Surprise! Brand-Name Drug Prices Fell in 2019

Manufacturers recently announced list price increases for many brand-name drugs. The typical increase was about 5%. Judging by recent history, these moderately higher list prices will translate into another year of falling brand-name drug prices in 2020.

This surprising conclusion comes from our analysis of SSR Health data on prices for more than 1,000 drugs. Details below.

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%. Drug makers discounted their brand-name drug list prices by an average of 45%.

Too many journalists and politicians remain committed to the false narrative of “skyrocketing drug prices.” In 2020, Congress may again take up drug price legislation. Let’s all hope that our country builds its public policies based upon accurate facts and reliable data. Hope has to triumph over experience eventually.

DATA DISAMBIGUATION

SSR Health is an independent organization that collects and reports data on pharmaceutical prices. 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 firms that are or were publicly traded. 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.

SSR is widely respected 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.

Here’s a 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 drug’s net price equals the actual revenues that a manufacturer earns from a drug. The net price equals the list price minus rebates as well as such other reductions as distribution fees, product returns, chargeback discounts to hospitals, price reductions from the 340B Drug Pricing Program, and other purchase discounts.

• Negotiated and statutory rebates to third-party payers are the largest and most significant components of gross-to-net price differences. See the second chart in The Gross-to-Net Bubble Reached a Record $166 Billion in 2018.

DRUG PRICING REALITIES

The chart below summarizes the list and net price changes for the brand-name drugs in SSR Health’s database.

[Click to Enlarge]

These data show significant gaps between list and net price changes. Three key takeaways:

• List prices continue to grow slowly. Before 2015, growth in list prices had been increasing by 10% to 15%. Growth has slowed sharply over the past five years, from 13.5% in 2014 to 4.9% through the first three quarters of 2019.
  
  These figures are highly similar to data collected and reported by IQVIA. See page 24 of its Medicine Use and Spending in the U.S.: A Review of 2018 and Outlook to 2023. IQVIA uses a different methodology and a slightly different sample. However, price changes are almost identical for brand-name drugs.

• Drug prices are dropping (not skyrocketing) when rebates and discounts are factored in. For 2019, list prices grew by 4.9%, but net prices declined by -3.1%. The SSR Health figures are consistent with the company-specific disclosures that I discuss in Half-Off Sale! Five Major Drugmakers Reveal Vast Gross-to-Net Price Gaps—and Why Rebate Reform Is Still Needed. Five of the largest pharmaceutical manufacturers—Eli Lilly, Janssen, Merck, Novartis, and Sanofi—publicly reported that list prices grew by 5.5% in 2018, while net prices declined by -2.9%.

• The compounding effect of pricing differences inflate the gross-to-net bubble. Drug Channels Institute developed the term the gross-to-net bubble to describe the speed and size of growth in the total value of manufacturers’ gross-to-net reductions. The compounding effect of gross-to-net pricing differences means that the total value of manufacturers’ off-invoice discounts, rebates, and other price concessions for brand-name drugs has grown.
  
  Consider the price changes shown in the chart above. Imagine that a product had a 2013 list price of $100. If this product had no discounts and rebates in 2013, then its net price would also have been $100. Using the average industry growth figures, this product’s list price would have been $173 by 2019, but its net price would have been $109. The difference of $64 (-37%) reflects the rebates and discounts that the manufacturer paid. These figures represent a lower bound, because newly launched brands always have some rebates and discount.

Despite the political bloviating, U.S. drug spending has been growing slowly. That’s because (1) rebates and discounts have more than offset list price increases, (2) net brand-name drug prices have declined, and (3) generic utilization is increasing. Consider the latest data on outpatient prescription spending reported here: Latest CMS Data: Drug Spending is Not Skyrocketing; Hospitals and Physicians Dominate Healthcare Costs.

The SSR Health data also highlight the lunacy of inflationary rebates that are based on a drug's Average Manufacturer Price (AMP). The AMP metric closely approximates list prices for brand-name drugs. (Read this article for background on AMP.) Can someone please explain list vs. net prices to Senators Grassley and Wyden?

It’s not clear that patients always benefit from these lower net selling prices. Many people now pay a coinsurance percentage of the price negotiated between the pharmacy and the plan or PBM, or even the entire list price when they are within a deductible. But as I concluded in an earlier article:

“Politicians, journalists, and academics who focus on list prices distort the truth about drug prices. Legislation should shield patients from the excesses of the gross-to-net bubble while enhancing the competitive pressures that reduce drug prices.”

I can dream, can’t I?