Inflation-Adjusted U.S. Brand-Name Drug Prices Fell for the Seventh Consecutive Year as a New Era of Drug Pricing Dawns

It's time for Drug Channels’ annual examination of U.S. brand-name drug pricing.

For 2024, average brand-name drugs’ list prices grew by only 2.3%. What’s more, after adjusting for overall inflation, brand-name drug net prices dropped for an unprecedented seventh consecutive year. Details and additional commentary below.

As I predicted two years ago, the combined impact of changes to Medicaid rebates, the Inflation Reduction Act (IRA), and novel formulary access strategies have led multiple manufacturers to pop the gross-to-net bubble for high-list/high-rebate products. Consider the 18 products with list-price cuts shown below.  Other drugmakers have reduced the rate of price increases, thereby inflating the bubble more slowly.

Employers, health plans, and pharmacy benefit managers (PBMs) determine the extent to which patients with insurance share in this ongoing deflation. But signs of change to the conventional approaches are undeniable.

New channel models—including smaller PBMs, cost-plus pharmacies, patient-paid discount card prescriptions, and manufacturers’ direct-to-patient businesses—are creating novel paths for drugs that can be sold without gross-to-net bubble distortions.

The bubble won’t vanish overnight. But for the first time in years, I can foresee a time when SpongeBob SquarePants will move on from Drug Channels.

DATA DISAMBIGUATION

To examine drug pricing, we again rely on data from SSR Health, an independent organization that collects and reports data on pharmaceutical prices. SSR Health is widely regarded as the leading provider of these data. Click here to learn more about SSR Health and its US Brand Rx Net Pricing Tool.

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 currently or previously publicly traded firms. 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 Health computes sales-weighted averages, so the figures below reflect an appropriate market-level price index. Note that SSR Health has updated some of the market figures based on net price information for products that had not been previously included in its data.

Here’s DCI's 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 manufacturer’s gross revenues equal its revenues from sales at a drug’s WAC list price.

• A drug’s net price equals the actual revenues that a manufacturer earns from a drug after rebates, discounts, and other reductions. A drug’s net revenues equal its revenues from sales at the drug’s net price.

The major components of gross-to-net price differences for brand-name drugs include:

• Rebates, discounts, and fees to commercial payers and plans
• Rebates and coverage gap discounts in Medicare Part D
• Rebates to the Medicaid program
• Discounts under the 340B Drug Pricing Program
• Manufacturers’ payments to drug channel participants, including administrative and other fees to PBMs as well as fees and discounts to pharmacies, wholesalers, and other purchasers
• Patient assistance and copayment support funds

Negotiated and statutory rebates to third-party payers are the largest and most significant components of gross-to-net differences. We quantify the components of gross-to-net differences in Chapter 9 of our Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

Drug Channels Institute coined the term gross-to-net bubble to describe the ever-inflating dollar gap between manufacturers’ gross and their net revenues. We use “bubble” to characterize the speed and size of growth in the total dollar value of manufacturers’ gross-to-net reductions. We anointed SpongeBob SquarePants as the honorary mascot of the bubble. Our terminology (sans Mr. SquarePants) has been embraced by industry participants, the government, academic researchers, and others who cover the industry. At least one major technology vendor has recently adopted DCI's language in its marketing.

For 2023, DCI estimates that the total value of manufacturers’ gross-to-net reductions for all brand-name drugs was $334 billion. Rebates and discounts reduced the selling prices of brand-name drugs at the biggest drugmakers to less than half of their list prices.

DRUG PRICING REALITY CHECK

The chart below summarizes the historical list and net price changes for a broad set of brand-name drugs:

[Click to Enlarge]

The data continue to show significant gaps between list and net price changes, although there were some notable changes last year:

• Average list-price growth grew at its lowest level in at least 10 years—due partly to list-price cuts for some marketed products. From 2010 to 2015, growth in list prices had been increasing by 10% to 15%. Growth has slowed sharply. From 2019 through 2023, average list price increases had been about 5%.
  
  For 2024, however, average brand-name list prices grew by a mere 2.3%.
  
  This sharp decline was due to novel list price decreases for some widely prescribed products. Most notably, the three major manufacturers of widely prescribed insulin products—Eli Lilly, Novo Nordisk, and Sanofi—all reduced the WAC list price of many brand-name insulin products by −50% to −80%. We estimate that these products had more than $20 billion in gross sales prior to the price reductions, so they contributed disproportionately to the gross-to-net bubble.
  
  Below is a list of 18 brand-name drugs which manufacturers lowered the list prices of existing products (as of January 2, 2025). On average, list prices for these products were cut in half. Novo Nordisk has already announced additional price cuts for 2026.
  
