🔒CT hospitals seek cure for rising drug costs

The Connecticut Hospital Association (CHA) in December released a report that said health systems in the state “continue to face extraordinary financial pressures.”

Even if there were a magic pill to relieve those pressures, chances are pretty good that hospitals would have trouble affording it.

The state Office of Health Strategy says hospital expenses have spiked by $3.3 billion since before the COVID-19 pandemic, while revenues have not kept pace. The result was a statewide hospital operating margin of -1.3% in fiscal year 2022 that improved just slightly in fiscal 2023 to -0.5%.

Still, the total operating loss for all Connecticut hospitals in fiscal 2023 was $76 million, the CHA said.

The rising cost of prescription drugs is one reason for that.

According to an October 2023 report from the U.S. Department of Health and Human Services, from January 2022 to January 2023, “more than 4,200 drug products had price increases, of which 46% were larger than the rate of inflation.”

The average drug price increase during that timeframe was 15.2%, “which translates to $590 per drug product,” the report states.

It adds that high prescription drug prices “create affordability challenges for patients, health care payers, employers, and taxpayers.”

In its report, CHA said drug costs in Connecticut grew by 10%, or $249 million, from fiscal year 2022 to 2023.

Hospital officials say there are a variety of reasons for the rise in prescription drug prices. They also say they are doing what they can to manage costs, while lobbying federal and state officials for help.

Not just ‘big-dollar’ items

Robert Viens, executive director for government affairs and director of pharmacy at Day Kimball Healthcare in Putnam, says it’s important to put the rising cost of prescription medications into context.

“When you talk about things being expensive, you tend to think about the ‘big-dollar’ items,” he said.

That might include, for example, the weight-loss drug Ozempic, which costs about $936 for a one-month supply.

“But not only are the big-dollar items expensive, the cheaper, everyday drugs are also skyrocketing as well,” Viens said, citing IV saline bags as one example.

Overall, he said, “something that cost us five bucks a few years ago now costs us $15, but it’s something that we use hundreds and hundreds of, and that’s driving costs as well.”

Paul Kidwell, CHA’s senior vice president for policy, said such big increases in lower-priced drugs can result in a huge expense for hospitals.

“When there’s a drug that is needed 10,000 times a year and there’s just a marginal increase, that (adds up to) a big number,” Kidwell said.

He added that, ideally, drug cost increases “would be considered in the payments made to hospitals by government and commercial payers for the care provided to patients. However, Medicaid and Medicare payments have not kept pace with the cost of care, and commercial insurance rates are negotiated at set times,” so what patients pay is determined by their insurance coverage.

“This situation results in rising drug costs being shouldered by hospitals and contributing to the overall negative operating margin hospitals are facing,” Kidwell said.

Viens said drug shortages and supply-chain issues contributed to price increases during and after the pandemic, but price-gouging is also a problem.

Kidwell said manufacturers also manipulate patent laws to protect their ability to be the sole producer of a drug.

There are ways the federal regulatory environment could be improved, Kidwell said, “to ensure that those types of things aren’t happening.”

Even before the pandemic, state and federal regulators raised concerns about price-fixing. In 2019, attorneys general from multiple states filed two lawsuits (and later, a third) against 20 of the nation’s largest generic drug manufacturers and corporate executives, accusing them of a price-fixing conspiracy.

Settlements have been reached with a couple of those drugmakers, which have agreed to pay a combined $49.1 million to resolve the allegations.

The Pharmaceutical Research and Manufacturers of America (PhRMA), a trade group that represents drug manufacturers, did not respond to a request for comment for this story.

In addition, Connecticut, like other states, has a prescription drug cost transparency program, which requires “drug manufacturers, pharmacy benefit managers, health plans, and others to report information that explains high price increases and high-priced new drugs,” according to the state Office of Health Strategy.

Medicare, Medicaid & 340B

Of course, any discussion of hospital financial woes would be incomplete without talking about Medicare and Medicaid.

