Anyone with more than a passing knowledge of the pharmaceutical industry knows that drug pricing, like pricing in all of healthcare, is very complicated, even to the point of seeming mysterious and impenetrable. There are retail prices and wholesale prices and negotiated prices and coupons.
But in a fascinating look at one aspect of that mystery, Forbes' Matthew Herper explores the area of rebates, providing a chart of the biggest givebacks.
In it, he points out that the retail price of some drugs is astronomical, say $60,000 or $100,000 for an annual regimen. But the retail price is seldom paid because, as we know, drug companies have to negotiate discounts with health plans and government agencies. And some of those discounts actually come in the form of paybacks, like for Medicaid.
The cost to the industry is about $40 billion a year, Forbes says. That is discoverable, said Pratap Khedkar, a principal at pharma consulting firm ZS Associates, who points out that drug companies report both gross and net sales of its products.
What the details show can be particularly telling. Speaking of heartburn, Forbes says AstraZeneca ($AZN), for example, is apparently rebating about 60% of gross sales on its huge selling Nexium. Gross sales provided by health consultants IMS show it as the third-best-selling drug in the U.S. at $6.2 billion, while the company reports the net at just $2.4 billion. A spokeswoman told Forbes that saying the company rebates 60% of the cost of the drug would be inaccurate.
Pfizer ($PFE), facing the onslaught of generics to its megablockbuster Lipitor, last raised rebates to 35% from 26% the year before, and so cut $2.7 billion off the $7.7 gross sales of the drug. It is a strategy that didn't apparently work, since the company is essentially giving up marketing of the drug. That compares with Bristol-Myers Squibb ($BMY) and Sanofi-Aventis ($SNY), which have had little competition for heart and stroke drug Plavix, and so only rebated 2.6% of sales, reducing gross sales of $6.8 billion to $6.6 billion.
- read the Forbes story