Hospitals make bank on drug markups

Axios
2/15/19

Hospitals are reaping big windfalls from commonly used drugs, my colleague Bob Herman reports — marking them up 3–7 times above their average sales prices, according to an analysis by Wall Street firm AllianceBernstein.

Why it matters: The way hospitals charge for drugs — and the consolidation that’s helping to fuel this trend — leads to higher insurance premiums across the board.

How it works: Hospitals have acquired a lot of doctors’ clinics over the past several years and converted them to outpatient departments. That allows them to set a higher price for the same services and drugs before they head into negotiations with insurers.

  • On average, private insurers pay hospital-owned clinics about 67% of the amount the clinic initially charges.

The big picture: “There’s this large proportion of hospital outpatient billing that is really based on those charges, or a complex calculation of those charges,” said Stacie Dusetzina, a health policy professor at Vanderbilt University who studies drug prices and reviewed the AllianceBernstein analysis. “It’s surprising and concerning.”

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