The headline is that hospitals -- on average -- are reimbursed by commercial payers at 180% of what they pay to acquire medicines. They actually try to charge even more, with an average change that is 500% of the acquisition cost, but payers negotiated down to “only” 180%. Still.

I have to give Moran/PhRMA credit here: this is not exaggeration to make a point. This is a massively conservative estimate because it doesn’t include the discounts that a lot of these hospitals get under 340B discounts. (For an analysis of what this looks like for cancer drugs, this 2021 report from the Community Oncology Alliance drives home the point.)

I don’t want to encourage too much wishful thinking about how CMS is going to set prices under the IRA, but it is useful to ask a simple, baseline question: what are the smallest discounts the government can seek under the law?

That gives a sense of the lower bound to the question of “how bad will it be.”

In a lot of the coverage of the subject, reporters give the minimum percentage discounts mentioned in the statute: a 25% discount for meds that have been on the market for 11 years or fewer, a 35% discount for those on the market between 12 and 15 years, and a 60% haircut for drugs that have been around long.

But there is a big asterisk: for rebated medicines, the minimum discount reflects the actual net price, if the average discount is bigger than the ones detailed under the law. The issue, of course, is that no one can be certain about net price, so we’re left guessing.

But it’s worth guessing, because even a ballpark sense of net prices will help determine whether the government can/will get meaningfully larger discounts than the ones that have already been negotiated.

There have been two papers this year that try to guess the net prices for the first 10 medicines to face price controls: the Journal of Managed Care and Specialty Pharmacy piece I talked about yesterday, and this JAMA Internal Medicine paper from April. For reference, here are their net price estimates:

• Merck told analysts that they’re hoping for resolution of their IRA lawsuit “by the time we get into the 2026 time frame.”

• JAMA has a piece on “continuation patents” by … wait for it … the Harvard PORTAL folks (and Sean Tu from West Virginia University College of Law). I’m not sure what the exact policy pullthrough will be, but suffice it to say that IP mavens should add continuation patents to the list of things to bone up on.

• There is a worthwhile snapshot of the specialty drug market from Pharmaceutical Strategies group. Prices are up a little (3.9%), but the biggest reason that spending is up is that utilization rose by almost double-digits. Wonks will be interested to see the way that specialty meds are increasingly moving into the pharmacy benefit, where payers can exert a lot more control.

• Here are BIO’s comments on the Senate request for thoughts about 340B reforms. There are now a handful of groups that have published their letters to Congress, so I’ll try to pull a list together this week. If you don’t want to wait, there is a Bloomberg Law story about the feedback out this morning, but I’m not sure that it gets particularly deep.

• There is a Wall Street Journal story out this morning about employers cutting off access to weight-loss meds. I don’t want to throw shade, but the two big examples in the WSJ piece -- University of Texas and Ascension -- were featured in an Insider story two weeks ago.

• KFF Health News ran a piece warning that the broader availability of Leqembi for Alzheimer’s will mean billions more in Medicare spending while exacerbating inequities in the system. My contention remains that these meds will be modest successes with utilization rates that won’t be high enough to trigger the armageddon scenarios that undergird so much of the media attention.