Wall Street Journal Examines Hospital, Drug Company Price Increases, While Government, Private Insurers Attempt To Rein In Costs

Main Category: Health Insurance / Medical Insurance
Also Included In: Pharmacy / Pharmacist;  Pharma Industry / Biotech Industry;  Public Health
Article Date: 16 Apr 2009 - 4:00 PDT

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Many hospitals and drugmakers are raising prices on their products and services to reinforce their earnings, "underscor[ing] the deep challenges" that the Obama administration and Congress face as they work to rein in health care costs and expand health insurance, the Wall Street Journal reports.

Higher prices on hospital care and medications "trickle down to consumers in out-of-pocket costs or in the form of higher premiums and copayments," which also place increased pressure on U.S. employers to provide health care benefits to their employees, the Journal reports.

Ron Pollack, executive director of Families USA, said, "These kinds of price increases are way out of line with what's being experienced in the rest of the economy."

Hospitals
On Tuesday, the for-profit hospital chain HCA said it expects to report an increase in earnings -- from $7.13 billion in 2008's first quarter to between $7.40 billion and $7.45 billion in this year's first quarter -- despite decreases in hospital admissions. The company also expects its pre-tax profits to be nearly twice what they were in the same period of the previous year.

According to the Journal, higher hospital prices might be reflective of contracts finalized before the current economic downturn, though at the same time, acquisitions have boosted hospitals' market power. HCA did not say whether its earnings were the result of increased prices.

Matthew Borsch, a health insurance analyst at Goldman Sachs, said that hospitals are not finding difficulty charging private health insurers between 6% and 9% more than in previous years. David Peknay, director of corporate health care rating at Standard & Poor's, said, "I'd be cautious about the ability of hospital companies to continue to receive those rates of increase, particularly in this kind of economy and as health care spending becomes a huge political issue."

Drug Companies
According to Catherine Arnold of Credit Suisse, drugmakers have raised their product prices in the last few months as a way to boost revenue as much as possible before cost-cutting efforts take hold. Arnold said, "When the government is talking about more aggressive discounts, your start price is going to determine your end price," adding, "I don't think I have ever seen anything quite like this." Drug companies also have been boosting product prices as more medications lose patent protection.

Express Scripts said that it saw drug prices increase by more than 10% to 15% between the first quarter of 2008 and the first quarter of 2009.

Prices for Johnson & Johnson products were an average 10% higher in this year's first quarter compared with last year's first quarter. The company has reported that sales in this quarter were down by 10.1% from a year earlier. In this year's first quarter, Eli Lilly raised prices by an average of 9.9%, while Pfizer boosted its product prices by 7.9%, according to Credit Suisse (Martinez/Johnson, Wall Street Journal, 4/15).

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