CHA’s report stated that underpayment by government payers continues to place a tremendous financial strain on health systems.

In fiscal 2023, hospital systems in Connecticut experienced $1.38 billion in Medicare losses and $1.43 billion in Medicaid losses, CHA reported.

Medicaid payments average 62 cents on the dollar, while Medicare payments average 74 cents on the dollar, according to the CHA.

The Medicaid program, which provides healthcare coverage for low-income individuals, has created financial problems for the state budget as well. The program is facing $260 million in cost overruns during the current fiscal year, which began July 1, due to higher demand for hospital outpatient, clinic and pharmacy services, the governor’s office said.

Hospital officials say that, to alleviate some of the prescription medication cost burden, they have relied on the 340B Drug Pricing Program, which was enacted by Congress in 1992 to “shield safety-net hospitals from rising drug prices and help them care for low-income patients and communities.”

Under the program, Kidwell said, pharmaceutical manufacturers that want to participate in Medicaid are required to provide a discount on their outpatient drugs to “covered entities,” including certain hospitals, federally qualified health centers (FQHCs), children’s hospitals and clinics.

“Typically when hospitals see a larger proportion of government payers, … the reimbursements that hospitals see don’t necessarily cover the whole cost of the care,” said Richard Wojtowicz, regional director of pharmacy services for Trinity Health Of New England (THONE).

“That’s especially true for hospitals like St. Francis (in Hartford) or Mercy Medical Center (in Springfield, Massachusetts),” which see a disproportionate share of patients who lack the ability to pay, he said, referring to hospitals owned by THONE.

“We cannot overstate the importance the 340B program has on sustaining access to care in Connecticut,” Kidwell said.

Over the past five years, however, drug manufacturers have been “very aggressive in trying to restrict our access to the program,” he added.

Most recently, that has taken the form of drugmakers saying they will turn 340B into a rebate program.

“So, Day Kimball would have to buy the drug at full cost and then apply for a rebate,” Kidwell said. “And hope the drug manufacturer provides the rebate.”

The result, he said, is that while a 10% year-over-year increase in the cost of prescription medications is financially difficult, it becomes even worse if the 340B program changes because hospitals would have to “buy those drugs without those discounts.”

According to Viens, 70% of Day Kimball’s patients use Medicare or Medicaid.

“We do get a little bit better reimbursement from the commercial payers, but there’s no way we can make up that delta with those 30%,” he said.

He added that the difference between paying the full wholesale price for a drug and the discounted price through 340B is dramatic.

“Something that would be $50 on 340B could be $5,000 wholesale,” Viens said.

Arkansas and Louisiana recently enacted state laws that limit manufacturers from placing conditions on 340B, and prohibit them from refusing to supply the discounted drugs.

Viens, Kidwell and Wojtowicz all said their organizations are lobbying state legislators to consider similar restrictions.

The Big 3

There are other ways health systems can reduce the cost of their drug purchases.

One is to contract with a wholesaler. According to a 2019 analysis by Deloitte Consulting, about 92% of prescription drugs in the United States are distributed through wholesalers.

Of that, 90% of the distribution is handled by just three companies — AmerisourceBergen/Cencora, Cardinal Health and McKesson Corp.

In December, UConn Health added $400 million to extend its contract with AmerisourceBergen/Cencora by two years, bringing the total cost of the five-year contract to $1.15 billion.

Viens said Day Kimball has contracts with McKesson, while also participating in a group purchasing coalition with Yale New Haven Health.

“We get to buy at similar pricing as they do,” he said.

With the Connecticut General Assembly now in full swing, Kidwell said the CHA will be lobbying hard on a number of issues related to the financial well-being of hospitals.

Medicaid reimbursement rates are at the top of that list, but he said there is more about the program to discuss than just that.

“We certainly want it to pay for the cost of care and to make sure we’re maintaining access,” Kidwell said, “but it also can be used to really go after those upstream drivers of health so that we can keep people healthier in the first place.”