Four Trends That Will Pop the $250 Billion Gross-to-Net Bubble—and Transform PBMs, Market Access, and Benefit Design (rerun)

This week, I’m rerunning some popular posts while I prepare for this Friday’s live video webinar: PBMs and the Battle Over Patient Support Funds: Accumulators, Maximizers, and Alternative Funding.

Click here to see the original post from April 2023.

---

Time for Drug Channels Institute’s annual update on the gross-to-net bubble—the ever-growing dollar gap between sales at brand-name drugs' list prices and their sales at net prices after rebates and other reductions.

We estimate that the gross-to-net bubble reached $223 billion for patent-protected brand-name drugs in 2022. If we include brand-name drugs that have lost patent protection and face competition from generic equivalents, the bubble was even higher, at $256 billion. Our latest data appear below.

Four crucial trends will deflate the gross-to-net bubble—thereby disrupting market access strategies, altering pharmacy benefit manager (PBM) profit models, and changing plan sponsor benefit designs. Perhaps it’s time to get ready for the day when SpongeBob SquarePants will depart from Drug Channels.

The Inflation Reduction Act: 10 Predictions About Market Access and Drug Channels (rerun)

This week, I’m rerunning some popular posts while I prepare for this Friday’s live video webinar: PBMs and the Battle Over Patient Support Funds: Accumulators, Maximizers, and Alternative Funding.

Click here to see the original post from April 2023.

---

Like it or not, the Centers for Medicare & Medicaid Services (CMS) is barreling ahead with its implementation of the Inflation Reduction Act of 2022 (IRA). Last Friday was the last day to submit comments on CMS's initial guidance on the drug price negotiation program.

The IRA will alter many crucial aspects of the Medicare program and the overall drug channel. To help you anticipate what’s ahead, below I highlight 10 predictions on how the IRA will impact drug prices, demand for prescription drugs, Part D plan strategies, rebates, manufacturers’ revenues, retail pharmacies, and more.

While this is a longer-than usual post, I can still only barely scratch the surface of the many far-reaching effects of this legislation. As always, I encourage you to share your own thoughts in the comments below or on social media.

The Inflation Reduction Act: 10 Predictions About Market Access and Drug Channels

Like it or not, the Centers for Medicare & Medicaid Services (CMS) is barreling ahead with its implementation of the Inflation Reduction Act of 2022 (IRA). Last Friday was the last day to submit comments on CMS's initial guidance on the drug price negotiation program.

The IRA will alter many crucial aspects of the Medicare program and the overall drug channel. To help you anticipate what’s ahead, below I highlight 10 predictions on how the IRA will impact drug prices, demand for prescription drugs, Part D plan strategies, rebates, manufacturers’ revenues, retail pharmacies, and more.

While this is a longer-than usual post, I can still only barely scratch the surface of the many far-reaching effects of this legislation. As always, I encourage you to share your own thoughts in the comments below or on social media.

Four Trends That Will Pop the $250 Billion Gross-to-Net Bubble—and Transform PBMs, Market Access, and Benefit Design

Time for Drug Channels Institute’s annual update on the gross-to-net bubble—the ever-growing dollar gap between sales at brand-name drugs' list prices and their sales at net prices after rebates and other reductions.

We estimate that the gross-to-net bubble reached $223 billion for patent-protected brand-name drugs in 2022. If we include brand-name drugs that have lost patent protection and face competition from generic equivalents, the bubble was even higher, at $256 billion. Our latest data appear below.

Four crucial trends will deflate the gross-to-net bubble—thereby disrupting market access strategies, altering pharmacy benefit manager (PBM) profit models, and changing plan sponsor benefit designs. Perhaps it’s time to get ready for the day when SpongeBob SquarePants will depart from Drug Channels.

Drug Channels News Roundup, June 2020: CVS’s New GPO, CMS on Copay Accumulators, GoodRx Fees, Supermarket Pharmacies, and Merck’s Ken Frazier

Happy 244th birthday, America! Before you declare your (socially-distanced) independence, get up close and personal with these Drug Channels fireworks:

• CVS launches a new GPO for its PBM

• CMS rethinks copay accumulators

• Here’s how GoodRx makes money

• Supermarkets face pharmacy challenges

Plus, powerful and important comments from Ken Frazier, CEO of Merck.

P.S. Join the more than 9,500 followers of my curated links to neat stuff at @DrugChannels on Twitter. My recent tweets have highlighted: Amazon’s activities, PillPack’s bad reviews, 340B outrages, rebate reform redux, biosimilar pricing, managed Medicaid market shares, drug pricing, blockchain hype, and the warp speed vs. hyperspace debate.

