Last year, Andy Kehler, a co-owner of Jasper Hill Farm, was looking to renew his employees’ health insurance plans.
The first quote the Greensboro-based cheesemaker received — for an “apples to apples” renewal of the plans, Kehler said in an interview — would have cost 74% more than the 2024 plans. For a company with flat sales, now facing the threat of tariffs on its sales to Canada, the increase was nigh unaffordable, he said.
“We ended up scrambling to get an only 44% increase,” Kehler said. “That’s just ridiculous. It’s completely unsustainable.”
One big factor driving that price tag up: drugs. Jasper Hill is paying tens of thousands of dollars — a significant chunk of its roughly $300,000 annual health care costs — for pharmaceuticals to treat an employee’s autoimmune condition, Kehler said.
The company is grappling with one of the state’s dubious distinctions. According to data from 2020 through 2022 compiled by RAND, a national policy think tank, Vermont has the nation’s highest prices for outpatient pharmaceuticals, by a wide margin.
In Vermont, the average prices of outpatient pharmaceutical drugs — meaning, drugs administered to patients without admitting them to hospitals — are more than five times the manufacturers’ average sale prices, according to RAND. That’s the highest average markup out of all 50 states.
Over the past several weeks, as lawmakers seek to rein in skyrocketing health care costs, that statistic has sparked criticism — and a legislative effort to cap those prices.
“I can’t move beyond the immorality of this,” Rep. Alyssa Black, D-Essex, the chair of the Vermont House Committee on Health Care, told a hospital lobbyist Tuesday.
“How is this not price-gouging?” she added.
Low federal payouts
Outpatient pharmaceutical drugs are generally administered via injection or infusion in hospitals or clinics, rather than dispensed by a pharmacy. These are generally specialty drugs used to treat cancer, Crohn’s disease, autoimmune disorders or other conditions.
“These tend to be drugs where you have a doctor and a nurse watching you while you’re taking the drug to make sure it’s working,” Sara Teachout, a lobbyist for Blue Cross Blue Shield of Vermont, said in an interview.
Some hospitals are able to buy some of the drugs in question at a discount under a federal program called 340B. And yet, according to data Teachout presented to lawmakers last week, the markups for some of those drugs are steep.
At the University of Vermont Medical Center, for example, one cancer treatment drug, Neulasta, costs private insurance nearly 70 times the manufacturer’s average sales price.
Rep. Daisy Berbeco, D-Winooski, said on the House floor Friday that that markup means Vermonters who need that drug may pay $95,000 a year for Neulasta — compared with an average sales price of $1,357 a year.
It’s not clear — even to the state’s hospital association — why Vermont’s drug markups are so large.
“I don’t know exactly why we’re so high,” Devon Green, a lobbyist for the Vermont Association of Hospitals and Health Systems, said in an interview. She said that she was not sure hospitals were even aware of the state’s disproportionate costs.
But Green said she believes the reason has to do with low payments from the federal government’s Medicare and Medicaid programs.
According to data compiled by a hospital consultant for Southwestern Vermont Medical Center, Vermont receives smaller Medicare payments than all other states for a variety of hospital procedures.
“The hospitals in Vermont are the least paid (by Medicare) of any hospitals in any state in the union,” James Trimarchi, Southwestern Vermont’s planning director, said in an interview Thursday.
The reason for that? “We don’t know,” Trimarchi said. Medicare calculates reimbursement rates based on numerous factors, including the procedure, type of facility and geographic region. “I hesitate to speculate,” he said.
But, he noted, when Medicare reimbursements do not cover the cost of the procedures they help pay for, hospitals must make up the losses elsewhere — such as prices charged to private insurance for commercial drugs.
‘I do find it cruel’
Some health care players, however, expressed doubt about that logic.
“There are many reasons that Medicare reimbursements may be low, and I’m not sure that I necessarily agree with the premise,” Owen Foster, the chair of the Green Mountain Care Board, told lawmakers in the House health care committee Wednesday.
He wondered whether Vermont’s hospital leaders are doing all they can to maximize their Medicare reimbursements — and why they weren’t dipping into cash reserves rather than hiking prices for drugs.
“I do have to say that I do find it cruel to charge enormous markups on life-saving treatments to patients who are incredibly sick,” he said.
On Thursday, Vermont’s House health care committee voted unanimously to advance an amendment that would cap those drug costs at 130% of their average sales price starting July 1, and 120% of their average sales price starting January 2026.
The amendment, part of a larger bill relating to drug pricing, passed out of the House Friday and now heads to the Senate.
Blue Cross Blue Shield of Vermont has said that the proposal could reduce their requested premiums — which are expected to rise by double digit percentages — by four percentage points for individual and small group insurance plans on the health care marketplace, and three percentage points for school health insurance plans.
The Vermont Association of Hospitals and Health Systems, however, said the proposed legislation would cause millions of dollars in losses, and would require multiple Vermont hospitals to cut staff or services.
Asked in an interview later that day about the morality of charging large markups on critical pharmaceuticals, Green, the hospital lobbyist, paused for a long time.
“I do not think that it is right,” she said finally. “And I think it is an unfortunate byproduct of a very flawed way of paying for health care.”
