Why runaway drug prices are adding to hospitals’ financial woes

As healthcare markets shift and hospitals evolve, the differences among thriving, merely surviving and fading into non-existence depend on the ability of these organizations to become more like private industries.

The successful systems have begun to incorporate lean systems and strategies. Strong health systems continue to grow, merge and strategically plan their futures, while others lose market share and wallow in negative margins until their reserve accounts are depleted.

Moody’s reported the following interesting statistics to ponder:

• The median operating margins for not-for-profit hospitals fell from 3.4% in 2015 to 2.7% in 2016
• Expenses, primarily due to prescription drugs and labor, grew by 7.5% in 2016 compared with 6.6% in 2015.

In a healthcare economy where operating margins of 2% to 4% are viewed as “normal finances,” the line between success and failure can be narrow. New revenue opportunities and expansion are often difficult with limited capital and finding ways to manage costs becomes critical. Addressing the runaway costs of pharmaceuticals is a prime starting point for these efforts.