JAMA: Withdraw This Flawed and Inaccurate Article About the 340B Program and Drug Prices

The Journal of the American Medical Association (JAMA) recently published Estimated Changes in Manufacturer and Health Care Organization Revenue Following List Price Reductions for Hepatitis C Treatments by Sean Dickson and Ian Reynolds. The paper purports to show that manufacturers’ net revenues increased following a decrease in three drugs’ list prices.

However, the paper contains a significant computational error: The authors do not properly calculate the 340B ceiling price. Consequently, the authors’ calculations are inaccurate and their conclusions are erroneous. As we might expect, a manufacturer’s revenue per-patient doesn’t increase when list prices decline and net prices remain constant.

Below, I explain how to compute a drug’s ceiling price under the 340B Drug Pricing Program. I then illustrate the crucial mathematical error in the JAMA paper. I also briefly highlight a few other errors and omissions in the paper.

The paper’s serious and irredeemable flaws imply that readers will be significantly misinformed about drug prices and the 340B program. You may or may not agree with me about the 340B program. But I hope you will concur that respected academic journals should publish truthful and accurate information.

The Trump Drug Pricing Plan: Short Term Reprieve, Long Term Disruption

Last Friday, the U.S. Department of Health & Human Services (HHS) released American Patients First, a report billed as “The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs.” This administration’s blueprint offers a thoughtful diagnosis of U.S. drug pricing along with the unintended consequences and warped incentives of our drug channel system.

The report also proposes a very long list of more than 50 regulatory and legislative fixes. It therefore doesn’t translate to quick action or simple sound bites. Many people are discounting the plan as no big deal and therefore underestimating how radically the system could change.

Below, I review some of its more radical notions—and highlight why the document's ideas pose substantial long-term risks for drug channel companies and their profit models. I also examine proposed changes for modernizing the Medicare Part D program and discuss two popular but ineffective ideas that were omitted from the document. While I don’t cover it in this article, I suspect changes to the Medicare Part B program may arrive soon.

The blueprint avoids facile diagnoses and simplistic solutions. It therefore looked on Friday like a weak political move. However, I expect last Friday’s announcement will mark the start of many coming changes.

Generic Deflation Roils the Channel—And Will Get Worse

Deflation in generic drug prices dragged down second quarter earnings for drug wholesalers and generic manufacturers. Here’s a useful summary from The Wall Street Journal, which captures the grim marketplace realities in Falling U.S. Generic Drug Prices Hurt Manufacturers, Wholesalers. Yesterday, Mylan's earning release noted "high-single-digit erosion expected in North America."

Below, I review the state of the generic drug market. As you will see, the overall market for mature generic drugs is deflating by about 10% per year. Many generic drugs have dropped significantly in price over the past four years.

Surprisingly, the prices for about one in five generic drugs remain elevated. Scott Gottlieb, M.D., the new head of the Food and Drug Administration (FDA), has prioritized actions that should squeeze the remaining generic inflation out of the system. I expect generic drug deflation to continue—and possibly accelerate—over the next 12 to 24 months.

Payers and consumers will be the ultimate winners, but the drug channel faces significant disruption. In the meantime, let’s all hope that these price declines don’t trigger shortages if generic drug makers flee this sinking market.

Seven Pharmacy and Channel Implications of the New AMP Final Rule (rerun)

This week, I’m rerunning some popular posts while I attend the 2016 Armada Specialty Pharmacy Summit. Click here to see the original post and comments from January 2016.

---

Well, pierce my ears and call me drafty! Late last week, the Centers for Medicare & Medicaid Services (CMS) finally released its long-overdue final rule regarding Average Manufacturer Price (AMP) under the Patient Protection and Affordable Care Act (ACA). Since 2012, CMS has announced—and then delayed—the release of the final rule at least five times. Makes you proud to be a taxpayer, doesn’t it?

Savor all of the bureaucratese for yourself in the oh-so-brief 658-page rule, known to the cool kids as CMS-2345-FC. (Note: Not the name of a new Star Wars droid.)

The rule is effective April 1, 2016. (Seriously.) Below, I highlight what it could mean for drug channels, including observations on:

• Prescription reimbursement
• Pharmacy profits
• Manufacturers’ channel strategies
• Bona fide service fees
• Manufacturer-retail direct distribution arrangements
• And more!

