With prescription drug price hyperinflation showing few signs of abating, the need for health systems to develop and execute a comprehensive pharmacy strategy is becoming a matter of fiscal survival.

A study released Oct. 11 by the American Hospital Association and the Federation of American Hospitals found that hospitals’ average annual inpatient drug spending increased by more than 23% from 2013 to 2015—a higher figure than earlier estimates and more than double the overall health spending increase during that period. The study concluded that higher prices, not greater utilization, were driving the increase.

The price hikes are interwoven with a preexisting condition: ongoing drug shortages across the pharmacological landscape, from antibiotics to cancer drugs. In many cases, the sole-source manufacturers of old-line drugs are dramatically increasing prices, claiming the drugs have become unprofitable.

Drug costs were a rare topic of agreement between the two major party presidential candidates this year; both called for Medicare to be able to negotiate prices with drug makers. A growing backlash against drug companies such as Turing Pharmaceuticals and Mylan Pharmaceuticals, the latter with its notorious 550% increase for the EpiPen epinephrine auto-injector, caused stock prices to tumble and Congress to investigate amid concerns of price gouging.

In many cases, however, the sole effect of the bad publicity was for drug makers to adopt a more nuanced strategy, with manufacturers hiking the price of drugs by single digits multiple times a year instead of applying a massive jump all at once, according to Marvin Finnefrock, Pharm.D, divisional president of Clinical Services at Comprehensive Pharmacy Services (CPS), a national provider of hospital pharmacy management and consulting. “The net effect is the same: huge increases in spending on lifesaving drugs,” he says.

Dr. Finnefrock and his colleagues have identified a successful five-step strategy to respond to price gouging, each step interdependent on the others and enabled by technology. The five steps are:

  1. Finding clinical alternatives to overpriced drugs
  2. Conducting a literature review for optimization
  3. Centralizing inventory control
  4. Refining formularies to have fewer alternatives in each drug class
  5. Using contracting to leverage better prices

Clinical alternatives

Research and clinical experience often reveal lower-cost comparable alternatives to hyperinflated drugs. For example, eight kinds of ACE inhibitors are used for hypertension and congestive heart failure. Most are generic; some are taken once a day, and others as often as three. “In the end, they all achieve the same effect, except one costs you a dime, another costs you a dollar,” says Len Gray, Pharm.D, vice president of Health System Clinical Services at CPS. Reducing the class of such a commonly used drug to one or two manufacturers can save millions of dollars a year.

In other cases, the alternatives might even be using a reusable device such as an external pacemaker instead of an overpriced drug in a cardiac procedure.

Literature review

For some procedures, much more research is needed.

One example of a less-well-known hyperinflated drug is isoproterenol, used for cardiac patients in cardiovascular procedures and rarely asthma. The cost of isoproterenol has risen no less spectacularly than the EpiPen, from $44 per dose several years ago to $1,790 per dose in recent months. Dr. Gray and his team have employed CPS’ RxIntelnet, a cloud-based library of resources including best practices, policy and protocols, to search for alternatives in each of the clinical applications for which isoproterenol had been a go-to drug.

Working with a national, 100-plus hospital system, CPS met with pharmacists and clinicians to flush out their research. In most applications, they found lower-cost alternatives.

One of those procedures was tilt table testing, used to provoke a cardiologic response and enhance study sensitivity to determine causes of sudden loss of blood pressure and fainting. They found clinical evidence that nitroglycerin, a very old drug, was actually more effective than isoproterenol, at a fraction of the expense.

CPS advocated removing isoproterenol from all order sets and ensured that prescribers were aware of the price increase and possible cost-effective alternatives. The project resulted in averted spending of approximately $6 million across the system.


Many health systems lack even basic knowledge of what is in their inventories, which can be spread around the hospital in various departments and in outpatient centers. Centralizing the supply of a hyperinflated drug is a first step to shrinking the inventory so the organization does not have such a huge investment sitting on shelves. “Based on past experience, you want about a month’s supply at a minimum par level,” Dr. Finnefrock said.

A strategy that Dr. Finnefrock says is underemployed by many organizations is the use of a drug consignment company, which owns the inventory and delivers a requested supply in a just-in-time manner. “The hospital might keep a day or two’s supply, ordering when existing supplies are requisitioned by a physician or nurse,” he says. “If you’ve got 100 classes of drugs, with many costing thousands of dollars a dose, all sitting on a shelf, that is a lot of cash tied up.”


Formulary and inventory are closely linked strategies. Dr. Gray has worked with health systems to develop National Formularies, and is currently supporting a large health system through this process. His team examined dozens of classes of medications across the system, looking for little-used drugs and comparing usage patterns with the CPS database of clinical experience and cost. In addition, its members traveled to individual hospitals and met with physicians and pharmacy and therapeutics committees, sharing data and informing these stakeholders of the experiences of clinicians at other hospitals around the system who had successfully transitioned to alternative treatments.

“It wasn’t that long ago we would run into significant resistance to change, but with the size of these price hikes and the fact that more physicians are employed by facilities and are more aware that their prescribing habits have a direct impact on the success of their health system, that has really changed,” Dr. Gray says.

What has also changed is the need to continually adjust formularies, and thus order sets, as a result of frequent price hikes and drug shortages, he adds.


Many larger systems, Dr. Finnefrock says, fail to take advantage of the power of volume. Most use standard purchasing contracting, but without narrowing the number of drugs within each class, the savings are muted. In cases where the system has done the work of shifting the formulary to one or two drugs per class, it can go to the manufacturer directly and promote huge volume buys if the maker is willing to cooperate on pricing.

Dr. Gray and Dr. Finnefrock estimate that in a normal year, these strategies taken together would add from 4% to 6% to a hospital’s bottom line. At a time of 23% growth in drug spending, they likely hold the hospital drug budget flat or slightly below that.

“This is just a really challenging time,” Dr. Gray says. “Until the policymakers decide to do something, it is going to be health systems being proactive in searching out alternatives and centralizing their pharmacy inventory and formularies who will be counteracting hyperinflation.”