Why are Drug Makers Earning Less, When Prices are Going Up?

Some headlines say that drug prices are skyrocketing. Others say drug manufacturers are making less money than in years past.

Oddly, both statements are actually true.

In a Drug Channels article published last week, Dr. Adam Fein reported on the “gross-to-net bubble” — that’s the difference between the price the drug maker sets (aka the gross, or list, price) and how much they actually end up making (aka the net price).

Dr. Fein references reports from five large drug makers that show that, while all five drug makers increased their gross prices in 2018, all but one reported lower net prices.

How can you charge more but ultimately earn less? By offering bigger and bigger discounts. A big chunk of these “discounts” are in the form of PBM rebates. Pharmacy benefit managers often demand large rebates from drug makers on brand name drugs in exchange for favorable placement on a plan’s formulary, or, the list of drugs they’ll agree to cover. Drug makers, in turn, are incentivized to raise their gross prices to account for the rebates they’ll need to pay out to the PBMs.

Who is hit the hardest by this system? Patients.

As Dr. Fein points out, an increasing number of patients are exposed to these inflated gross prices — especially those who don’t have drug coverage, those who have to pay the full price until their cost-sharing limit is met or those who must pay a percentage of the drug’s price as coinsurance.

Blink Health is here to help those whose medications have become unaffordable because of misaligned incentives like these. That’s why we offer low prices on 15,000 generic medications, and are working on ways to help patients save money on brand name drugs, too.