Click here to see the original post and comments from April 2021.
When rebates and discounts were factored in, brand-name drug prices declined—or grew slowly—in 2020. Consistent with our previous analyses, rebates and discounts reduced the selling prices of brand-name drugs to less than half of their list prices. What’s more, net drug prices have declined for the past four years.
Alas, many pharma industry perma-critics refuse to accept that brand-name drug prices are falling—or that they remain the only part of U.S. healthcare where prices have been declining. That’s why they are drug pricing flat earthers (DPFE.) Consider today’s data deluge as my small contribution to making the world a slightly smarter and more fact-based place.
SOAPING UP
As reminder:
- The manufacturer of a drug establishes the drug’s list price, called the Wholesale Acquisition Cost (WAC). However, brand-name manufacturers earn substantially less revenue than a drug’s list price implies. A drug’s net price reflects the actual revenues that a manufacturer earns from a drug. The net price equals the 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.
- Drug Channels Institute coined the term gross-to-net bubble to describe the dollar gap between gross sales at brand-name drug list prices and their sales at net prices after rebates and other reductions. We use “bubble” to characterize the speed and size of growth in the total dollar value of manufacturers’ gross-to-net reductions.
- SpongeBob SquarePants, a well-known fan of blowing bubbles, is the honorary mascot of the gross-to-net bubble. That’s why he graces the set of the Drug Channels Video studio.
BUBBLETASTIC DATA
The following six companies publicly reported the 2020 list and net price changes for their U.S. product portfolios, along with average discounts from list price. As always, I encourage you to review the original source material for yourself. Here are links to the relevant reports:
- Glaxo Smith Kline, Annual Report 2020 , page 35
- Novartis in Society 2020 US Report, page 13
If I have missed reports from other companies, please email me.
OUR BUBBLE BUDDY
The gross-to-net gaps mean that brand-name manufacturers earn far less revenue than list prices suggest. The table below summarizes the 2020 list and net price changes for the brand-name product portfolios of the six large manufacturers along with average discounts.
[Click to Enlarge]
Consistent with our previous analyses, these data show significant gaps between list and net price changes:
- Prices for brand-name drug prices dropped. For 2020, brand-name drug list prices grew by the low-single digits for all six companies. However, net prices declined at five of the six manufacturers—and grew by less than 1 percent at the sixth company (Merck).
- The unweighted average gross-to-net gap in prices was -6.0%. For 2020, list prices grew by 2.9%, but net prices declined by -3.1%. Gross-to-net differences ranged from -2.2% to -9.5%.
- Drugmakers sold their products for less than half of the list price. The unweighted average discount off list was 51%, i.e., half price. The weighted average brand-name portfolio had list-price discounts of -45.5% to -50%.
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Janssen's unprecedented disclosures raise many questions. Consider the $5.2 billion in 340B discounts that Janssen paid to covered entities and their contract pharmacies. Where did the money go? Who benefited from these funds? How much did patients pay for 340B drugs purchased at contract pharmacies? We have no idea, because hospitals and their lobbyists fight any call for them to disclose or account for how they use their 340B profits.
I encourage you to review all of the reports (linked above). Some also contain additional details on particular products.
BUBBLICIOUS
The chart below summarizes the past five years of price changes for the five companies that have consistently provided these data.
Observations:
BLOWING BUBBLES
The factors driving these pricing trends will be familiar to anyone who has been paying attention:
The manufacturers’ data again confirm that any analysis of list prices is a misleading and inaccurate measure of drug pricing. Alas, the facts probably won’t stop journalists and politicians from promoting the false narrative of “skyrocketing” drug prices. Meanwhile, these critics ignore how gross-to-net gaps hurt patients. See Drug Pricing Policy in 2021: Four Crucial Consequences of Pharmacy Benefits Today.
These data also highlight the lunacy of inflationary rebates that are based on a government pricing metric—Average Manufacturer Price—that approximates a brand-name drug's list price. Legislation should shield patients from the excesses of the gross-to-net bubble while enhancing the competitive pressures that are reducing drug prices.
