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Rising rebates squeeze branded drug makers

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PhRMA study among the first to gauge retained Rx spending


WASHINGTON — Branded drug manufacturers are shelling out higher rebates and discounts on medications and seeing their share of prescription drug sales shrink, according to a study commissioned by the Pharmaceutical Research and Manufacturers of America (PhRMA).

PhRMA said Wednesday that the study, conducted by Berkeley Research Group (BRG), is among the first to gauge the prescription drug spending share retained by biopharmaceutical companies, generic drug manufacturers, pharmacy benefit managers (PBMs), health plans and other pharma supply chain stakeholders.

Brand-name drug companies retained about $219 billion, or 63%, of total gross spending (based on list price) for branded prescription medicines in 2015, the BRG study said. That means more than a third of the list price of a branded drug, on average, is rebated back to PBMs, health plans and the government, or kept by other stakeholders in the pharmaceutical supply chain.

Helping to fuel that trend has been a surge in retrospective drug rebates, discounts and fees, which ballooned to an estimated $106 billion in 2015 from $67 billion in 2013, according to the report. Researchers said payers are demanding higher rebates for drugs to stay on formulary as mandatory rebates in Medicaid and the 340B program have climbed.

“The BRG study is the first to show what happens when the list price of a medicine meets the forces of private market negotiation, costs associated with a complex supply chain and mandated government discounts in Medicaid, the VA and the 340B program,” PhRMA president and chief executive officer Stephen Ubl said in a statement.

PhRMA BRG Branded Drug Rebate Study_rebate chart

Source: PhRMA/Berkeley Research Group

Specifically, BRG calculated that 39% of initial gross drug spending in 2015 was realized by branded drug makers and, of the rest, 42% was realized by payers and various entities in the pharmaceutical supply chain as margin on the resale of drugs and rebates, discounts and fees paid by manufacturers. That includes amounts realized by participants in the supply chain (22%) as well as price concessions transferred by manufacturers to health plans, PBMs, government and other entities via retrospective statutory and negotiated rebates (20%).

PhRMA noted that brand drug makers have also had to grapple with competition from generic alternatives, which now represent almost 90% all prescriptions dispensed to patients. The BRG report estimated that brand-name biopharmaceutical companies — after accounting for discounts and rebates — garnered 47% of total U.S. prescription drug spending in 2015.

“The study begs an important question: Are we doing enough to ensure the growing amount of rebates and discounts flow to the patient?” Ubl pointed out. Unlike care at an in-network hospital or doctor’s office, patient cost-sharing for prescriptions — including payments for care received before meeting a deductible or for co-insurance — typically is based on a medication’s list price, not the net price after rebates and discounts.

“Our health care system needs to evolve to pay for medicines based on their value to patients, the health care system and society,” Ubl added, referring to a series of policy proposals outlined by PhRMA last March to improve the competitive market and spur the transition to a more value-driven health care system.

The lack of cost and profit transparency in “the highly complex U.S. pharmaceutical market” stems from the “myriad entities” involved in the process of making, shipping, filling and paying for prescription drugs, according to the BRG study.

An informed discussion about pharmaceutical spending and affordability must be supported by an understanding of the role played by all entities involved in the distribution and purchase of medicines and a recognition of the discounts that lead to far lower net spending than is commonly reported based on invoice price figures,” the study concluded.


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