As you will see, the three companies have provided average discounts from list prices of 42% to 51%. Two of the three companies experienced a year-over-year decrease in average net prices.
Payers and PBMs frequently recommend that manufacturers just lower the cost of their drugs. These data demonstrate that’s exactly what these three companies have done. Of course, the price cuts were provided in the form of rebates and discounts to the drug channel. We still don’t know how, if at all, patients benefited from the declining prices for their drugs.
MINING FOR DATA
As always, I encourage you to review the original source material for yourself. Here are links to the relevant reports:
- 2017 Janssen U.S. Transparency Report, page 20 (I reviewed this report in Janssen’s New Transparency Report: A Peek Behind the Drug Pricing Curtain Raises Troubling Questions About Rebates.)
Here is a summary of the information from these companies. The figures reflect weighted averages for each company’s U.S. product portfolio.
[Click to Enlarge]
A few observations:
- For two of the three companies, average net prices declined in 2017. None of the companies provided product-specific details on prices changes, so I won’t offer any commentary here.
- The gross-to-net difference ranged from -4.2% to -11.6%. This further confirms that any analysis of list prices is a misleading and inaccurate measure of drug pricing.
- Average discounts from list price increased from 2016 to 2017 for all companies. Janssen’s average discount went from -35% to -42%, while Merck’s went from -41% to 45%. By contrast, Lilly’s average discount grew slightly, from 50% to 51%.
For full background on negotiated and mandated rebates, see Section 5.3 of our 2018 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
GOLDEN REBATE RETRIEVERS
Multiple factors have contributed to the large gross-to-net disparities for major pharmaceutical manufacturers:
- PBM consolidation. Nearly three-quarters of all prescription claims are now processed by the three largest pharmacy benefit managers. (See Exhibit 75 in our 2018 pharmacy/PBM report.) Bigger PBMs can drive a harder bargain for formulary position.
- The risk of formulary exclusion. PBMs have gained more leverage by threatening to remove products from their national formularies. See What’s In, What’s Out: The New 2018 CVS Health and Express Scripts Formulary Exclusion Lists .
- Crowded therapeutic categories. Competition gives payers enormous power, even when purchasing differentiated, highly valuable therapies. Products with many therapeutic alternatives can have rebates greater than 50% of a product’s gross sales.
- Generic drugs. In 2017, the generic dispensing rate (GDR)—the percentage of prescriptions dispensed with a generic drug instead of a branded drug—was 90%. Even when a traditional brand doesn’t have a generic equivalent, multiple generic therapeutic alternatives may be available.
- Deeper mandatory discounts. The Affordable Care Act increased a pharmaceutical manufacturer’s mandatory Medicaid rebates. It also required manufacturers to provide rebates in the Medicare Part D coverage gap. The Bipartisan Budget Act of 2018, which was signed into law in February 2018, increased those discounts.
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