Drugs Targeted by Biosimilars Are Responsible for Some of the Highest Hospital Spending

A new report from research institution NORC at the University of Chicago finds that hospitals and health systems face high annual growth in drug spending, and that drug shortages are taking a substantial toll on hospitals’ ability to rein in spending.

The report’s authors analyzed data from a survey of 1184 community hospitals, data from 2 group purchasing organizations (GPOs), and findings from interviews with 6 hospital pharmaceutical supply and management personnel to gain insight on the impact of changes in drug prices, shortages, and the entry of biosimilars and generics.

The researchers found that spending on inpatient and outpatient drugs at US community hospitals increased by 18.5% between 2015 and 2017 per adjusted admission, rising from $468.50 to $555.40. This increase resulted in an average of $1.8 million in additional spending, far outpacing overall medical inflation.

GPO data demonstrated that, among the 10 drugs with the highest total hospital spending in 2017, the average unit price increased by 9.9% between 2015 and 2017. Three of 10 drugs with the highest spending are biologics, targeting inflammatory diseases, that face either existing or upcoming biosimilar competition: infliximab (Remicade), adalimumab (Humira), and etanercept (Enbrel). Infliximab increased in price by 6.8%, etanercept increased by 15.3%, and adalimumab increased by 21% between 2015 and 2017.

Four of the top-spending drugs—infliximab, adalimumab, rituximab (Rituxan), and epoetin alfa (Procrit)—have biosimilar challengers that are either already in the market or are soon to be launched, but the originator products have orphan drug protection that restricts competition in at least 1 indication.

During the member survey, hospitals noted that drugs, including cancer treatments, tended to rise in price after shortages occurred. Nearly 80% of hospitals said that drug shortages had increased their spending by a moderate to large extent.

Changes in drug prices took a toll on health systems’ ability to manage their budgets; approximately two-thirds of survey respondents said that drug price increases had a moderate to severe impact on their budgets. Hospitals reported such strategies as delaying investments in or replacement of equipment, reducing services offered, and identifying alternative treatments as steps taken to handle these budgetary pressures.

A majority of hospitals said that biosimilars and generics had at least a small impact on drug spending, with approximately one-fourth of hospitals saying that these agents had a moderate or large impact.

In interviews, key informants said that, while biosimilars could provide for more competition, they saw the potential for branded manufacturers to increase prices in the months prior to a competitor’s launch, effectively counteracting the potential savings opportunity. They also pointed to slow biosimilar market entry as a hinderance to price reductions.