Drug Channels Institute (DCI) estimates that the gross-to-net reductions for all brand-name drugs reached $356 billion in 2024, a 7% increase over the previous year. Yet despite this record total, the bubble expanded at the slowest rate in at least a decade.
In our analysis below, we highlight five key forces driving this shift. Among them: manufacturers’ evolving market access strategies, which increasingly aim to offset—or circumvent—growing pricing pressure from both commercial and government payers.
Meanwhile, many patients remain adrift in the drug channel’s murky waters. As for SpongeBob SquarePants—the longtime mascot of the gross-to-net bubble here at Drug Channels—he’s still with us…but may be eyeing the exit.
Portions of today’s post are adapted from Sections 9.2. and 12.5.2. of DCI’s 2025 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
BUBBLICIOUS DRUG PRICING FAQs
Here are some frequently asked questions to help you better understand brand-name drug pricing in the United States.
1. What are gross and net drug prices?
The manufacturer of a drug establishes the drug’s list price, called the Wholesale Acquisition Cost (WAC). A pharmacy’s revenues for a brand-name drug prescription approximate the list price, due to the typical formulas used to compute ingredient cost reimbursement.
A drug’s net price equals the actual revenues that a manufacturer earns from a drug. The net price equals its list price minus rebates and such other reductions as distribution fees, product returns, discounts to hospitals, price reductions from the 340B Drug Pricing Program, and other purchase discounts. Negotiated and statutory rebates, however, are the largest and most significant components of gross-to-net price differences.
Consequently, brand-name drug 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. What’s more, these differences are typically not reflected in public or plan-level data, creating confusion among patients and policymakers.
That’s also why net drug prices are flat even as list prices grow. See Inflation-Adjusted U.S. Brand-Name Drug Prices Fell for the Seventh Consecutive Year as a New Era of Drug Pricing Dawns. We’ll update the 2024 manufacturer-specific data in an upcoming post.
Drug channel participants—pharmacies, PBMs, wholesalers, plan sponsors, et al.—do not have access to the net prices that manufacturers earn.
A drug’s net price equals the actual revenues that a manufacturer earns from a drug. The net price equals its list price minus rebates and such other reductions as distribution fees, product returns, discounts to hospitals, price reductions from the 340B Drug Pricing Program, and other purchase discounts. Negotiated and statutory rebates, however, are the largest and most significant components of gross-to-net price differences.
Consequently, brand-name drug 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. What’s more, these differences are typically not reflected in public or plan-level data, creating confusion among patients and policymakers.
That’s also why net drug prices are flat even as list prices grow. See Inflation-Adjusted U.S. Brand-Name Drug Prices Fell for the Seventh Consecutive Year as a New Era of Drug Pricing Dawns. We’ll update the 2024 manufacturer-specific data in an upcoming post.
Drug channel participants—pharmacies, PBMs, wholesalers, plan sponsors, et al.—do not have access to the net prices that manufacturers earn.
2. What is the gross-to-net bubble?
A manufacturer’s gross revenues equal its revenues from sales at a brand-name drug’s WAC list price. Net revenues equal its revenues from sales at a drug’s net price, i.e., the actual revenues received and reported by the manufacturer after rebates, discounts, and other reductions.
Drug Channels Institute coined the term gross-to-net bubble to describe the dollar gap between gross sales and net sales. We use “bubble” to characterize the speed and size of growth in the total dollar value of manufacturers’ gross-to-net reductions.
Our terminology has been embraced by industry participants, MedPAC, academic researchers, and others who cover the industry. Some technology vendors are even adopting DCI's language in their marketing. Click here to read all Drug Channels articles on the bubble.
3. What does this have to do with SpongeBob SquarePants?
One of SpongeBob’s favorite pastimes is “blowing soap bubbles into elaborate shapes.” Hence, Mr. SquarePants is the honorary mascot of the gross-to-net bubble and appears on Drug Channels whenever we discuss the topic. He also graces the set of the Drug Channels Video studio.
OUR BUBBLE BUDDY
We estimate that in 2024, the total value of gross-to-net reductions for all brand-name drugs was $356 billion. Through the compounding effect of gross-to-net pricing differences, the total value of manufacturers’ off-invoice discounts, rebates, and other price concessions for brand-name drugs continues to expand, although the growth rate has slowed.
