Inflated list prices don’t always equal amounts paid at the register
Martin Shkreli and Turing Pharmaceuticals’ jacking the price of its anti-parasitic drug to $750 per pill still grates on head-shaking consumers. When the news first hit, Turing sheepishly resorted to “a talking point employed across the drug industry: That was the list price. Nobody actually pays that,” according to an article in the January 2015 issue of Stat magazine.
“We have list prices, wholesale prices, average wholesale prices, rebates, supplemental rebates, mark-ups, outpatient vs. inpatient, formularies, patent expirations,” Andy Slavitt, acting administrator at the federal Centers for Medicare and Medicaid Services, said at a forum in Washington,” according to Stat. “Most of that information is not available or well-understood by the public.”
The journal asks, “Just what the heck is the point of the list price anyway?
The short answer is that the list price is a drug company’s opening bid in negotiations with the insurance plans, government programs, and health care providers that purchase its medicines.”
“The list price helps establish that initial starting point,” Pratap Khedkar, a top executive at ZS Associates, a consulting firm that advises drug companies, told Stat. “If you’ll never let me increase the price in the future, I’ll start high and I’ll drop as much as I need to.”
The medical magazine compared the list prices of drugs to sticker prices on new cars.
“The actual price is driven down as health plans and pharmacy-benefits managers negotiate with drugmakers. Government programs like Medicare and Medicaid also have built-in discounts that pharma companies must honor if they want those customers,” it added.
“I think there’s oftentimes a perception issue when it’s looked at just as list-price increases,” Lori Reilly, a top official at the Pharmaceutical Research and Manufacturers of America, the pharmaceutical industry’s Washington lobby, told Stat earlier this year. “The perception and reality aren’t necessarily aligned on some of these issues.”
The reality of drug prices can be almost impossible to understand, the journal rightly points out.
“For starters, the negotiations between health plans and pharmacy-benefits managers or health plans that take a list price down to its actual cost are totally hidden from public view. Even their outcome, the final price paid, often isn’t known.
That means that a drug’s real cost — the elusive lower price that drug makers love to cite as proof that list prices are misleading — is not typically public,” says the article.
Aggregate estimates have been made to help explain differences between list prices and net prices. “An IMS Health analysis released last month estimated that while list prices increased on average by 13.5 percent in 2014, the net price increase was 5.5 percent,” according to Stat.
The journal noted that such data “would seem to back up the drug industry’s position — but that analysis was based in part on proprietary information not available to the public. And even so, according to a new Bloomberg analysis, the United States still pays more for drugs than other countries once those discounts are accounted for.”
In fact, the catch in trying to understand drug pricing always seems to derive from something “proprietary” or undisclosed by the pharmaceutical companies. One can’t help but wonder why!