The drug pricing flat earthers refuse to accept the manufacturer data analyzed above, U.S. government statistics, and independent financial analyses. I guess "evidence-based policy" is just a buzzword, not a true philosophy.
Is it any wonder that our public policies toward “drug pricing” seem divorced from today’s reality?
BUBBLICIOUS
The chart below summarizes the past five years of price changes for the five companies that have consistently provided these data.
[Click to Enlarge]
Observations:
- List-price growth has slowed sharply. The unweighted average list price fell, from 8.5% in 2016 to 2.9% in 2020. These manufacturer-specific disclosure are consistent with the overall industry trends shown in Surprise! Brand-Name Drug Prices Fell (Again) in 2020. (The industry data are based on approximately 100 currently or previously publicly traded firms.)
- Average net prices at the large drugmakers have declined in four of the past five years. The time series data clearly contradict the overheated and misleading rhetoric from DPFEs.
- Average discounts from list prices have been deepening. Merck’s average discount rate went from -41% in 2016 to -46% in 2020, while Lilly’s rate went from -50% to -60%.
- The gross-to-net bubble keeps inflating. We estimate that in 2020, the total value of gross-to-net reductions for patent-protected brand-name drugs was $187 billion, up 7% compared with the 2019 figure. See Exhibit 168 in DCI’s 2021 pharmacy/PBM report .
BLOWING BUBBLES
The factors driving these pricing trends will be familiar to anyone who has been paying attention:
- High concentration within the PBM industry. More than three-quarters of all equivalent prescription claims are now processed by the three largest pharmacy benefit managers, per The Top Pharmacy Benefit Managers of 2020: Vertical Integration Drives Consolidation. Bigger PBMs can drive a harder bargain for larger rebates to achieve formulary position.
- Explosive growth in 340B Drug Pricing Program discounts. We estimate that the 340B program has grown to account for nearly 12% of the total U.S. drug market and about 20% of the total rebates and discounts that manufacturers provide.
- Higher risks of formulary exclusion. PBMs have gained more leverage by threatening to remove products from their national formularies. Crowded therapeutic categories give payers enormous power, even when purchasing differentiated, highly valuable therapies. The growth in the number of excluded products shows that these have not been idle threats. See The Big Three PBMs Ramp Up Specialty Drug Exclusions for 2021.
- Deeper mandatory discounts to government payers. The Affordable Care Act increased a pharmaceutical manufacturer’s mandatory Medicaid rebates. These rebates can reach 100% of the product’s price. (After 2024, these rebates can exceed 100%!) The ACA also required manufacturers to provide rebates in the Medicare Part D coverage gap. The Bipartisan Budget Act of 2018 increased those discounts.
- Generic drugs. In 2020, the generic dispensing rate (GDR)—the percentage of prescriptions dispensed with a generic drug instead of a branded drug—exceeded 90%. Even when a traditional brand doesn’t have a generic equivalent, multiple generic therapeutic alternatives may be available. These alternatives give PBMs greater negotiating leverage.
The manufacturers’ data again confirm that any analysis of list prices is a misleading and inaccurate measure of drug pricing. Alas, the facts probably won’t stop journalists and politicians from promoting the false narrative of “skyrocketing” drug prices. Meanwhile, these critics ignore how gross-to-net gaps hurt patients. See Drug Pricing Policy in 2021: Four Crucial Consequences of Pharmacy Benefits Today.
These data also highlight the lunacy of inflationary rebates that are based on a government pricing metric—Average Manufacturer Price—that approximates a brand-name drug's list price. Legislation should shield patients from the excesses of the gross-to-net bubble while enhancing the competitive pressures that are reducing drug prices.
The drug pricing flat earthers refuse to accept the manufacturer data analyzed above, U.S. government statistics, and independent financial analyses. I guess "evidence-based policy" is just a buzzword, not a true philosophy.
Is it any wonder that our public policies toward “drug pricing” seem divorced from today’s reality?
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