CLEVELAND — Doctors at the University Hospitals of Cleveland see an immediately recognizable symbol pop up alongside certain drugs when they sign in online these days to prescribe medications for patients: $$$$$.
The dollar signs, affixed by hospital administrators, carry a not-so-subtle message: Think twice before using this drug. Pick an alternative if possible.
The Zagat-like approach is just one of the strategies hospitals nationwide are using to try to counter drug costs. It was inspired in part by Shawn Osborne, the University Hospitals system’s vice president of pharmacy services, who saw unexpected price hikes wreak havoc on his budget last year. The increases often involved brand-name drugs with little or no competition as well as commonly used generics around for decades.
Among those tagged were Nitropress and Isuprel, injectable heart medications that are a staple at many hospitals. Their 2015 list prices rose more than 200 percent and 500 percent, respectively, after both were acquired by Canadian-based Valeant Pharmaceuticals.
Hospital officials around the United States point to similar experiences, saying their predicament illustrates one dimension of a broken prescription-drug system.
“There’s been a huge consolidation of these generic companies . . . everybody is buying everybody else,” said Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health. “If there’s no competition, the prices go up. We are seeing a lot of [drug] shortages, and also price increases. That shouldn’t happen, but it is.”
The problems, hospital administrators say, extend well beyond the increases that have grabbed headlines and caused public outrage, most notably the 5,000 percent spike by Turing Pharmaceuticals and its former chief executive, Martin Shkreli, in the list price of a drug to treat the parasitic infection toxoplasmosis. Pharmaceutical mergers and acquisitions, which can be beyond regulators’ reach, are only part of the dynamic. Some companies have raised prices more modestly but repeatedly for a variety of medications old and new, and those increases add up over time.
A recent Bloomberg Business survey of about 3,000 brand-name prescription drugs found that prices had more than doubled for 60 medications since December 2014 and at least quadrupled for 20. It found that prices for many other drugs continued to rise at 10 percent or more annually, particularly as competition waned or patents neared expiration.
A December report from the Department of Health and Human Services inspector general identified a similar trend. Prices rose faster than inflation for nearly a quarter of top generic drugs between 2005 and 2014, even as prices for many other generics remained low.
“The challenge is, you don’t have a crystal ball,” said Jeff Rosner, senior director of pharmacy sourcing and purchasing at the Cleveland Clinic, which last year faced an unexpected increase of more than $8 million after the prices of two heart therapies surged. Rosner said it’s more and more difficult to anticipate how much the institution will spend on the myriad drugs it buys annually.
But that hasn’t stopped him and his counterparts from trying. Nationally, hospitals are aggressively pursuing efforts to anticipate and mitigate drug-cost pressures.
“The target on my back has gotten much bigger, and it was pretty big before,” said Osborne, who knows he must better predict drug spending this year after going roughly $20 million over budget in 2015.
That’s a challenge, given the 6,000 medications the nonprofit system purchases. Hence the addition of “$$$$$” in its electronic records to alert physicians about which are most expensive. Like other facilities, the system dropped multiple budget-busters from its formulary.
Osborne said he now pays as much attention to news about pharmaceutical mergers and acquisitions each week as he does to academic articles about medicines. “Hospitals run on razor-thin margins. When you get surprises, it throws everything off,” he said. “As they say, ‘No margin, no mission.’ ”
Other hospitals have found additional ways to chip away at high drug costs.
At the University of Utah Health Care system, administrators pulled Isuprel off about 100 mobile “crash carts” after its price skyrocketed, said Erin Fox, director of drug information service. Doctors now must specifically request it from the hospital pharmacy.
“Our physicians are pretty annoyed at having to make clinical decisions about drugs they’ve used forever based on cost,” Fox said. “With some of these drugs, there just aren’t good alternatives. That’s what makes it really frustrating.”
Vitamin K tablets, often used to help reverse the effects of the blood thinner warfarin, became a cost concern at the Indiana University Health system. The director of drug-use policy, Jennifer Reddan, said doctors and administrators scrambled after the price rose from a few dollars per tablet to more than $60. Pharmacy staffers began mixing the injectable form, which is less expensive and can be given by mouth, with cherry syrup to create a liquid that patients could take orally.
“Same clinical effect, with a lot lower cost,” Reddan said.
Numerous hospitals scrambled to limit use of intravenous acetaminophen after its price jumped in 2014. They opted for the cheaper pill form, placed restrictions on IV use or encouraged doctors to choose alternative pain relievers.
The pharmaceutical industry has been quick to distance itself from Turing and Valeant. The trade group Pharmaceutical Research and Manufacturers of America, or PhRMA, said last fall that the companies had a “strategy more reflective of a hedge fund than an innovative biopharmaceutical company.”
The industry, meanwhile, notes that drug spending accounts for only about 10 percent of the country’s health-care costs and that published list prices do not reflect the steep discounts and rebates that companies may offer. Hospitals generally purchase drugs from wholesalers at costs below the list price, although wholesale prices are subject to increases.
At a hearing on Capitol Hill last month, Rep. Matthew Cartwright (D-Pa.) questioned Valeant’s interim chief executive, Howard B. Schiller, about the firm’s pricing strategies.
“Because Isuprel and Nitropress are hospital-administered drugs, it is hospitals that are bearing the biggest burden of your price increases,” Cartwright said. “Am I correct in that?”
“That is correct,” Schiller said.
“Given the choice between paying higher prices and risking the lives of their patients, most hospitals choose to knuckle under and pay the price. Am I correct in that?” Cartwright asked.
“I’d assume that is correct, yes,” he replied.
Schiller testified that Valeant had raised its prices after consulting with experts and deciding the two drugs were undervalued. After complaints from hospitals and lawmakers, the company has said it began offering volume-based discounts of 30 percent on both.
Hospital officials insist that even when sudden price increases occur, patients receive access to the medicines they need. But the unpredictable increases wedge their institutions financially, they say: They can’t immediately pass on the cost if a drug gets more expensive because reimbursement rates for certain procedures already have been set by Medicare and private insurers. That means sharply higher prices can lead to losses.
And while patients might not feel an immediate impact, down the road they are likely to pay more in insurance premiums and co-payments.
“Here’s the thing that makes it more challenging: The patient doesn’t initially see the price increase,” said Scott Knoer, chief pharmacy officer at the Cleveland Clinic, which has built an algorithm to monitor drug prices. “But it raises the cost for the hospital. Eventually, it catches up and it raises the cost for insurance companies, which is passed on to employers, employees and taxpayers through higher premiums and co-pays.”
Last year’s headline-grabbing spikes appear to have waned in recent months, perhaps because the issue has come under such an intense public spotlight. “I don’t think you’re going to see these 300, 400, 500 percent increases, at least for a while,” Knoer said, even as he noted one 120 percent hike flagged by the hospital’s new algorithm. “We’ll still see significant increases, but it won’t be so obvious. Prices are not going down.”
A mile away, at Rainbow Babies & Children’s Hospital, part of the University Hospitals system, pediatric infectious disease specialist Frank Esper worries that if the combination of price increases and drug shortages he has seen in recent years continues, he and his colleagues will be forced to change how they practice medicine. And not for the better.
“I want drug companies to make money. I need them to make money, or I don’t have any ammo,” Esper said. “But there has to be a balance, a middle ground. If this keeps happening . . . it’s only a matter of time before we get to a point where we have to choose less desirable medications than what’s out there.”