Editor’s Desk

IMS: We want to 'pull back the curtain' on drug prices

Peter Wehrwein

U.S. spending on drugs continued to climb at a historically high rate last year, but discounts and rebates are exerting some downward pressure on what manufacturers get paid, according to the annual report on U.S. drug spending by the IMS Institute for Healthcare Informatics.

Although IMS Institute has previously reported limited information comparing invoice to prices after rebates and discounts, "this is the first year we're also talking about the implications for overall sales," according to Michael Kleinrock, research director for IMS Institute.

"We wanted to pull back the curtain" on difference between list and prices paid after discounting, says Kleinrock. "Nobody pays list price."

In 2015, total drug spending using IMS-audited list prices was $424.8 billion.

But the IMS Institute figures that total drug spending using "net" prices that take into account discounts, rebates, couponing, and other price concessions came to $309.5 billion, which is $115.3 billion (27%) less than the total spending using list prices.

The IMS report, which came out last week, includes a chart that shows invoice prices for brand-name drugs grew by 12.4% last year. Meanwhile, net prices—after all the discounts, rebates and so on—grew by just 2.8%, the smallest increase in recent years.

Protected Brand Invoice and Net Price Growth

Source: IMS Health, National Sales Perspectives, IMS Institute for Healthcare Informatics, Mar 2016

Yet drug spending is increasing rapidly, even using IMS Institute net prices. The company says total spending using net prices increased by 8.5% from 2014 to 2015, a dip from the 10.8% increase between 2013 and 2014 but still a historically high increase.

IMS figures show the difference between list and net price spending getting wider and wider over the last 10 years. In 2005, it was $41.7 billion, or about a third of the 2015 difference

IMS defines invoice price spending as the amounts paid to distributors (or wholesalers) by their pharmacy and hospital customers and net price spending as the amounts received by manufacturers after all the rebates, discounts, and other price concessions to distributors, health plans, and other intermediaries kick in. Kleinrock says the company does not use published wholesaler acquisition price (WAC) for its list price calculations. Instead, it depends on research using actual transactions between wholesalers and their customers, and those prices tend to be lower than the WAC.

Kleinrock said it was a "big lift" to get the net price information and that company researchers used net sales reported on SEC filings.

Here are some other nuggets in the IMS Institute report:

  • 249,000 new hepatitis C patients were treated in 2015, an increase of 46% over the 170,000 new patients treated in 2014
  • $39.1 billion was spent on oncology medications in 2015 compared with $33.1 billion in 2014, an increase of 18%
  • 16.6 million fewer prescriptions for opioids were written in 2015 than in 2014, mainly because of a sharp decrease in the number of prescriptions for the acetaminophen–hydrocodone combination (the most familiar brand name for that combination is Vicodin)
  • U.S. drug spending will continue to grow but at a single-digit rate over the next several years and reach $610–$640 billion by 2020