Most notably, Janssen reveals that the list price for its pharmaceutical products grew by 8.1% in 2017. Its average net prices, however, declined in 2017 by 4.6%. Janssen paid $15 billion in rebates and discounts, which subtracted 42% from its list prices. Kudos to Janssen for providing so much disclosure.
Below, I review some key takeaways from this valuable report. We’re left with some key unanswered questions, however: Did patients’ out-of-pocket costs for Janssen’s drugs also decline in 2017? Which entities in the drug channel benefited most from the $15 billion in payments?
I suspect that patients didn’t share fully in the benefit of Janssen’s ever-growing payments. That’s precisely the problem with the gross-to-net bubble.
PEEKING
First, a note on the report’s breadth and structure. Janssen’s 2017 edition is a thorough, professionally produced marketing document that contains a bevy of facts and information about the company’s operations. Its many topics include research and development spending, clinical data transparency, payments to physicians, pricing strategy, and patient financial support programs. The 2017 report expands on last year’s version, which I reviewed in this March 2017 post.
Drug Channels readers will benefit most from the “Pricing & Patient Access” section, which starts on page 14. Click here to access the web version of this section.
I also recommend that you read the Value section (page 13), which summarizes how Janssen assesses the value of its medicines. The 2017 report also features a worthwhile primer on new contracting approaches (page 22). These include contracts tied to medical outcomes and healthcare expenditures, as well as contracts for which the manufacturer pays for certain unexpected drug costs.
FOLLOW THE JANSSEN DOLLAR
I was especially intrigued by Janssen’s discussion of the drug channel and pricing.
Janssen provides a useful chart of the drug channel system, shown below. It’s a less- cluttered version of our own flowchart.
[Click to Enlarge]
On pages 18 to 20, Janssen summarizes the various discounts and rebates within the drug channel system that reduce a drugs’ list price, a.k.a., the Wholesale Acquisition Cost (WAC). These include:
- Formulary rebates negotiated with private insurers, pharmacy benefit managers (PBMs), hospitals, and clinics
- Statutorily defined rebates and discounts for such government programs as Medicaid, the Department of Veteran Affairs, and the 340B Drug Pricing Program
- Fees paid to pharmaceutical wholesalers and distributors
GROSS-TO-NET BUBBLENOMICS
Janssen reports that for 2017, its total rebates and discounts were $15 billion. Unfortunately, the report does not break out the composition of these payments into the categories outlined above.
On average, discounts and rebates reduced its list price in 2017 by 42%, compared with a 35% reduction in 2016.
The chart below summarizes list and net price growth for Janssen’s U.S. product portfolio.
[Click to Enlarge]
The growth in rebates and other discounts means that Janssen has experienced much more limited growth in its drugs’ net prices than their list prices. In 2017, the company’s weighted average list prices grew by 8.1%, while average net prices declined by 4.6%.
Janssen doesn’t explain what happened in 2017, but we can presume that increased biosimilar competition for Remicade influenced the negative net price growth. See Remicade: A Case Study in How U.S. Pricing and Reimbursement Curb Adoption of Biosimilars. However, Janssen notes that "even excluding REMICADE®, our 2017 net price change for our portfolio of medicines was negative."
SPONGEBOB SAYS HELLO!
This is a textbook example of the gross-to-net bubble—the growing spread between a manufacturer’s list price for a drug and the net price after rebates.
As I showed in Employers Are Getting More Rebates Than Ever—But Sharing Little With Their Employees, most plan sponsors hoard these rebates rather than sharing the savings with the employees whose prescriptions generated the rebate funds.
In addition, consumers with prescription drug deductibles and coinsurance likely faced higher out-of-pocket costs. That’s because their coinsurance amounts and payments within the deductible phase were based on a drug’s undiscounted, pre-rebate list price.
Thus, Janssen’s report inadvertently highlights a crucial patient issue raised by Dr. Scott Gottlieb, Commissioner of the U.S. Food and Drug Administration, in his recent speech:
“Patients shouldn’t be penalized by their biology if they need a drug that isn’t on formulary. Patients shouldn’t face exorbitant out of pocket costs, and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries, or is used to buy down the premium costs for everyone else. After all, what’s the point of a big co-pay on a costly cancer drug? Is a patient really in a position to make an economically-based decision? Is the co-pay going to discourage overutilization? Is someone in this situation voluntary seeking chemo?How (if at all) did patients taking Janssen products benefit from the extra $10 billion in rebates and discounts paid over the past six years? We have no way of knowing, but I suspect that patients did not fully share in the savings from Janssen’s payments.
Of course not. Yet the big co-pay or rebate on the costly drug can help offset insurers’ payments to the pharmacy, and reduce average insurance premiums. But sick people aren’t supposed to be subsidizing the healthy.
That’s exactly the opposite of what most people thought they were buying when they bought into the notion of having insurance.”
Perhaps plan sponsors and insurers should be more transparent about what they do with the billions collected from manufacturers—or even be forced to pass through these rebates to point of sale.
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