  
  [Click to Enlarge]
  
  
  In years past, drugs in highly-competitive categories or facing generic competition would maintain high list prices. This strategy can maximize the rebate value for formulary placement and maintain profits from non-contracted prescriptions. But we are now routinely seeing manufacturers slash the list prices of these drugs. For example, the first generic version of Bayer's Nexavar was launched in 2022. Bayer increased the brand-name drug's WAC list price in 2023 and 2024, but then reduced it by 50% for 2025.
  
  Based on initial data for 2025, median list price growth appears to have slowed down again. (See 46Brooklyn's handy website for tracking list price changes.) Note that 46Brooklyn computes its summary stats differently than SSR Health does.

• Net prices for brand-name drug prices were essentially unchanged. Through the first three quarters of 2024, nominal net prices increased by 0.1%. The gross-to-net gap in prices was therefore a historically small −2.2% (= 2.3% minus 0.1%).
  
  As usual, competition reduced net prices, regardless of any list price increases. For example, Humira now faces more than 20 different competitors. According to SSR Health, Humira’s net price has dropped by more than 50%—andit faces biosimilar competitors with list prices that are more than 85% lower..
  
  Or consider GLP-1 agonists, which have been the fastest-growing category of drug spending. Net prices are already far below list prices, although changes in net prices have been harder to track and have shown divergent patterns.
  
  Ironically, lowering the list price for a highly rebated drug can increase the net price. This occurs because the Medicaid rebate calculation and the 340B ceiling price are both intricately linked to changes in a drug’s list price relative to inflation. That’s one reason nominal net prices didn’t fall further in 2024.

• After adjusting for overall inflation, net prices dropped for the seventh consecutive year. The consumer price index rose by 3.1% during the first three quarters of 2024—the time period shown in the chart above. Consequently, real, inflation-adjusted net prices fell by −3.0%.

• The gross-to-net bubble is inflating more slowly. Through the compounding effect of gross-to-net pricing differences, the bubble continues to inflate.
  
  Consider a brand-name product launched in 2013 with a list price of $100 and no discounts or rebates. Its list and net prices would be equal, at $100.00. The gross-to-net bubble would be $0. (Yes, I know that this figure represents a lower bound, because newly launched brands always offer some rebates and discounts.)
  
  Using the average industry growth figures shown above, this product’s list price would have grown to $211 by 2024, while its net price would have been only $102.
  
  The gross-to-net bubble would have inflated to $109 (−51%), which reflects the rebates and discounts that the manufacturer paid. But for 2024, this hypothetical bubble inflated at its slowest rate in many years.

MEET THE NEW REALITIES

Brand-name manufacturers face ongoing pressure on net prices from both commercial and government payers. In previous articles and DCI reports, I’ve outlined the key forces that are contributing to the popping of the gross-to-net bubble:

• Uncapping of Medicaid rebate limits due to the American Rescue Plan Act of 2021, which has incentivized drugmakers to avoid the nonsensical situation of having to pay the government for the use of their products.

• Novel formulary access strategies, such as launching pharmacy-benefit biosimilars with low-list prices and minimal rebates.

• Altered market access strategies for mature brand-name products, which involve lower list prices rather than maintaining high list ptices to maximize rebate value and non-contracted prescription revenues.

• Lowering brand-name prescription reimbursement in Medicare to a “maximum fair price” under the Inflation Reduction Act of 2022 (IRA), which will reduce pharmacy and provider reimbursement to a price at or below the current net price. Medicare patients' out-of-pocket coinsurance for these products will be based on the MFP, not the list price.

• The IRA's focus on gross spending for identifying "negotiation eligible" drugs, which will encourage manufacturers to narrow large gross-to-net gaps so as to bypass a drug's selection by CMS.

• Cash-pay pharmacies and discount cards, which are turning consumers into price shoppers who can absorb excess mark-ups, rebates, and other and payments that would otherwise be earned by channel participants.

• Manufacturers’ direct-to-patient solutions, which bypass certain aspects of the drug channel and enable cash-pay pricing that approximates post-rebate net prices.

These evolving industry realities were reflected in the manufacturer-specific disclosures about changes in 2023’s list and net drug prices that I discussed in Gross-to-Net Bubble Update: 2023 Pricing Realities at 10 Top Drugmakers. I suspect the 2024 figures will show even more disruption.

The new realities of pricing and channels will continue to challenge drug pricing flat earthers (#DPFE) who remain committed to a false narrative of “skyrocketing” drug prices using misleading math.

Unfortunately, the warped incentives of today’s drug channel will continue to slow change. As I have long argued, legislation should shield patients from the excesses of the gross-to-net bubble while enhancing the competitive pressures that are reducing the gap between list and net prices.

So, are we finally on the cusp of a new era for drug channel pricing? As Mr. Squarepants would say: I’m ready.