The new Medicare Part D drug spending report only tells part of the story
- According to newly released CMS data, providing Nexium to seniors cost Medicare $2.5 billion in 2013—but as Forbes' Matt Herper points out, that doesn't factor in rebates.
- As Herper notes, rebates—the refunds that drug companies pay to insurance companies, Medicare, and Medicaid—substantially alter the list prices of drugs.
- In terms of understanding the actual costs of medications, it helps to use the IMS list of the top 20 selling drugs based on undiscounted sales.
The big takeaway here is that rebates are the route to lower drug prices. In addition, companies that are first to market or have a one-of-a-kind drug in a market with an existing unmet medical need have a distinct advantage.
Here's an example: When Gilead launched Sovaldi in December 2013, it had the oral hep C market all to itself, however, once AbbVie's Viekira Pak was introduced, payers started to negotiate discounts. Specifically, in this case, AbbVie struck a deal with Express Scripts, which eventually led Gilead to start negotiating larger rebates.
As a result, although discounts for Solvald-containing drugs was 34% for Q1 2015, Gilead has warned investors that it would eventually be paying a 46% discount. Overall, the most important factor for truly understanding drug pricing is transparency and having different data sources.