The pharmaceutical supply chain represents an increasingly complex, multi-billion-dollar industry involving players ranging from pharmaceutical manufacturers to pharmacies and pharmacy benefit managers. Within the last decade, growing emphases on specialty Rx and temperature-sensitive biologics have driven supply chain costs higher and higher.
According to Definitive Healthcare data, U.S. hospitals reported a combined total of $66.8 billion in pharmaceutical supply costs for 2021—the most recent financial data available for all hospitals.
Pharma supply costs increase by nearly 12% each year
In 2014, the average annual pharmaceutical supply cost was $10.21 million per hospital. By 2021, that average cost rose to $18.4 million per hospital—an average annual increase of nearly 12%. This is due to several factors, including rising drug prices, the increasing use of specialty drugs, and drug shortages.
For example, between 2021 and 2022, drug companies increased prices for 1,126 drugs by more than 8.5%, which was more than the rate of inflation. The average price increase for these drugs was 31.6%, with some drugs increasing by more than 500%.
Several provisions in the Inflation Reduction Act address drug pricing and may impact future drug spending trends. Provisions include a requirement for manufacturers to pay rebates to Medicare for Part D drugs whose price increases exceed inflation, with the goal of reducing the frequency and size of drug price increases.
Northeastern hospitals report the highest average pharmaceutical supply costs
With a reported pharma supply cost 61.4% greater than the national average, Northeastern hospitals spent the most money on prescription drugs and drug supplies across all U.S. facilities. In 2021, hospitals in the Northeast spent an average of $29.7 million on pharmaceutical supplies, compared to between $4.8 and $17.3 million across all other regions.
Average pharmacy supply cost by region in 2021 (in millions)
Fig 1 Data is from the Definitive Healthcare HospitalView product, according to the most recent 12-month interval tracked in our database. Data is sourced from the October 2022 Medicare Cost Report release. Based on data from 3,637 U.S. hospitals reporting pharmacy supply costs in 2021. Accessed November 2023.
Cities in the northeast—like the New York City, Boston, Philadelphia, Washington D.C., and Baltimore metropolitan areas—are home to many high-volume hospitals. With large patient populations to care for, it’s not necessarily surprising that facilities in this region would report higher drug expenses than others.
There might also be a correlation with hospital type. Many of the nation’s top children’s hospitals, cancer research facilities, and academic medical centers are located in the northeast. These facilities are more likely than others to administer high-cost specialty drugs to their patients—causing significant impact on pharmaceutical supply chain expenses.
Cancer centers spend the most money on pharmaceutical supplies
Definitive Healthcare data reveals that cancer centers do tend to spend more than other facility types on pharmaceutical supplies. Below is a list of hospitals with the highest pharmacy supply costs in 2021, the top three of which are cancer centers.
Top 10 hospitals by pharmaceutical supply cost in 2021
| Rank | Hospital name | State | # of discharges | Pharmacy costs (in millions) |
| 1 | Memorial Sloan Kettering Cancer Center | NY | 23,763 | $1,497.0 M |
| 2 | Dana-Farber Cancer Institute | MA | 1,290 | $923.4 M |
| 3 | University of Texas MD Anderson Cancer Center | TX | 28,736 | $866.1 M |
| 4 | The University of Kansa Hospital | KY | 42,810 | $644.4 M |
| 5 | Strong Memorial Hospital | NY | 36,088 | $601.3 M |
| 6 | UK Albert B Chandler Hospital | KY | 40,490 | $541.3 M |
| 7 | Tisch Hospital | NY | 90,850 | $525.8 M |
| 8 | New York-Presbyterian Weill Cornell Medical Center | NY | 113,812 | $502.3 M |
| 9 | Duke University Hospital | NC | 40,515 | $498.9 M |
| 10 | Moffitt Cancer Center Magnolia Campus | FL | 10,327 | $464.9 M |
Fig 2 Data is from the Definitive Healthcare HospitalView product, according to the most recent 12-month interval tracked in our database. Data is sourced from the October 2022 Medicare Cost Report release. Based on data from 3,637 U.S. hospitals reporting pharmacy supply costs in 2021. Accessed November 2023.
With a reported pharmaceutical supply cost of $1.5 billion in 2021, Memorial Sloan Kettering Cancer Center has the highest prescription drug and drug supply cost of all U.S. hospitals surveyed.
Given the high cost of chemotherapeutic treatments and oncology medications, it’s not surprising that the top three hospitals by drug supply costs would be cancer treatment centers. Specialty pharmaceuticals, including oncology drugs, can range anywhere from $10,000 to $7 million in annual patient costs.
These prices, however, aren’t exactly what providers pay in drug supply costs. Pharmaceutical manufacturers or wholesalers negotiate discounts and rebates with various stakeholders—including care facility and health system leaders, big box retailers, grocery stores, and pharmacies.
The total pharmaceutical supply cost that a care facility faces is a product of final price negotiations between IDNs, GPOs, suppliers, and payer reimbursement rates.
Learn more
Interested in learning more about hospital supply costs and rising drug prices? Take a look at our list of states with the highest prescription drug spending.
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