Enjoy.

Roundup of AMP Final Rule Analyses (Plus Two New CMS Webinars)

In Seven Pharmacy and Channel Implications of the New AMP Final Rule, I gave you my $0.02 on the Average Manufacturer Price (AMP) final rule from the Centers for Medicare & Medicaid Services (CMS).

Want to know more? Below, I highlight six useful reviews and articles about the rule.

I also provide info on two official (and free) CMS webinars happening later this week:

• For manufacturers on Wednesday, Feb. 10

• For pharmacies on Thursday, Feb. 11

Hope you enjoy this extra dose of disampbiguation!

Seven Pharmacy and Channel Implications of the New AMP Final Rule

Well, pierce my ears and call me drafty! Late last week, the Centers for Medicare & Medicaid Services (CMS) finally released its long-overdue final rule regarding Average Manufacturer Price (AMP) under the Patient Protection and Affordable Care Act (ACA). Since 2012, CMS has announced—and then delayed—the release of the final rule at least five times. Makes you proud to be a taxpayer, doesn’t it?

Savor all of the bureaucratese for yourself in the oh-so-brief 658-page rule, known to the cool kids as CMS-2345-FC. (Note: Not the name of a new Star Wars droid.)

The rule is effective April 1, 2016. (Seriously.) Below, I highlight what it could mean for drug channels, including observations on:

• Prescription reimbursement
• Pharmacy profits
• Manufacturers’ channel strategies
• Bona fide service fees
• Manufacturer-retail direct distribution arrangements
• And more!

Enjoy.

Drug Channels News Roundup, December 2015: AmerisourceBergen, Pharmacy Pricing, AMP Final Rule, and Walgreens

December at last! It’s time for our final news roundup of 2015. Before you hit the mall, check out this hand-picked selection of notable news stories from around the Drug Channels universe.

• AmerisourceBergen CEO Steve Collis reflects on his first four years

• Beware! Consumers should watch out for overpriced pharmacies

• Will Santa bring us the Average Manufacturer Price (AMP) Final Rule?

Plus, the Walgreens Community Theater Players perform an unintentionally hilarious skit touting preferred pharmacies in Medicare Part D. As my kids say: LOL.

P.S. For news and other stuff that I find cool and interesting, follow @DrugChannels on Twitter.

OMG! AMP Final Rule is at OMB!

You gotta strike when the moment is right without thinking. And its looks like the Centers for Medicare & Medicaid Services (CMS) might finally be doing so.

Apparently, the oft-delayed Federal Upper Limits (FUL) and the Final Rule on Covered Outpatient Drugs, a.k.a., the Average Manufacturer Price (AMP) Final Rule, is now officially under final review at the Office of Management and Budget (OMB). The announcement is pasted below, because you probably don't believe it either.

Does this mean that CMS will finally accomplish this policy goal? How quickly will the pharmacy industry sue to stop implementation? Are you wondering which of the buggars to blame for the delay?

Read on for the proof and some background.

Surprise? Once Again, FULs and AMP Final Rule Delayed

In what has become a semi-annual ritual, the Centers for Medicare & Medicaid Services (CMS) last night announced plans to delay the Federal Upper Limits (FUL) and the Final Rule on Covered Outpatient Drugs, a.k.a., the Average Manufacturer Price (AMP) Final Rule. Full text of the non-announcement email below.

You can read about the previous delays here…and here…and here…and, oh yes, here, too.

In its email, CMS confirms that it will do something, at some point in the future, and that it looks forward to partnering with stakeholders whenever it does the thing that it may or may not ever do.

Meanwhile, we'll all just muddle along without clarity on AMP computations, bona fide service fees, the definition of retail pharmacy, and more. It's enough to make any cat grumpy about the Affordable Care Act's implementation.

McKesson, Rite Aid, and the Changing Generic Channel (rerun)

I’m taking a break from blogging this week and rerunning some of 2014's popular posts. Click here to see the original post and comments from February 2014.

---

As predicted, McKesson and Rite Aid announced a new generic purchasing agreement. Click here to read the press release.

Once they get organized, McKesson-Celesio-Rite Aid will be the largest generics buyer in the world. (See table below.) The new relationship has some common elements with the Walgreens-AmerisourceBergen (ABC) tie-up, although McKesson gains a more valuable sourcing position compared to ABC.

More significantly, the deal continues a revolution in how wholesalers interact with their biggest retail customers. Below, I contrast the various wholesaler-customer deals and highlight implications for wholesalers’ channel role, generic buying, downstream speculative buying, AMP-based FULs, and more. Be prepared for more change.

