Click here to see the original post and comments from January 2021.
In 2020, brand-name drug net prices dropped for the third consecutive year. Meanwhile, brand-name drug list prices grew at their slowest rate in at least 20 years. See our updated analysis below.
I also review the factors behind declining brand-name drug prices. These factors are firmly in place for 2021.
Our new Congress may try tackle drug prices in the new year. Let’s hope that their policy perceptions catch up to today’s realities.
To examine drug pricing, we rely on data from SSR Health, an independent organization that collects and reports data on pharmaceutical prices. SSR Health is widely regarded as the leading provider of these data. In a testament to SSR Health’s influence, the Institute for Clinical and Economic Review (ICER) relies on these net price data in its cost-effectiveness evaluations. Read more about SSR Health on its US Brand Rx Net Pricing Tool webpage.
SSR Health’s list and estimated net pricing figures are based on approximately 1,000 brand-name drugs with disclosed U.S. product-level sales from approximately 100 currently or previously publicly traded firms. The products and companies in the SSR Health numbers account for more than 90% of U.S. branded prescription net sales. SSR Health updates these figures quarterly, and its historical figures date from the first quarter of 2007.
Here’s our quick refresher on drug pricing terminology:
- The manufacturer of a drug establishes the drug’s list (gross) price, called the Wholesale Acquisition Cost (WAC). A manufacturer’s gross revenues equal its revenues from sales at a drug’s WAC list price.
- A drug’s net price equals the actual revenues that a manufacturer earns from a drug after rebates, discounts, and other reductions. A drug’s net revenues equal its revenues from sales at the drug’s net price.
The major components of gross-to-net price differences for brand-name drugs include:
Negotiated and statutory rebates to third-party payers are the largest and most significant components of gross-to-net differences.
- Rebates to commercial payers, Medicare Part D plans, the Medicaid program, and other payers
- Discounts to healthcare providers under the 340B Drug Pricing Program
- Manufacturers’ payments to drug channel participants (admin fees to PBMs; fees and discounts to drug channel participants; and fees and discounts to pharmacies)
- Patient assistance and copayment support funds
The chart below summarizes the list and net price changes for a broad set of brand-name drugs over the past seven years:
[Click to Enlarge]
Consistent with our previous analyses, these data show significant gaps between list and net price changes:
- List-price growth has dropped significantly. From 2010 to 2015, growth in list prices was increasing by 10% to 15%. Growth has slowed sharply over the past five years, from 13.5% in 2014 to 4.2% through the first three quarters of 2020.
- Net prices for brand-name drug prices are dropping. For 2020, list prices grew by 4.2%, but net prices declined by -2.2%. The gross-to-net gap in prices was -6.4%.
These industry data are consistent with the manufacturer-specific disclosures about changes in list and net drug prices that I discuss in Five Top Drugmakers Reveal List vs. Net Price Gaps (Plus: The Trouble With Insulin Prices).
- The gross-to-net bubble keeps inflating. Drug Channels Institute coined the term gross-to-net bubble to describe the speed and size of growth in the total dollar value of manufacturers’ gross-to-net reductions. This terminology has been embraced by industry participants, the government, and others who cover the industry.
As list prices rise, the dollar value of the manufacturer’s rebates and discounts grows. The manufacturer provides larger rebates to offset the increase in list prices. Hence, the total value of the gross-to-net bubble expanded to an astounding $175 billion for 2019, despite the slowing growth in list prices and the negative growth rates for net prices. However, the total value of rebates and discounts grew at the slowest rate in recent years. See The Gross-to-Net Bubble Hit $175 Billion in 2019: Why Patients Need Rebate Reform.
This week, the media fixated on manufacturers’ list price increases for 2021.
But the factors that are widening gross-to-net differences will continue in 2021. These include (but are not limited to):
- Growing concentration within the PBM industry
- Increasingly crowded, highly competitive therapeutic categories
- Higher risks of formulary exclusion
- Deeper mandatory rebates and discounts to government payers
- Explosive growth in 340B Drug Pricing Program discounts
No other part of the healthcare system has seen its average prices drop year after year. In his excellent book The Great American Drug Deal, Peter Kolchinsky made an astute observation:
“Doctors and hospitals do not go generic. Surgery will only climb in price. For all the outrage over companies raising the prices of their branded drugs year after year, this is the norm for land values, housing costs, and the prices of many other products.”The latest data show that the situation is even worse than Peter described. Brand-name drug prices continue to decline while the prices of other healthcare products and services continue to rise. Politicians, journalists, and academics who focus on list prices distort the truth about drug prices.
As I noted in my final post of 2020: When Americans complain about “drug prices,” most are actually complaining about the share of costs they pay—and how those costs are computed. The gross-to-net gaps shown above have significant negative consequences for many patients. See Drug Pricing Policy in 2021: Four Crucial Consequences of Pharmacy Benefits Today.
As we enter the new year, I’ll do my best to keep Drug Channels focused on honest, fact-based discussions of today’s realities and what they mean.
In the meantime, I hope the pharma industry’s critics reflect on these actual data. As my friend Mike Marks once told me: A learning experience is what you get when you expected something else.