Prices Soar for Hospital Drugs After Shortages Hit, Study Finds

(Bloomberg) -- Drug prices increased at roughly twice their usual rate after shortages developed, a study found, suggesting that pharmaceutical companies may be reaping additional profits when urgently needed medicines become scarce.

Researchers at the University of Pittsburgh and Harvard Medical School examined the prices of 617 dosages and formulations of 90 different drugs that went in short supply between December 2015 and December 2016. They found that prices rose a cumulative 16 percent, on average, in the 11 months after the shortage began, compared with 7.3 percent in the prior 11 months.

The study is among the first to quantify a phenomenon that U.S. hospitals have observed for years: mysterious jumps in the prices of vital medicines once those drugs become harder to find. More than two-thirds of the medicines analyzed were drugs that are injected by health-care providers in the hospital. The researchers’ data license didn’t allow them to disclose price increases for specific medications.

The price spikes were particularly acute for 77 drugs with three or fewer suppliers. Prices of those medicines jumped by an average of 27.4 percent in the 11 months after a shortage hit, higher than the 12.1 percent rate in the preceding 11-month period, according to the results being published in the Annals of Internal Medicine.

The magnitude of the price increases “was stronger than I expected,” said Inmaculada Hernandez, lead author on the study and a pharmaceutical health services researcher at the University of Pittsburgh. What appears to be happening, she said, is “manufacturers see the mismatch between supply and demand and increase the price of the drug in an opportunistic manner.”

Drug shortages, especially for medicines administered at the hospital, have risen in recent months. There were 224 active shortages in the second quarter of this year, up from 174 a year earlier, according to data compiled by the drug information service at the University of Utah.

Shortages and price increases are so pervasive that several large hospital chains, including Intermountain Healthcare and the Mayo Clinic, are banding together to form their own drug-making venture, a not-for-profit called Civica Rx. The hospitals said this month that they’d tapped a former Amgen Inc. executive to run it.

“There aren’t a lot of industries where if a manufacturer botches the production of a product and is responsible for a reduction in supply that they are able to profit from that,” said William Shrank, a study author and chief medical officer for University of Pittsburgh Medical Center’s health plan. “It is the federal government, underinsured, and uninsured patients that are picking up the tab.”

One solution, the researchers said in the study, would be for government payers to cap payments for drugs that are in short supply to no more than the price increases that would have been expected without a shortage.

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