Drug company business practices drive up hospital costs

A relatively new practice in the pharmaceutical sector--buying rights to older drugs and dramatically increasing their prices--puts financial pressure on hospitals and other providers, the Wall Street Journal has reported.

The companies say they snap up rights to existing drugs and raise prices in order to service the interests of shareholders and that the prices actually reflect their value to patients. However, some of the price increases are quite dramatic. For example, two old-line heart drugs, Nitropress or Isuprel, rose in price 525 percent and 212 percent, respectively, after their rights were purchased by Valeant Pharmaceuticals International, according to the Wall Street Journal. After Mallinckrodt PLC acquired Cadence Pharmaceuticals, prices for its Ofirmev pain injections almost immediately doubled.

 "It seemed like highway robbery," Erin Fox, director of the drug information service at University of Utah Health Care system, told the Wall Street Journal. Its four hospitals began spending an additional $35,000 a month combined on Ofirmev, prompting it to seek less pricey alternatives.

Some other drug manufacturers have also changed their wholesale distribution channels, driving up prices as well.

While the drug price increases have still had a minimal impact on overall healthcare spending--the result of several big name drugs going off patent-- hospital managers told the publication that they are worried about what the trend will create down the line.  For example, the Cleveland Clinic pharmacy officer told the Wall Street Journal that the Nitropress and Isuprel price hikes sent its overall pharmaceutical costs up 7 percent this year, or $8.6 million. It also canceled out the hospital giant's plans to lower its drug budget by $10 million.

Some hospital systems have taken active steps against the drug companies, with Ascencion Health banning sales representatives after prices for some cancer drugs spiked, Kaiser Health News reported.

But other hospital systems have been contributors to the drug pricing trend as well, with cancer drug costs often increasing after they purchase previously independent oncology practices.

To learn more:
- read the Wall Street Journal article 
- here's the Kaiser Health News article