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Hospitals And Pharmacies Grapple With Rising Drug Prices

Fed up with the rising price of drugs, Ascension Health last month did something unusual. It publicly banned a drug company’s sales reps.

The reason: The company had reclassified three cancer drugs, causing prices to spike.

In a memo to employees, Dr. Roy Guharoy and Michael Gray, two top executives with the Edmundson-based hospital chain, explained: “Already scarce resources will need to be stretched with potential serious impact on the range and breadth of health services we currently provide to our patients and our communities.”

The move proved largely symbolic.

Ascension, the nation’s largest nonprofit health care system, can’t stop buying the needed medications. And the drugmaker, Genentech, defended the reclassifications, saying it was done to ensure the safety of the drugs.

Still, the dust-up did succeed in sending a message to the pharmaceutical industry, says Nick Ragone, Ascension’s chief communications officer: Think twice before raising prices.

“The effect of the ban has been to galvanize other provider systems to speak out against these arbitrary and debilitating price increases,” Ragone said.

The message appears to be getting through.

On Capitol Hill, several congressmen just announced plans to hold hearings on rising drug prices.

Separately, the U.S. Department of Justice is investigating price hikes in generics, and issued subpoenas to two generic drugmakers, according to a report in the Wall Street Journal.


Every provider — from big chains, such as Ascension and Creve Coeur-based SSM Health, to much smaller players, such as St. Anthony’s Medical Center in St. Louis and Ladue Pharmacy — can point to recent drug price increases.

For example, St. Anthony’s says it is paying substantially more for doxycycline hyclate, a generic antibiotic that has been on the market for years, according to Dan Johnson, pharmacy director.

St. Anthony’s didn’t provide pricing specifics. But a statement last week issued by a congressional committee said the price of a bottle of doxycycline hyclate shot up to $1,849 from only $20 in fall 2013.

Over at SSM, the pricing problem continues to grow. “It’s always been a small issue, it just seems like there are more and more items that are heading in this direction, and creating a substantial problem for us,” said Tim Roettger, vice president of pharmacy services for SSM in St. Louis.

A year ago, Ascension paid $2.89 for a 45-gram tube of a generic topical steroid cream, clobetasol propionate. The health system is now paying $198.64 for the same tube.

Those kinds of increases add up. With a network of more than 131 hospitals across the country, Ascension’s spending on drugs has risen by $36 million, or 9 percent, in the last year. Two-thirds of the overall increase — $23.5 million — could be attributed to costlier generics, said Mary Ella Payne, Ascension senior vice president of advocacy.

“We can’t absorb these prices,” Payne said.

Ascension’s size gives it more leverage than most other hospitals, especially independent ones, to bargain with pharmaceutical manufacturers on prices. Still, Ascension’s scale has done little to curb the price hikes, Payne said.

And just because Ascension is paying more for generics doesn’t mean it will be paid more for their services by insurance companies to reflect the full cost of the drug.

“For inpatient care, hospitals are typically reimbursed on a per-procedure basis, so higher generic drugs costs could not necessarily be passed on to the payer,” said Adam Fein, president of Pembroke Consulting Inc.

What Fein means is that commercial insurance companies and Medicare already have set prices in place for each procedure or visit to a hospital. So even if a hospital were to bill the insurance carrier more to reflect the higher cost of a drug, it doesn’t mean the hospital will get paid what it actually bills the carrier.

An analysis published by Fein, considered an industry expert on the economics of the pharmaceutical industry, shows retail prices for generics have increased and in some cases there were “mega increases.”

But the impact isn’t limited to hospitals.

Rick Williams, owner of the independent Ladue Pharmacy, has been affected by the price hikes as well. Sometimes acquiring a drug costs more than how much he is paid by insurers for selling it to customers.

“Number one: We take care of our customers,” Williams said. “And we’re going to take it on the chin for them sometimes.”


The price increases are getting attention on Capitol Hill, though it’s unclear what policy prescriptions a lame duck Congress can provide.

U.S. Sen. Bernie Sanders, the independent from Vermont, and Rep. Elijah Cummings, D-Md., announced they will hold a hearing this Thursday on “skyrocketing” prices for generics, like digoxin, a medication used to treat congestive heart failure, which went from 11 cents a pill in October 2012 to $1.10 a pill in June.

“These huge price increases are affecting the pocketbooks and health of millions of Americans,” Sanders and Cummings said in a joint statement.

The lawmakers are likely to hear examples of how drug prices are rising; they’re unlikely to get a clear explanation why.

Some industry analysts point to shortages as one of the major causes for price hikes, and those shortages can occur when manufacturers either incur problems making the drug or quit making it altogether. And when there are fewer manufacturers, it can cause a domino effect in the market as other manufacturers are left to pick up the slack to cater to remaining demand. Price hikes result.

But that’s how a free market works, said Ronny Gal, pharmaceutical industry analyst with Sanford C. Bernstein & Co.

“There are shortages, and some generic drug manufacturers are being opportunistic,” Gal said. But that’s not illegal.

As health care costs rise, the drug manufacturers are continually being squeezed to lower prices by everyone from retailers, hospitals to group purchasing organizations. That pressure on margins causes some to leave a certain drug behind, said Scott Griggs, assistant professor of pharmacy administration at St. Louis College of Pharmacy.

“With consolidation they are trying to become more efficient, they are trying to maintain their profits — but they’re also at the same time trying to make sure that they are utilizing the lines that will allow them the highest profits,” Griggs said.

Yet, over time, generics have saved the industry and consumers billions of dollars, the Generic Pharmaceutical Association said.

“Generic medicines are a critical part of systemwide efforts to hold down health care costs,” Ralph G. Neas, president and CEO of the association, said in a written statement. Citing a study by IMS Institute for Healthcare Informatics, Neas said generics saved $209 billion in 2012, $239 billion 2013 and more than $1.46 trillion over the last decade.

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