Drug pricing, rebates to shift with health reform

Joanne Kenen

About Joanne Kenen

Joanne Kenen, (@JoanneKenen) the health editor at Politico, is AHCJ’s topic leader on health reform and curates related material at healthjournalism.org. She welcomes questions and suggestions on health reform resources and tip sheets at joanne@healthjournalism.org. Follow her on Facebook.

Drug rebates aren’t the headline grabbing element of health reform; for some of us they are probably in the eye-glazing category. 

But Medicaid drug rebates do change a bit under the Affordable Care Act, and various proposals about rebates have surfaced – and will again – in the perpetual debates about Medicaid and Medicare savings. Of course, once more people are insured under health reform, more will have prescription drug coverage. They will then be paying less, indirectly benefiting from rebates not visible to the uninsured consumer.
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Here’s a chance to understand rebates better, through a recent piece by  Forbes’ Matthew Herper.

“The free market is alive and well when it comes to drug prices – if you’re an insurance company or a government program. But not if you’re a consumer,” Herper writes.

Consumers, at least those paying for their medicine out of pocket, pay sticker price. That can be as little as a few dollars for a common generic to around $300,000 a year for a rare pediatric drug.

But drug companies do negotiate rebates. They just don’t negotiate with you and me. They negotiate with the big payers, such as the government programs like Medicare or insurers or the pharmacy benefit managers. Herper quotes estimates that the rebates – the difference between “full price” and what the payers really end up paying – come to about  $40 billion a year. His article includes estimated rebates – in the billions – for a number of common drugs. And he gives some advice on how to figure out those figures. He looked at  prescription data tracking service IMS Health‘s lists of gross sales at pharmacies of some common drugs, and then compared those numbers to net sales the companies report to the SEC. (It’s not a precise number because other factors, including wholesalers’ behavior, can come into play but it’s a good indicator). Drugs with lots of competition tend to have much bigger rebates, naturally, than those without.

Herper looks at Nexium as an example. Nexium is often used as poster child, or poster drug, for how a pharmaceutical company manages to obtain patents on a “new” drug that, chemically, isn’t all that new. Those of you who attended Health Journalism 2012 in Atlanta heard Otis Brawley, chief medical officer and executive vice president of the American Cancer Society, talk about it.

Herper writes:

The most stunning discount is for Nexium, the purple pill for heartburn sold by AstraZeneca and derided by many as the perfect example of a me-too drug. Astra is giving back 60% of gross sales, most likely in the form of rebates. IMS lists Nexium as the third-bestselling drug in the country based on gross sales of $6.2 billion. But AstraZeneca reports U.S. Nexium sales of just $2.4 billion …

He concludes: “The good news here is that, in the world of health insurers and drug giants, the free market is having an effect on drug prices. The bad news is that you have to be participating in this market by being insured to get those reduced rates. People who walk in off the street pay full price.”

Joanne KenenJoanne Kenen (@JoanneKenen) is AHCJ’s health reform topic leader. If you have questions or suggestions for future resources, please send them to joanne@healthjournalism.org.

The small print, in case you were wondering what rebates are in fact in the health law: It does raise the  Medicaid drug rebate percentage for more brand name drugs to 23.1 (there are few exceptions, including some pediatric drug use), raise the Medicaid rebate for “non-innovator, multiple source drugs” to 13 percent of average manufacturer price and extend the drug rebate to Medicaid managed care plans.

2 thoughts on “Drug pricing, rebates to shift with health reform

  1. John C. Davidson

    Is there any doubt that big corps and our politicians enjoy a sound financial relationship extorting one another at the expense of all of us.

    If the government was serious about health care reform they would have addressed the serious threat Torts have on those who are attempting to save us.

  2. E.P.

    $40 billion per year. That’s a lot of money in rebates, and it puts into perspective how much money these pharmaceutical companies make if they can ‘discount’ prices that much for large purchasers. Who’s benefiting from this system?

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