Prescription Drugs

Drug Prices

The price of prescription drugs has rapidly increased over the past several years. These price increases have negative impacts throughout the health care system. They not only threaten patient access to drug therapies, but also challenge providers’ abilities to provide the highest quality of care. Drug costs also are a major factor in the rising cost of health care coverage.

Hospitals bear a heavy financial burden when the cost of drugs increases and must make tough choices about how to allocate scarce resources. Managing these rising costs forces difficult choices between providing adequate compensation to employees; upgrading and modernizing facilities; purchasing new technologies to improve care; or paying for drugs, especially when these price increases are not linked to new therapies or improved outcomes for patients.

Impact on Hospitals

In 2016, the Federation of American Hospitals and the American Hospital Association commissioned a study to better understand how drug prices are changing in the inpatient hospital setting. The study found:

  • Average annual inpatient drug spending increased by 23.4% between FY2013 and FY2015.
  • Inpatient drug spending increased on a per admission basis by 38.7% during the same period.
  • Growth in unit price — not volume — was primarily responsible for the increase in total inpatient drug spending.
  • Over 90% of surveyed hospitals reported that inpatient drug price increases had a moderate or severe effect on their ability to manage costs.
  • Due to delays in refreshing the pharmaceutical index, Medicare reimbursement cannot keep pace with rapidly increasing drug prices.
  • The growth in spending on inpatient drugs exceeds the growth in spending on retail drugs.
  • Price increases appear to be random, inconsistent and unpredictable: Large unit price increases occurred for both low- and high-volume drugs and for both branded and generic drugs. About half of the drugs sampled had no generic competition.

In 2019, FAH and AHA issued a follow-on study to the 2016 study, examining not only inpatient spending but also the impact on outpatient spending and the impact of drug shortages. The study found:

  • Average total drug spending per hospital admission increased by 18.5% between FY2015 and FY2017.
  • Outpatient drug spending per adjusted admission increased 28.7%, while inpatient drug spending per admission increased 9.6% during the same period.
  • Payers are unable to keep up with rising drug costs; e.g., the growth in expenditures per hospital admission on inpatient drugs exceeded the Medicare reimbursement update five-fold during the study period.
  • Hospitals experienced price increases in excess of 80% across different classes of drugs, including those for anesthetics, parenteral solutions, opioid agonists and chemotherapy.
  • Over 90% of surveyed hospitals reported having to identify alternative therapies to mitigate the impact of drug price increases and shortages.
  • One in four hospitals had to cut staff to mitigate budget pressures.
  • Hospitals report that drug shortages put patient care at risk and create additional burden and cost. 

FAH is committed to supporting market-based reforms that help combat these rising prices by increasing transparency, promoting competition and innovation, and improving value. As such, FAH is a member of the Campaign for Sustainable Rx Pricing, a group comprising providers, patient organizations and insurers committed to finding solutions to the problem of rising drug prices. More information about CSRxP and solutions to this problem can be found here.