Pharma takes an average 35% hit on list price in Medicare Part D: Report

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Drugmakers argue that pricing stats are misleading because they don’t account for rebates; like sticker prices on automobiles, they yield far less because of customer discounts.

Now, in a study funded by PhRMA, some top pharma number-crunchers find Medicare Part D pays an average of 35% less than list price on many commonly used meds.

Unlike Medicaid, where rebates are a set percentage, Medicare rebates and discounts are negotiated by drugmakers and the Part D insurers that cover their products. QuintilesIMS Institute delved into the numbers to estimate how big those rebates and discounts might be.

The upshot? Medicare Part D plans see an average 35.3% discount on pharma’s list prices, across the 12 therapeutic areas QuintilesIMS examined.

To estimate pharma's net prices on particular drugs--as well as the end cost to Medicare Part D--the healthcare informatics firm used its own data on drug production volume and securities filings that detail drug sales. The research was funded by the trade group PhRMA.

The numbers are only estimates, of course, because QuintilesIMS didn’t have access to drugmakers’ proprietary information on rebate and discount negotiations. Pharma companies have been citing those rebates to defend against price-gouging accusations, but they keep those numbers under wraps.

The stats on Medicare Part D rebates come amid renewed calls for a different approach to price negotiations by the government-funded healthcare program for seniors. Democratic presidential candidate Hillary Clinton has revived calls for Medicare to directly negotiate drug prices, using its command of this large group of patients to leverage discounts.

Currently, Part D coverage plans wheel and deal with drugmakers individually. Theoretically, Medicare could win better deals by negotiating directly, because of its sheer size.

PhRMA said these new stats show Part D plans are already pushing hard for deals. “This new report confirms the significant negotiation occurring in Medicare,” wrote Allyson Funk, a senior communications director at PhRMA, in a blog post about the study, going on to say the numbers are “further evidence of the robust negotiating power of Part D plans and how they secure rebates and discounts to keep costs low for beneficiaries and taxpayers.”

Clinton’s drug-pricing proposals go far beyond Medicare price negotiation to include other ideas that have failed before, including reimportation of drugs from lower-cost markets such as Canada. Most recently, Clinton proposed a watchdog panel that would comb pricing records for “outlier” increases and punish the drugmakers responsible if those increases were determined to be unwarranted.

PhRMA, the biotech trade group BIO, and a range of industry execs have balked at those proposals. Pfizer CEO Ian Read says they would drag down innovation, for instance. Analysts figure that, should Clinton be elected, her drug pricing plan would face an uphill battle in Congress. Other lawmakers, most recently Rep. Rosa DeLauro, have put forth their own proposals for quashing big price hikes.

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