When rebates and discounts were factored in, drug prices declined—or grew slowly—in 2019. Consistent with our previous analyses, rebates and discounts reduced the selling price of brand-name drugs to about half of their list prices.
This growing disparity between list and net prices continues to inflate the gross-to-net bubble. As the companies’ insulin data illustrate below, the bubble raises costs for patients who are not always benefiting from lower net selling prices.
These data also highlight the lunacy of inflationary rebates that are based on a government pricing metric that approximates a brand-name drug's list price. This is what Senator Charles Grassley (R-IA) has proposed in the Prescription Drug Pricing Reduction Act of 2020. Legislation should shield patients from the excesses of the gross-to-net bubble while enhancing the competitive pressures that are reducing drug prices. Is that too much to ask?
The following five companies publicly reported the 2019 list and net price changes for their U.S. product portfolios, along with average discounts from list price. As always, I encourage you to review the original source material for yourself. Here are links to the relevant reports:
Brand-name manufacturers earn substantially less revenue than drug list prices imply. A drug’s net price equals its list price minus all rebates, discounts, and fees. These rebates, discounts, and fees explain why net drug prices can decline even as list prices grow. See The Gross-to-Net Bubble Reached $175 Billion in 2019: Why Patients Will Benefit from Rebate Reform,
Brand-name manufacturers therefore earn substantially less revenue than drug list prices imply. The table below summarizes the 2019 list and net price changes for the brand-name product portfolios of Eli Lilly, Janssen, Merck, Novartis, and Sanofi—along with average discounts.
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My observations on the 2019 figures:
- Large manufacturers’ products show significant gaps between changes in list and net prices. The gross-to-net difference for 2019 ranged from -2.0% to -14.0%. The unweighted average gap was -6.2%.
These data confirm that any analysis of list prices is a misleading and inaccurate measure of drug pricing. Alas, the facts don’t seem to prevent journalists and politicians from promoting the false narrative of “skyrocketing” drug prices.
- Brand-name manufacturers earn substantially less revenue than drug list prices imply, due to the gross-to-net difference between a manufacturer’s list and net prices. Drugmakers sell their products for about half of list price. The table above also shows that the weighted average brand-name portfolio had list-price discounts of -44% to -57%. The unweighted average discount off list was 51%, i.e., half price.
These manufacturer-specific figures are consistent with industry average figures. SSR Health data reveal that list prices for brand-name drugs rose by about 5% in 2019. However, net prices (after rebates and discounts) decreased by -3.1%. Drugmakers discounted their brand-name drug list prices by an average of 45%. (See Surprise! Brand-Name Drug Prices Fell in 2019.)
- Average discounts from list prices have been deepening.Merck’s average discount rate went from -41% in 2016 to -44% in 2019, while Lilly’s rate went from -50% to -57%. We estimate that in 2019, the total value of gross-to-net reductions for brand-name drugs was $175 billion. That figure has doubled over the past six years. Read more at www.GrossToNetBubble.com.
OUR INSULIN PROBLEM
The figures above apply to the companies’ entire portfolios. However, two manufacturers provided additional details on insulin.
Insulin is an essential medicine that is sold to insurers and PBMs at deep discounts. However, too many patients are forced to make out-of-pocket payments based on insulin’s irrelevant list price. Rebates on insulin are a disproportionate contributor to the gross-to-net bubble.
Sanofi provided the following data:
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As you can see, list prices for Sanofi’s insulins have grown by 140% over the past eight years, while net prices have declined by 41%. The chart also shows the gross-to-net bubble for insulin. For 2019, Sanofi received about $52 in revenue for insulin that had a list price of more than $350. The gross-to-net amount was about $300, implying that total rebates and discounts reduced insulin's list price by 86%.
Eli Lilly provided the data below for its Humalog product and its insulin lispro authorized generic.
- Over the past five years, the list price of Humalog insulin increased by 27%, while the net price declined by 10%.
- The average annual value of Lilly’s per-vial rebates and discounts for Humalog grew, from $146 (=$216-$70) in 2015 to $215 (=$275-$60) in 2019.
- Diabetes patients need multiple vials, so the total annual value of rebates and discounts is likely to be more than $5,000 per patient.
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Benefit designs often mask these declining net prices. Consider IQVIA's findings about diabetes drugs that I highlighted last week:
- Payers' drug costs and manufacturers' revenues have been dropping for the past four years.
- Despite this decline, patients’ out-of-pocket costs have been rising.
Until the rebate system is reformed, list prices will continue to rise at rates above the actual cost of drugs. Fortunately, some academic economists are finally starting to recognize the gross-to-net bubble. Some have even reversed the errors of their previous research. See the details in my March news roundup.
A world without rebates would make the drug pricing debate much more straightforward and transparent. Until then, expect to see more SpongeBob SquarePants.
CORRECTION: An earlier version of this article misstated the net price change for Janssen. Net prices declined by -1.2%, not increased by +1.2%.