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Precise magnitude of hospital markups revealed in the US

A recent study has shed light on the size of markups imposed by hospitals for parenteral cancer drugs in the US.

By Milena Izmirlieva

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A study by Xiao and colleagues was published in JAMA Internal Medicine on 18 April and sheds light on the size of markups imposed by hospitals for parenteral cancer drugs in the US. The study assessed private payer-specific prices for the top 25 parenteral (injectable or infusible) cancer therapies by Medicare Part B spending in 2019 and found that the median price markup ranged from 118.4% (sipuleucel-T) to 633.6% (leuprolide).

Little has been known about the precise magnitude of hospital markups on medicines, but the implementation of the Hospital Price Transparency Final Rule on 1 January last year compelled hospitals to publicly disclose payer-specific prices for drugs, making this study possible. The Pharmaceutical Research and Manufacturers of America (PhRMA), a US pharma industry body, has been quick to comment on the findings, highlighting the fact that, in many cases, hospitals make more from some cancer drugs than the pharmaceutical companies that developed and produced them.

While the 340B Drug Discount Programme should theoretically improve equity since profits earned from the administration of discounted drugs are used to cross-subsidise care for low-income patients, PhRMA warns—with some justification—that the 340B programme may create perverse incentives to administer cancer drugs in the more expensive hospital setting instead of in a physician’s office. Considering third-party markups, the pharma industry and patients may be better off with direct Centres for Medicare and Medicaid Services (CMS) price negotiation, and patients would certainly be better off.

Hospital median price markups for cancer drugs ranged from 118% to 634%

Of the 61 NCI-designated cancer centres, only 27 (44.3%) released private-payer specific prices for at least one of the 25 cancer drugs included in the study. The data analysis indicates that the median drug price markups across all centres and payers ranged from 118.4% (sipuleucel-T) to 633.6% (leuprolide). At the same time, across-centre price ratios ranged from 2.2 (pertuzumab) to 15.8 (leuprolide). Within the same cancer centre, negotiated prices also varied considerably, with median within-centre price ratios ranging from 1.8 (brentuximab) to 2.5 (bevacizumab).

Considering the data for the top five cancer drugs in terms of Medicare Part B 2019 spending, the vast differentials in what cancer care centres charged are obvious, as are the limitations in the data with so few centres disclosing the negotiated prices. For example, only 42.6% of cancer centres disclosed the payer-specific negotiated price for rituximab, and the negotiated prices ranged between £97 and $238, with a median of $167. These median payer-specific negotiated prices are nearly double the Medicare average selling price (ASP) of $87.

Variation in negotiated price for top five parenteral cancer therapies

ProductFY19 Medicare Part B spending ($m)Medicare Part B ASP ($)Reporting centres (% of 61)Payer-specific negotiated price, median ($)
Pembrolizumab, 1mg2,6735325 (41%)99 (76-148)
Nivolumab, 1mg1,7822924 (41%)58 (43-75)
Rituximab, 10mg1,7388726 (42.6%)167 (97-238)
Bevacizumab, 10mg1,0357026 (42.6%)173 (132-207)
Trastuzumab, 10mg7979023 (37.3%)223 (164-290)

Source: GlobalData, based on Xiao et al., 2022                                                                               © GlobalData

Despite the existence of the Hospital Price Transparency Final Rule, only a minority of hospitals had disclosed the required data when the study was conducted. It will be interesting to see if the results hold after a greater number of hospitals have disclosed payer-specific negotiated prices. It will be also important to see how negotiated price levels compare with price levels in Maryland hospitals, where hospital drug prices are regulated.

In recent years, PhRMA has been arguing in its advocacy efforts that market distortions and high pharmaceutical prices are caused by middlemen rather than the pharmaceutical industry. There are certainly strong grounds for these arguments, with other studies finding that the supply chain retains a growing share of pharmaceutical spending on branded drugs, rising from 33.2% in 2013 to 45.7% in 2018. Controlling the profits of middlemen would, however, only solve part of the problem, and could result in the creation of ever more complex mechanisms to generate excessive profits and evade control.

The problem at the heart of the US pharmaceutical price system is that the payer (specifically, the government via the CMS for Medicare and Medicaid drugs) is not legally allowed to negotiate drug prices directly with the industry. It is this, more than anything else, that has resulted in the creation of middlemen entities that negotiate on behalf of the government or private payers and impose markups. Due to third-party markups, the pharma industry may actually be better off with direct CMS price negotiation, and patients would certainly be better off.

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