These reports shed light on the heated political rhetoric and policy proposals that focus on drugs’ list prices. The reality: brand-name drug makers sold their products at half of those list prices. As you will see, the five companies discounted their average list prices by 44% to 55%.
Four of the five companies experienced a year-over-year decrease in average net prices.
This disparity continues to inflate the gross-to-net bubble. More than half of insured patients’ out-of-pocket prescription costs are tied to the list price, not the post-rebate net cost. That’s why rebate reform is needed. I’ll address the state of point-of-sales rebates in my next post.
As always, I encourage you to review the original source material for yourself. Here are links to the relevant reports from five pharmaceutical manufacturers:
The manufacturer of a drug establishes the drug’s list (gross) price, called the Wholesale Acquisition Cost (WAC). A drug’s net price equals its list price minus rebates as well as such other reductions as distribution fees, product returns, chargeback discounts to hospitals, price reductions from the 340B Drug Pricing Program, and other purchase discounts. Negotiated and statutory rebates to third-party payers, however, are the largest and most significant components of gross-to-net price differences. See the second chart in The Gross-to-Net Bubble Reached a Record $166 Billion in 2018. (Click here for a direct link to the chart.)
Brand-name manufacturers therefore earn substantially less revenue than drug list prices imply. The table below summarizes the gross and net price changes for the brand-name product portfolios of five large pharmaceutical manufacturers—Eli Lilly, Janssen, Merck, Novartis, and Sanofi—along with average discounts.
[Click to Enlarge]
Here are a few observations about the 2018 figures:
- There were significant gaps between list and net price changes. The gross-to-net difference for 2018 ranged from -3.5% to -12.6%. The unweighted average gap was -8.4%. This further confirms that any analysis of list prices is a misleading and inaccurate measure of drug pricing.
For four of the five companies, weighted average net prices declined in 2018. None of the companies provided product-specific details on price changes.
- Drugmakers sell their products for about half of list price.The chart above also shows that the weighted average brand-name portfolio had list-price discounts of -44% to -55%. The unweighted average discount off list was 50%, i.e., half price.
What’s more, average discounts from list price have been deepening. Janssen’s average discount went from -35% in 2016 to -47% in 2018. I suspect that biosimilar competition has played a big role, per my comments in We Shouldn’t Give Up on Biosimilars—And Here Are the Data to Prove it. Merck’s average discount rate went from -41% in 2016 to -44% in 2018, while Lilly’s rate went from -51% to -54%.
These manufacturer-specific figures are consistent with industry average figures. IQVIA estimates that for 2018, brand-name drugs’ gross-to-net reductions lowered revenues at list prices by 43%.
- The gross-to-net bubble keeps inflating. Drug Channels Institute developed the term gross-to-net bubble to describe the speed and size of growth in the total value of manufacturers’ gross-to-net reductions.
The compounding effect of gross-to-net pricing differences inflates the bubble. We estimate that in 2018, the total value of gross-to-net reductions for brand-name drugs was $166 billion. That figure has doubled over the past six years. Read more at www.GrossToNetBubble.com.
The persistent and growing gap between list and net prices has significant implications for patients—and on the political noise about pricing.
In Section 12.4.1. of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers, I highlight the distortions that arise from the gross-to-net bubble. These include:
- Patients are increasingly exposed to the list price of their prescriptions. Many people now pay a coinsurance percentage of the price negotiated between the pharmacy and the plan or PBM, or even the entire list price when they are within a deductible. See How Health Plans Profit—and Patients Lose—From Highly-Rebated Brand-Name Drugs.
- Patients may not benefit from rebates. Payers typically use rebates to offset non-drug healthcare costs and reduce general premiums, rather than offset the prices paid by patients whose prescriptions generated the billions in rebates. Read my Wall Street Journal op-ed on drug prices.
- Payers and PBMs have incentives to select higher-priced, heavily rebated drugs instead of lower-cost alternatives. The compensation of drug channel intermediaries is linked to the list price.
A world without rebates would make the drug pricing debate much more straightforward and transparent. Unfortunately, the gross-to-net bubble seems unlikely to pop anytime soon.
There is one small consolation: You'll get a lot more SpongeBob SquarePants!
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