FULs Delayed (Again); AMP Final Rule Scheduled for June (LOL)

The Center for Medicare & Medicaid Services (CMS) just announced plans to finalize the Federal Upper Limits (FUL) for multiple source drugs sometime before the universe collapses into a dimensionless singularity.

In the meantime, CMS postponed its previously announced July 2014 deadline for finalizing the FULs. For CMS aficionados, the email notice is pasted below. (CMS apparently can’t be bothered to update its FUL website.)

In related non-news, the Office of Information and Regulatory Affairs website now taunts us with a June 2014 arrival for the oft-delayed Final Rule on Covered Outpatient Drugs, a.k.a., the Average Manufacturer Price (AMP) Final Rule. (Read my November note on the last three delays.) Long-time readers may vaguely recall my January 2012 write-up of the proposed rule: New AMP Rule Targets Bona Fide Service Fees.

As my teenage daughter would say: What-ever. See the AMP notice below. I expect the AMP rule to be released after the mid-term elections.

McKesson, Rite Aid, and the Changing Generic Channel

As predicted, McKesson and Rite Aid announced a new generic purchasing agreement. Click here to read the press release.

Once they get organized, McKesson-Celesio-Rite Aid will be the largest generics buyer in the world. (See table below.) The new relationship has some common elements with the Walgreens-AmerisourceBergen (ABC) tie-up, although McKesson gains a more valuable sourcing position compared to ABC.

More significantly, the deal continues a revolution in how wholesalers interact with their biggest retail customers. Below, I contrast the various wholesaler-customer deals and highlight implications for wholesalers’ channel role, generic buying, downstream speculative buying, AMP-based FULs, and more. Be prepared for more change.

AMP Final Rule Delayed Yet Again ... to May 2014

UPDATE (12/2/13): CMS announces its intention to finalize the Federal Upper Limits (FUL) for multiple source drugs in July 2014!

---

Here’s another reason to be cynical about the Affordable Care Act's implementation.

The long-awaited Final Rule on Covered Outpatient Drugs, a.k.a., the AMP Final Rule, has been pushed back yet again, to May 2014. This follows at least two previous delays, described here and here.

Sounds to me like politics trumps the law. Given the dual debacles of healthcare.gov and “you can keep your insurance,” I presume the Obama administration wants to avoid political noise from the ACA's hit to pharmacy profits.

The delay is good news for the pharmacy industry. When (if?) the new AMP-based Federal Upper Limits get implemented, pharmacies in many states will face reimbursement cuts of 30% or more. See Obamacare Will Squeeze Pharmacy Profits.

For government notice aficionados, I have pasted the notice below. Enjoy Black Friday!

Obamacare Will Squeeze Pharmacy Profits

The Office of Inspector General (OIG) recently released Medicaid Drug Pricing In State Maximum Allowable Cost Programs. If you own or invest in retail pharmacies, you should read it—anyway, anyhow, anywhere.

The OIG compared existing state Medicaid programs’ generic prescription reimbursement limits with the new limits mandated by the Patient Protection and Affordable Care Act (PPACA), a.k.a. Obamacare. The highlights:

• On average, the new federal reimbursement limits are 22% below the current state amounts.
• Pharmacies in many states will face reimbursement cuts of 30% or more. (See the chart below.)
• Total pharmacy revenues will decline by about $1.2 billion (-0.4%).

One more tricky day for you: The pharmacy industry has successfully lobbied to create state laws requiring that private payers provide “transparency” into generic reimbursement limits. Will savvy private payers rely on the forthcoming government limits to be the bad man?

AMP Final Rule Delayed to ... January 2014?

Hey, did you read the latest Semiannual Regulatory Agenda from the Department of Health and Human Services? No?

Well, here's an interesting little factoid buried amidst the administrivia: the long-awaited Final Rule on Covered Outpatient Drugs, a.k.a., the AMP Final Rule, is now scheduled for ... January 2014!

In case you don't feel like trolling through the Federal Register, the brief notice is reproduced below.

As a reminder, the proposed rule regarding Average Manufacturer Price (AMP) under the Patient Protection and Affordable Care Act (PPACA) was released in January 2012. A January 2013 notice suggested that the Final Rule would be released next month, per my not-quite-prescient article: AMP Final Rule is Coming...in August.

So, the deadline has been pushed back again. But, this time is different. Right?