Dive Brief:
- 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.
Dive Insight:
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.