Why U.S. Hospitals Are Under Pressure to Control Pharmacy Costs

For U.S. hospitals, the pharmacy budget is becoming a more difficult problem to manage. Drug expenses rose 13.6% in 2025, according to data cited by the American Hospital Association, substantially faster than overall hospital prices. The increase reflects not only higher prices for existing medicines but also the growing use of expensive specialty therapies, particularly in oncology and other complex areas of care.

That creates a difficult economic equation. Hospitals must make costly medicines available when patients need them, yet they have limited control over manufacturers' prices and must operate within reimbursement systems that do not always move in step with acquisition costs. The pressure is particularly significant for hospitals that provide advanced treatments, where a small number of high-cost medicines can have an outsized effect on spending.

The issue is therefore broader than whether a particular drug is expensive. It is about how the economics of pharmaceuticals interact with hospital finances, clinical decision-making and the changing structure of American healthcare.

A bigger pharmacy bill

Hospital spending has been under pressure from several directions simultaneously. The AHA reported that total hospital expenses increased 7.5% in 2025, while workforce expenses rose 5.6% and supplies increased 9.9%. Drugs were among the fastest-growing major expense categories.

Drug spending also reflects changes in what hospitals treat. New therapies can replace older interventions or expand the number of conditions that can be treated medically. Oncology is an important example: advanced medicines can provide alternatives to surgery or extend treatment options, but some therapies cost tens or hundreds of thousands of dollars per patient. Academic medical centers, which tend to treat more complex cases, recorded particularly rapid growth in drug expenses in 2025.

This changes the hospital purchasing problem. A pharmacy department is not simply negotiating the price of a commodity. It is managing a portfolio of products with different clinical uses, reimbursement arrangements, availability risks and substitution possibilities.

The purchasing system matters

Hospitals do have mechanisms for reducing acquisition costs. One of the most important is the federal 340B Drug Pricing Program, which allows qualifying organizations to purchase certain outpatient medicines at discounted prices. The program has become economically significant: covered entities purchased about $100 billion of outpatient drugs through 340B in 2025, according to data announced by the Health Resources and Services Administration. Hospitals accounted for nearly 87% of those purchases.

But 340B is also part of a wider debate over how pharmaceutical discounts, hospital reimbursement and community benefits should interact. Changes to Medicare reimbursement and the rules governing discounted medicines can alter the financial incentives surrounding hospital pharmacies.

The economics are further complicated because hospitals do not always have the bargaining power that their size might suggest. Manufacturers control many patented and specialized medicines, while hospitals have an obligation to maintain access to clinically necessary treatments. The AHA describes hospitals as frequently acting as "price-takers" in pharmaceutical markets.

That imbalance is particularly important when a medicine has few substitutes. A hospital can negotiate aggressively over a commodity with several competing suppliers. It has less leverage when a treatment is newly introduced, highly specialized or clinically difficult to replace.

Competition is arriving, but unevenly

There are reasons for cautious optimism. Generic medicines already account for the overwhelming majority of U.S. prescriptions, and the FDA continues to promote competition in generic and biosimilar markets.

Biosimilars are especially important because many expensive biologic medicines are used to treat cancer and other serious diseases. The FDA has been pursuing changes intended to make biosimilar development less costly and faster. In March 2026, the agency proposed streamlining certain pharmacokinetic testing requirements, saying the changes could reduce development costs for some biosimilar programs.

Greater competition can eventually reduce prices, but the savings do not appear automatically. Manufacturers must enter the market, physicians and hospitals must adopt alternatives, insurers must reimburse them appropriately and supply must remain reliable.

Drug shortages illustrate the other side of the equation. The FDA reported only four new drug shortages during 2025, the lowest annual number in a decade, while also recording efforts that prevented hundreds of potential shortages. Yet older sterile injectable medicines remain vulnerable because relatively few manufacturers produce them and manufacturing capacity can be difficult to expand quickly.

For hospitals, the cheapest medicine is not necessarily the cheapest option if it becomes unavailable and forces clinicians to find an alternative at short notice.

The reimbursement question

Pharmacy costs ultimately intersect with how hospitals are paid. Medicare, commercial insurers and other payers use different reimbursement arrangements, meaning the relationship between a drug's acquisition cost and the hospital's payment can vary considerably.

Medicare's drug-price negotiation program adds another layer. Negotiated prices for the first group of selected medicines took effect in 2026, with CMS estimating that the prices would have reduced spending on the initial ten drugs by roughly $6 billion based on 2023 spending.

Those negotiations primarily concern Medicare beneficiaries rather than hospital purchasing as a whole, but they demonstrate how changes in pharmaceutical pricing can increasingly move through the broader healthcare economy.

For hospital executives, the practical challenge is to distinguish between medicines whose costs can be managed through purchasing, substitution or competition and those whose clinical value makes them difficult to avoid. Investors, meanwhile, must consider how pharmaceutical exposure interacts with patient volumes, reimbursement rates, labor costs and capital requirements.

What comes next

The pressure on hospital pharmacies is unlikely to be resolved by a single policy or purchasing strategy. The trajectory will depend on the pace of specialty-drug adoption, the arrival of biosimilars and generics, manufacturer pricing decisions, supply-chain resilience and changes in public and private reimbursement.

Hospitals are likely to place greater emphasis on formulary management, purchasing efficiency and evidence-based selection of therapies. But aggressive cost control has limits. Reducing pharmaceutical spending is economically useful only when it does not undermine appropriate treatment or create greater costs elsewhere.

The deeper issue is that medicines have become increasingly central to the economics of hospital care. Pharmaceutical innovation can reduce the need for some procedures and improve outcomes, but it can also shift spending toward high-value, high-cost therapies. For hospitals, the question is no longer simply how much medicine costs. It is how to absorb an increasingly sophisticated pharmaceutical system while preserving both financial stability and access to treatment.