Drug Rebates

By March 24, 2020 Commentary

Another piece of research examines the relationship between list prices and the prices that drug companies actually receive after all discounts and rebates.   (NBER Paper)   Some research on the impacts of medications on spending and consumer costs uses list prices or list price growth, which obviously doesn’t give a very accurate picture.  However, manufacturers and their intermediaries such as pharmacy benefit managers, have gone to great lengths to hide the nature and amount of various types of discounts.  So getting clear information on actual net prices is hard.  These researchers used data from a private collector of actual price and unit sales data at retail pharmacies for products still on-patent.  The researchers were unable to separate the data by payer type–commercial, Medicare or Medicaid–which is somewhat unfortunate as discounts vary widely across payers.   They first calculated the average rebate and its trend over time, that is, what was the percent of revenue received to list price.  From 2012 to 2017, this average rebate or discount from list price rose from 32% to 48%, or 3.2% per year.  Over the study period, 18 of the 20 largest drug classes had increases in average rebate.

Two possible reasons for this trend were examined.  One is a switch to products with higher rebates and the second is an actual increase in the rebate level for a specific product.  The authors determined that the rebates were almost entirely due to increases in rebate levels, and if anything, there was some movement to products with lower rebate levels, particularly new entrant products.  Now you need to compare the rise in list prices with the rise in net prices.  Gee, what a shock, once again we see that the drug manufacturers managed to keep list prices growing at a rate faster than rebates, resulting in slower net price increases than list price ones.   List prices rose 12% annually while net ones grew 3%.   Just so we are clear, that means manufacturers were getting 3% more on average for a drug every year after any discounts or rebates of all types.  Looking at some common drug types, we see that for insulins, list prices rose 16% annually but net prices “only” grew 2%.  For another common diabetes drug, GLP-1 inhibitors, list prices rose 22% while net prices increased a whopping 13%.  I am sure that is because the manufacturers had underlying cost increases at that level–not.  HIV drugs had a 9% list price increase, but a 13% net price rise, suggesting a reduction in relative rebates or discounts.  One success story, in a competitive drug category, is for hepatitis C drugs, which had a  list price decline of 1% annually, while net prices declined 19% per year, which is what you would like to see.  Remember too, consumers are often paying cost-sharing off of list price amounts, so they bear a disproportionate share of the drug price pain.

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