Payers routinely receive rebates approaching 50% or more off the list price of drugs, though patients’ out of pocket costs are not reduced.
The entrenched system through which pharmaceutical companies rebate a significant percentage of the reimbursed drug price back to the payer is a structural problem that leads to host of inefficiencies and distorted incentives throughout the supply chain.
- The average gross-to-net spread for the companies in our universe is 43%, with the difference reflecting the portion of revenues captured by payers (including the government), PBMs, pharmacies and distributors.
- Although rebates remain the largest component, 340B discounts are a growing factor for certain companies, e.g. Merck, Lilly and Sanofi are near the top due to dominance of insulins in their portfolios.
- The differential between the WAC and net price for the 20 largest drugs is 25%, with the 4 largest drugs exceeding 50% discounts.
Unfortunately, patients and Part D beneficiaries typically do not share in these large rebates and steep discounts to the list prices. Coinsurance and cost-sharing in commercial and Part D plans are based on percentages of the pharmacy prices that generally exclude rebates. Moreover, hospitals and contract pharmacies often retain the large 340B spread rather than passing these savings on to patients.