Hospital pharmacies: Slow growth in drug costs
Drug expenses predicted to rise 4-6%
Hospital pharmacy directors will have another year of anticipating slow budget growth in drug costs due to the ongoing health care industry trends of focusing on reducing drug utilization, increasing generics, and the slowdown in new drug approvals by the FDA, drug budget experts say.
For 2008, there likely will be a 4-6% increase in drug expenditures for hospitals, a 5-7% increase in drug expenditures for outpatient settings, and a 12-14% increase in clinics.1
The estimate of a 4-6% increase could be a little higher than what hospital pharmacies experience, notes Lee C. Vermeulen, BSPharm, MSPharm, FCCP, director of the Center for Drug Policy at the University of Wisconsin Hospital and Clinics in Madison, WI. Vermeulen is a researcher who studies drug expenditure trends each year.
"Part of what we want to hedge against are people being over budget." Vermeulen says. "I firmly believe that being dramatically under-budget is a bad thing because it takes away resources from other programs you want to get started, but it's worse to be way over budget than under budget."
The estimated drug expenditure budget is a considerable improvement over a decade ago when hospital drug budgets increased by nearly 15%, says Glen T. Schumock, PharmD, MBA, FCCP, director and an associate professor at the Center for Pharmacoeconomic Research at the University of Illinois at Chicago.
There was one year in 2000 to 2001 when drug expenditures increased by more than 25%, Schumock says.
"In that time period of 2000 and a couple of years before that, everything was high," Schumock says. "Since then, both hospital and outpatient drugs have had a moderated rate of increase."
The current trend is fueled partly by a decline in new drugs being approved by the FDA and by the increase in me-too drugs, which have a lower cost because of competition, Schumock says.
"The clinic-administered drugs have not had their rate of growth moderated as much, probably because of a trend of fewer hospitalizations and shortened lengths of stay, resulting in more people making outpatient visits," he explains. "Patients used to go into the hospital to get procedures done, and now they can get the same thing done as an outpatient."
Also, a trend of the past five or six years is that the new technological development component of the overall health care growth and expenditures has been shrinking from the perspective of hospitals, Vermeulen says.
"We're spending considerably less in new technology for inpatients than we did a decade ago," he says. "Clearly the new technology is increasing expenses in other sectors and channels, including the injectable medications, monoclonal antagonists, but in the hospital the implication has been a fairly modest growth."
There are fewer blockbuster drugs and new technologies to overwhelm hospital pharmacy budgets, Vermeulen says.
"We have an $18.5 million inpatient drug budget at our university," Vermeulen says. "And, I'm not budgeting that much for inpatient new technology and drugs in the budget."
One new drug that Vermeulen says to keep an eye on is dalbavancin, a new antibiotic that likely will be used in hospitals for treating methicillin-resistant Staphylococcus aureus (MRSA).
Dalbavancin would be a convenient medication for clinicians to prescribe when hospital patients have MRSA and cannot be sent into a nursing home because of the infection. But it also might turn out that nursing homes will send their MRSA patients to the hospital to receive the dalbavancin injection, Vermeulen says.
In either scenario, the drug should find a place on hospital pharmacy shelves.
"So I'm putting a placeholder in our budget for dalbavancin for next year," Vermeulen says.
Part D increased utilization and confusion
Another factor in hospital pharmacy budgets is Medicare, Part D, the new prescription program, which began to impact health care systems in 2006, Schumock says.
"Data for 2006 is only now available," he says. "There's such a lag in availability of information on this [federal policy change]."
"The preliminary information is that Medicare Part D has increased the utilization of pharmaceuticals, but has reduced the unit cost of pharmaceuticals through competition," Schumock says. "So the net impact on total pharmaceutical expenditures is a slight increase."
Overall, Medicare, Part D, has increased drug use by 9% in its first year, Schumock says.
While the Part D benefit doesn't directly impact hospitals from a financial standpoint in any significant way, there is an impact due to the confusion over Part D and Part B, which covers certain drugs that are used in hospitals, Schumock says.
"Drugs covered under Part B might be submitted erroneously through Part D, and then the claim will be rejected," he explains.
For example, the hospital pharmacy will bill for self-administered or take-home medications, and then the Medicare plan insurance company will reject those bills and require that they be submitted under Medicare, Part B, instead of Part D, Schumock says.
"Then the pharmacy has to go back and resubmit the claims," he adds.
Also, hospital pharmacies that have large retail clinics are impacted by Medicare, Part D, to the extent that their patients are covered by it, Schumock says.
There's another way Medicare Part D might impact hospital pharmacy budgets, Vermeulen notes.
"Our concern has been that the new access that seniors have to medications will result in patients getting into the hospital on more drugs," Vermeulen says. "We don't know what drugs they'll come in on."
These could be inexpensive drugs, but it's also possible that Medicare patients will be prescribed new, expensive drugs through Part D, and while they're hospitalized, the hospital pharmacy will need to provide these same medications, he explains.
"We think that possibility should be on the radar screen," Vermeulen says. "We'll need to decide whether we keep the seniors on those drugs, switch to less expensive alternatives, or do we tell them to not take drugs while they're in the hospital."
Vermeulen, Schumock, and co-investigators make their drug expenditures projections based on a variety of factors, including current drug prices, volume of drug sales, what's in the new drug pipeline, and generics' share of the market.
Using these same indicators, individual hospital pharmacies can determine their own drug expenditures budget.
"We take our top 80 drugs, which represent 80 to 85% of the total drug budget, and we make an individual drug level prediction," Vermeulen says.
Investigators determine who will use these various drugs and look at trends that would suggest whether these patient populations will increase, decrease, or stay the same, he explains.
"We've got it down to a science," he says. "It takes about a month and involves hundreds of people, including doctors, pharmacists, and any stakeholder who has intelligence on it."
For example, with dalbavancin close to emerging from the new drug pipeline, pharmacy directors should determine how many of their hospital's patients are infected with MRSA and might be prescribed a new medication.
"Look at the current strategies for MRSA," Vermeulen says. "Ask whether there will be a substantial substitution effect."
Pharmacy directors need to study their hospitals' disease states to assess how many patients the hospital will see with a certain condition and to determine the cost of existing and new therapies for those conditions, he says.
"I've always advocated for budgeting at the level of understanding price and trends, volume growth, patient-driving phenomenon, demand, and change in demographics," Vermeulen says.
"You better be ready for that one drug that might affect you but not affect any other hospital in your community," he says.
Reference
- Hoffman JM, Shah ND, Vermeulen LC, et al. Projecting future drug expenditures — 2008. Am J Health-Syst Pharm 2008;65:234-253.
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