How is the cost of pharmaceuticals affecting local health care?

Released: 05/29/18

By: Colleen Clement, Pharm.D., RPh, Director of Pharmacy and Lynn Luloff, Chief Financial Officer

For readers who follow Winneshiek Medical Center’s monthly financials through Board of Trustees meeting coverage, you may have noticed expenses have increased in the past months, with the largest variance to our budget continuing to be the rising costs of pharmaceuticals.

For years, we have heard the debate about the cost of pharmaceuticals patients purchase at the pharmacy, how insurance covers certain drugs and the challenge in determining the true cost of medications. However, this issue does not just affect the end consumers; it is an issue for hospitals administering medications to patients.

When creating a yearly budget for the medical center, we calculate projected expenses based on our costs to perform the services, which includes the costs for necessary medications. However, insurance companies negotiate prices with us for various services, and we are reimbursed the agreed-upon rate. The negotiated rate is almost always lower than our charges, but it is important to us to be accessible to the citizens of our region; therefore, we accept the rate insurance companies propose as reimbursement. As an example, in 2018, Medicare is reimbursing WMC approximately 50% of our charges.

A second issue directly impacting the cost of pharmaceuticals is one of supply and demand. Following last fall’s devastating hurricane in Puerto Rico, production plants of many highly-used pharmaceuticals and hospital supplies were damaged. With the immediate halt of production of these supplies on the island, hospitals had to find acceptable alternatives for patients, many times only available at a much higher cost.

What do pharmaceuticals cost WMC?

This past year, WMC budgeted approximately $3 million for pharmaceuticals used for hospital and clinical care. Over one year’s time, 25% of that amount has been attributed to 5-6 expensive drugs. Even with those high dollar amounts, we purchase most medications at reduced prices because of our relationship with Mayo Clinic and the benefits we experience using their buying power. Without a partner like Mayo Clinic, we would pay considerably more for already expensive drugs.

An important point to note is just because the drugs are more expensive does not mean the medical center is making more money on them. Winneshiek Medical Center does not benefit in any way using expensive drugs and explores every opportunity to choose the least expensive options proven to be safe and effective. We use generic drugs whenever possible, and that practice alone is a significant cost savings every day. However, sometimes there is no generic option or a patient has allergies or intolerances that require us to use something more expensive to meet their needs.

One of the great things about modern medicine is the number of diseases we can treat. Often the new treatments for diseases that only affect a small number of patients are very expensive, but for the patients we can treat, they can be lifesaving. To make this possible, WMC staff continuously seek to reduce costs while maintaining high quality care.

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