PhRMA says Hospitals Hike Patients' Drug Prices, Reap Profits

The accusations come just days after a RAND Corporation report noted that U.S. consumers pay 2.56 times more for prescription drugs than consumers in 32 other nations.

Hospitals are making big bucks by jacking up the price of prescription drugs and passing that inflated cost along to patients and their employers, according to a new report from the Pharmaceutical Research and Manufacturers of America.

The report claims that hospitals use a murky and confusing set of pricing schemes to routinely extract "two to three times more revenue from the sale of a medicine than drug makers" using markups, hospital consolidation, the 340B program, and other tactics.

The accusations levelled in the PhRMA report are the latest round in a finger-pointing blame game between payers, providers, and drug makers, that ultimately ends with consumers picking up the tab.

Last month, a RAND Corporation report noted that U.S. consumers pay 2.56 times more on average for prescription drugs than consumers in 32 other nations. That gap is even wider for brand-name drugs, with U.S. prices averaging 3.44 times those of other nations in the  Organisation for Economic Co-operation and Development, RAND found. 

"Brand-name drugs are the primary driver of the higher prescription drug prices in the United States," said lead author Andrew Mulcahy, a senior health policy researcher at nonprofit, nonpartisan RAND.

Many of the accusations levelled in the PhRMA report have been raised for years. A spokesperson for the American Hospital Association declined to comment and said they were still reviewing the report.

PhRMA President and CEO Stephen J. Ubl said the report shows that "many actors – including hospitals, insurers and other middlemen – influence what patients pay out of pocket for prescription medicines."

"In recent years, nearly half of spending on brand medicines went to someone other than the research companies that developed the medicines," Ubl said. "This new report brings transparency to the role hospitals often play in determining the cost of medicines and ultimately what patients pay out of their own pockets."

According to PhRMA, hospitals routinely inflate the price of drugs to commercially insured outpatients, forcing commercial payers to reimburse hospitals at rates nearly 250% of the amount paid by the hospital to acquire the medicine

"These routine markups increase costs for patients and employers and the amount a hospital receives from administering a medicine may exceed the net revenue earned by the manufacturer who researched and developed the medicine," PhRMA said. "The way in which hospitals set their prices is often opaque and unclear to patients, whose own out-of-pocket costs can be influenced by the rates charged by the hospital."

The drug makers' lobby also alleges that hospital consolidation means patients and payers are paying more for care, because bigger health systems can leverage their volumes to extract higher prices from commercial plans.

PhRMA also cites a report suggesting that original intent of the 340B drug program to provide discounts for safety net hospitals that care for poor and indigent patients has been twisted into a financial windfall for large hospital systems, for-profit pharmacies and pharmacy benefits managers, all at the expense of patients. According to the Health Resources & Services Administration, the number of registered 340B offsite outpatient sites grew from 34 in 1994 to more than 28,000 in 2020, but there has not been similar growth in care for vulnerable patients.