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We estimate that the bubble inflated at the slowest rate in at least 10 years, due partly to list price reductions by highly rebated products with substantial gross sales. For example, the insulin products with reduced list prices for 2024 had more than $20 billion in gross sales prior to the price reductions.
The figures in the chart above include brand-name drugs that have lost patent protection and face competition from generic equivalents. Our computations include rebates, discounts, and fees paid for both pharmacy and medical benefit claims. (Note that DCI’s reports through 2023 have included only patent-protected brand-name drugs.)
As a manufacturer’s list price rises, so too does the dollar value of its rebates and discounts to offset the increase in list prices. Hence, the total value of the brand-name drug gross-to-net bubble expanded by more than $21 billion (+10%) in 2024, despite the slow growth in list prices, list price reductions for selected products, and negative growth rates for net prices.
FOLLOW THE DOLLARS
Exhibit 208 in DCI’s 2025 pharmacy/PBM report summarizes our estimates of the major components of the gross-to-net bubble for all brand-name drugs in 2024.
We estimate that a majority of the $356 billion total gross-to-net reductions for these products come from rebates paid to third-party payers.
Most—but not all—of these payments get passed-through to plan sponsors. Discounts under the skyrocketing 340B Drug Pricing Program and Medicaid rebates account for a further one-third of total gross-to-net reductions.
The three largest pharmacy benefit managers now process 80% of all equivalent prescription claims. Bigger PBMs can drive a harder bargain for larger rebates to achieve formulary position. The aggregation of PBM rebate negotiations via group purchasing organizations has heightened this concentration.
PBM compensation models continue to evolve, due to increased scrutiny by payers, regulators, and politicians. See How Large PBMs Make Money Today: A 2025 Drug Channels Update.
SOAPY WATERS
Alas, rebates and the gross-to-net bubble can increase patients’ out-of-pocket costs, distort formulary decisions, raise drug list prices, and alter the efficient operation of the drug channel. Pharmaceuticals are the only part of the U.S. healthcare system in which the difference between list and net prices is monetized as rebates and redistributed via intermediaries to payers.
Consequently, the bubble reflects—and drives—patients’ affordability problems, intermediaries' warped incentives, politicians’ misunderstandings of U.S. drug prices, and the media's frequent misinterpretations of pharmaceutical economics. Section 9.3.3. of DCI’s 2025 pharmacy/PBM report reviews nine specific effects of the gross-to-net bubble.
Brand-name manufacturers face ongoing pressure on net prices from both commercial and government payers. In previous articles and DCI reports, we have outlined the five key forces that are contributing to the gross-to-net bubble popping—or at least growing more slowly:
- Uncapping of Medicaid rebate limits due to the American Rescue Plan Act of 2021, which has incentivized drugmakers to avoid the nonsensical situation of having to pay the Medicaid program for the use of their products. For example, the three major manufacturers of widely prescribed insulin products have all reduced the WAC list price of many brand-name products.
- Manufacturers’ market access strategies, which increasingly use lower list prices rather than maintaining high list prices to maximize rebate value and non-contracted prescription revenues. Plan sponsors are finally adopting low-list-price biosimilars of Humira and Stelara.
- The Inflation Reduction Act of 2022 (IRA), which is discouraging manufacturers from increasing list prices of patient- and provider-administered brand-name drugs. The IRA’s focus on gross spending for identifying “negotiation eligible” drugs may also encourage manufacturers to narrow large gross-to-net gaps so as to bypass a drug's selection by CMS.
The IRA’s “maximum fair price” concept will reduce pharmacy and provider reimbursement to a price at or below the current net price by shifting the value of rebates from plans and patients to the federal government. Medicare patients' out-of-pocket coinsurance for these products will be based on the MFP, not the list price.
- Cash-pay pharmacies and discount cards, which are turning consumers into price shoppers who can absorb excess mark-ups, rebates, and other payments that would otherwise be earned by channel participants.
- Manufacturers’ direct-to-patient solutions, which bypass certain aspects of the drug channel and enable cash-pay pricing that approximates post-rebate net prices.
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