A new study, conducted by the Partnership for Health Analytic Research (PHAR), found that hospitals retained 91% of the total profit on physician-administered medicines in the commercial market that went to providers in 2016. The data also show that physicians retained just 9%, even though they treated a nearly equal number of patients. This further demonstrates just how much hospitals are driving health care spending in the United States.
To improve our health care system, we need a robust discussion about the main drivers of health care spending. Hospital markups drive up costs for patients and the health care system alike without improving care for patients. According to a recent JAMA study, “The prices paid by commercial insurers to hospitals have driven growth in overall health care costs, as utilization rates have remained flat and, in some cases, declined. And United Health Group found that from 2013 to 2017, prices for inpatient care charged by hospitals increased by 4.5% per year over this period while independent physician prices for the same care increased just 2.5%.
The PHAR study also found that for every $100 spent on physician-administered medicines in a hospital setting, hospitals retained $58 while the innovative biopharmaceutical company that manufactured the medicine received less than $42. This further confirms a recent analysis from the Moran Company that found the amount hospitals receive after negotiations with commercial payers is, on average, almost two and a half times what they paid to acquire the medicine.
Hospital consolidation often leads to a lack of competition and allows hospitals to mark up medicine prices so much. According to the Quarterly Journal of Economics, prices at monopoly hospitals are 12% higher than those in markets with four or more competing hospitals. In fact, hospitals admit that a lack of competition exacerbates this problem. "We've been able to maintain very lucrative contracts without the competition,” noted NorthBay Healthcare’s interim CFO Jim Strong.
Katie Koziara Katie is a manager of public affairs at PhRMA focusing on the cost and value of medicines. She previously ran the social media strategy for a D.C.-based non-profit working on federal management and leadership issues. Outside the office, Katie can be found running on the mall, brunching with friends and cheering on the Michigan Wolverines.