As I noted last week, many of the crucial issues for our healthcare system will remain after we all get through this challenging period. In that regard, here’s a look at some noteworthy news from the past month:
- Sanofi discloses new data about insulin prices
- Excellent new academic research on list vs. net drug prices
- Three notable researchers overturn their earlier research on drug costs
- Amazon switches PBM vendors for some of its employees
P.S. Join the more than 9,000 followers of my daily links to neat stuff at @DrugChannels on Twitter. My recent tweets have highlighted such topics as:
- How GoodRx shares patients’ prescription data
- 2019 drug trend at Prime Therapeutics
- Controversy about the independent pharmacy market
- A new $5 generic mail order program, Medicare Part D reform
- Retail pharmacy’s future
- Job openings at Amazon
- Frozen cookie dough
- And much more!
DRUG PRICING 101
To help you interpret the first three stories below, 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.
- Drug Channels Institute coined the term gross-to-net bubble—the total value of manufacturers’ reductions between gross revenues at list price and its revenues at net prices. We estimate that about two-thirds of total gross-to-net reductions comes from negotiated and statutory rebates paid to third-party payers
AND NOW, THE NEWS
Prescription Medicine Pricing: Our Principles and Perspectives, Sanofi
Sanofi has updated its annual report on list vs. net drug prices. For 2019, Sanofi reported that its average list prices rose +11.1%, but its average net prices fell -2.9%. It’s the fourth year for which net prices declined. Total rebates were $13.9 billion, which equals 55% of sales at list price.
Sanofi also disclosed the following pricing trends for insulin:
List prices for its insulins have grown by 140% over the past eight years, while net prices declined by 41%.
This chart also shows the gross-to-net bubble for insulin. For 2019, Sanofi received about $52 in revenue for insulin with a list price of more than $350. The gross-to-net amount was about $300, implying that total rebates and discounts reduced insulin's list price by 86%.
How can health plans and PBMs justify benefit designs that require patients to pay out-of-pocket expenses for insulin based on the phony list price? Why should a patient ever pay full price for insulin when the drug is sold to insurers at deep discounts? Crazy.
Sanofi also disclosed the following pricing trends for insulin:
[Click to Enlarge]
List prices for its insulins have grown by 140% over the past eight years, while net prices declined by 41%.
This chart also shows the gross-to-net bubble for insulin. For 2019, Sanofi received about $52 in revenue for insulin with a list price of more than $350. The gross-to-net amount was about $300, implying that total rebates and discounts reduced insulin's list price by 86%.
How can health plans and PBMs justify benefit designs that require patients to pay out-of-pocket expenses for insulin based on the phony list price? Why should a patient ever pay full price for insulin when the drug is sold to insurers at deep discounts? Crazy.
Rebates in the Pharmaceutical Industry: Evidence from Medicines Sold in Retail Pharmacies in the U.S., NBER Working Paper No. 26846
The Sanofi data illustrate the systemic gap between list and net prices in the United States. I have analyzed this issue in numerous Drug Channels articles. Most recently: Surprise! Brand-Name Drug Prices Fell in 2019.
I’m gratified to see that academic economists are finally starting to document this gap with technical rigor. The authors of the NBER working paper use SSR Health data to study list and net prices for brand-name drugs. From 2012 to 2017, they found that:
Those of us in the industry already know these conclusions. I hope that this well-done academic analysis can convince others about the drug pricing realities.
I’m gratified to see that academic economists are finally starting to document this gap with technical rigor. The authors of the NBER working paper use SSR Health data to study list and net prices for brand-name drugs. From 2012 to 2017, they found that:
- List prices grew by an average of 12% annually
- Net prices grew by an average of only 3% annually
Those of us in the industry already know these conclusions. I hope that this well-done academic analysis can convince others about the drug pricing realities.
Changes in List Prices, Net Prices, and Discounts for Branded Drugs in the US, 2007-2018, Journal of the American Medical Association (JAMA)
Here’s another examination of SSR Health list vs. net price data. From 2007 to 2018, the authors find that list prices increased by 159%, while net prices increased by 60%. Net prices were essentially unchanged between 2015 and 2018. The chart below summarizes the authors’ high-level results for prices and average discounts.
This paper is notable because three of the authors—Hernandez, Good, and Gellad—also co-authored The Contribution Of New Product Entry Versus Existing Product Inflation In The Rising Costs Of Drugs, one of the worst and most misleading articles that has ever appeared in the journal Health Affairs. This earlier paper concluded, for example, that “cost increases were due to inflation in the prices of existing drugs, particularly insulins.”
But of course, a drug’s list price does not equal its “cost” to anyone. That’s especially true for insulin. A one-line disclaimer buried in the paper’s limitation section does not absolve the authors of responsibility for having created an obviously false narrative. FYI, Robert Dubois of the National Pharmaceutical Council effectively demolished the paper in Rx Drug Costs: List Prices Versus Net Prices And The Importance Of Staying Within The Data.
Bottom line: The new JAMA paper contradicts and reverses the conclusions of the earlier paper. Hooray for belated victories.
[Click to Enlarge]
This paper is notable because three of the authors—Hernandez, Good, and Gellad—also co-authored The Contribution Of New Product Entry Versus Existing Product Inflation In The Rising Costs Of Drugs, one of the worst and most misleading articles that has ever appeared in the journal Health Affairs. This earlier paper concluded, for example, that “cost increases were due to inflation in the prices of existing drugs, particularly insulins.”
But of course, a drug’s list price does not equal its “cost” to anyone. That’s especially true for insulin. A one-line disclaimer buried in the paper’s limitation section does not absolve the authors of responsibility for having created an obviously false narrative. FYI, Robert Dubois of the National Pharmaceutical Council effectively demolished the paper in Rx Drug Costs: List Prices Versus Net Prices And The Importance Of Staying Within The Data.
Bottom line: The new JAMA paper contradicts and reverses the conclusions of the earlier paper. Hooray for belated victories.
Amazon Shifts Employees To PillPack And PBM RxAdvance, Forbes
ICYMI, RxAdvance will replace Cigna’s Express Scripts as the PBM for some Amazon employees. PillPack will provide mail pharmacy services. Centene is a major backer of RxAdvance.
It’s another small but notable move by Amazon. For my latest $0.02 on Amazon, see Section 12.5.1. of our new 2020 pharmacy/PBM report.
It’s another small but notable move by Amazon. For my latest $0.02 on Amazon, see Section 12.5.1. of our new 2020 pharmacy/PBM report.
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