- Merck & Co. last week took steps to make its drug pricing practices more transparent, unveiling a new report that details the company's average annual price increases between 2010 and 2016.
- On a list price basis, Merck has increased drug prices by a little under 10% in most years during that period. After accounting for rebates and discounts, however, average annual net price increases have hovered between 3.4% and 6.2% over the seven years included in the report.
- The pharma industry has made a more concerted effort in recent months to respond to the widespread criticism of high drug prices. Several companies have pledged to keep annual price hikes below 10% and PhRMA, the industry's powerful trade lobby, recently unveiled a major ad campaign aimed at highlighting innovation.
After a year in which the pharma industry's reputation took one PR hit after another, companies like Allergan, Johnson & Johnson and Merck are trying to get ahead of the curve in 2017.
So far, the upper ranks of the industry appear to have coalesced around a strategy of limiting price increases to single-digit hikes while simultaneously emphasizing their larger R&D budgets — drawing a distinction from companies like Valeant and Turing.
"The price conversation over the past year has been driven and dominated by the justified public outrage in response to companies that hiked prices by triple digits, or had a business model based primarily on price increases," wrote Adam Schechter, head of Global Human Health at Merck, in a statement announcing the new transparency efforts.
"That is not true of Merck — and, to give credit to others, that is not true for many other innovative, R&D-based drug companies either."
Increasing transparency, as Merck has now done, is another tactic pharma companies seem to be turning towards to highlight the effect rebates and discounts have on drug prices.
Merck has increased the wholesale acquisition cost, or "list price," of its drugs by an annual average of between 7.4% and 10.5% during the 2010 to 2016 time period. On a net price basis, however, Merck says the average change has been much lower, between 3.4% and 6.2%. That is due to factoring in the rebates and discounts given to payers in order to secure coverage of Merck's drugs.
According to the new report, the average annual discount on Merck's gross U.S. sales has steadily risen from 27.3% in 2010 to 40.9% in 2016.
While that is a substantial figure, savings from discounts and rebates are not typically passed on in their entirety to reducing costs for patients. Pharmacy benefit managers, who negotiate the discounts, take a cut, as does the insurer.
Furthermore, even single-digit net price increases can drive a noticeable increase in revenues, given the size of Merck and other large pharma companies.
J&J is planning to release a similar report later this quarter and other drugmakers could follow their lead to get ahead of renewed criticism.
The new unknown for pharma, however, is how strident President Trump will be in attacking the industry. Already, comments made by Trump during the week of the closely watched J.P. Morgan Healthcare Conference have taken a bite out of enthusiasm for the sector's prospects in 2017.