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Practice Management News

Prescription Drug Costs Projected to Rise by 3.8% in 2020

Premier Inc. forecasts an inflation rate hike of 3.8 percent in FY 2020, resulting in slightly higher prescription drug costs for hospitals and health systems.

Prescription drug costs

Source: Getty Images

By Jacqueline LaPointe

- A national healthcare improvement company and group purchasing organization is projecting a 3.8 percent increase in total prescription drug costs in 2020.

In a recent announcement, Premier Inc. stated that its inflation estimates for contracted and non-contracted drug pricing for the 2020 fiscal year, which runs from July 2019 to July 2020, are slated to significantly increase.

The inflation bump will cause hospital prescription drug spending to rise next year. However, Premier reassured customers that the 2020 inflation rate increase is still about 0.4 percent lower than the company’s projections for the 2019 fiscal year.

The prescription drug cost increase will primarily impact non-contracted items, which are typically on-patent, branded pharmaceuticals that do not go through a competitive bidding process. Premier forecasts costs of those items to rise by 5.3 percent in FY 2020.

On the other hand, on-contract purchases which go through a competitive process will see a net decrease of 0.2 percent.

 “These inflation figures prove that a competitive process for price negotiations with pharmaceutical manufacturers can make a tremendous difference for hospitals and health systems,” Premier’s Chief Operating Officer Michael J. Alkire stated in the announcement.

“By initiating competition between manufacturers for group purchasing contracts, we believe Premier is able to extract best-in-class deals and provide market-leading pricing for our members. Considering the financial pressures facing hospitals and health systems, such as diminishing reimbursement, these aggregate savings are essential to preserving margin and ensuring overall financial health.”

Prescription drug spending is a major expense for hospitals and health systems, and keeping prices low is a top priority for the facilities.

A recent study conducted by NORC at the University of Chicago for the American Hospital Association (AHA), Federation of American Hospitals (FAH), and American Society of Health-System Pharmacists (ASHP) found that the hospital prescription drug spending per admission jumped by 18.5 percent between 2015 and 2018.

Hospitals ended up spending an average of $555.40 per adjusted admission during the three-year period, resulting in about $1.8 million in new drug expenditures for the average hospital.

But the hike wasn’t limited to inpatient admissions. Outpatient prescription drug spending also rose by 28.7 percent during the period, researchers uncovered.

Policymakers are busy finding solutions to lower prescription drug costs for not just hospitals, but also patients.

The Trump Administration released a drug pricing blueprint in May of last year that contained dozens of proposals to lower prescription drug costs. The proposed actions centered on four strategies: boosting competition, improving negotiation, developing incentives for lower drug prices, and reducing patient out-of-pocket costs.

Chief among the proposed actions in the blueprint was reforms to how Medicare reimburses providers for physician-administered drugs. In the fall of 2018, the administration proposed to implement the International Price Index (IPI) model, which would phase down Medicare Part B reimbursement for certain covered drugs to align more with lower international prices.

“President Trump promised that he would bring down drug prices and put American patients first,” HHS Secretary Alex Azar stated in the model’s announcement. “With this innovative approach, he is now proposing historic changes to how Medicare pays for some of the most expensive prescription drugs, securing for the American people a share of the price concessions that drug makers voluntarily give to other countries.”

Providers would also benefit from the IPI model Azar recently said at the 2019 AMA National Advocacy Conference.

“IPI aims to improve a system that currently requires physicians to engage in the costly business of buying and billing for highly expensive drugs,” he explained. “If you have a small practice that uses infusions, and you don’t want to bear the risk of buy-and-bill, now you’re off the hook. We’ll allow you to work with private vendors, who can take the risk for buying the drugs in a way that isn’t possible today.”

“But if you’re part of a much larger practice that’s able to drive a better deal than you could on your own, or want to band together with other practices to do the purchasing, then you can do that, too.”

High drug prices are impacting providers and patients, as well as other healthcare stakeholders. Establishing new ways to acquire, store, and pay for prescription drugs will continue to be a top priority for the current administration.

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