The world's biggest drugmaker pulled back the curtain on drug pricing
- Johnson & Johnson just gave an update to how drug price hikes impact its business.
- In 2017, the list prices for J&J's medications increased by 8.1%, but the net price of those medications - the amount J&J receives after factoring in discounts and rebates - actually fell by 4.6%.
- The report is part of an effort to diffuse criticism faced by the drug industry that drug prices are out of control. It's led to the conversation expanding beyond drug companies to other players in the healthcare system that get a piece of the drug's price.
The world's largest drugmaker just gave us a better idea of how drug price hikes impact its business.
Johnson & Johnson published an annual report on Thursday detailing its average list price compared to its average net price after rebates and discounts. The companies' drugs had an average list price increase of 8.1% in 2017 while its net price fell by 4.6%. To recap, the list price is the amount a drugmaker sets, and it's often the most publicly available number, while a net price is the amount it actually receives in return for the drug after factoring in any rebates or discounts.
Essentially, even though the prices J&J set for its drugs may have increased, the amount of money J&J got in return actually decreased. It's the first time in at least the last five years that J&J's net price has decreased instead of increasing between 2.5% and 5.2%
"We hope that by providing even more transparency into how we operate, we can continue to make progress toward a more results-based health care system that meets the needs of patients today and patients tomorrow," J&J executives wrote in a letter.
In February, pharmaceutical giant Merck published a similar report, an update from last year's, that outlined the company's average list and net price increases for its products. Merck's average net prices also decreased in 2017, by 1.9% as list prices increased 6.6%.
The reports are part of an effort to diffuse criticism faced by the drug industry that drug prices are out of control. There are a number of people with insurance plans that leave them on the hook for paying near-list prices for medications, and that number continues to rise.
It's led to the conversation expanding expanding beyond drug companies to other players in the healthcare system that get a piece of the drug's price. In a speech Wednesday, FDA Commissioner Scott Gottlieb in a speech to health insurers pointed out how "everybody wins" in the healthcare system, except patients.
"We're living in a world where financial toxicity is a real concern for patients. And every member of the drug supply chain needs to take responsibility for addressing it," he said.
But there's a lack of transparency about the portions each player gets. That's why reports like Merck's and J&J's are based on the average list and net price, rather than individual drugs.
And the conversation around where those rebates that contribute to a decreasing net price are going has led to some changes in how they're distributed.
On Tuesday, the biggest health insurer in the US, UnitedHealthcare, said that starting in 2019, some of its members on high deductible plans would be eligible to get rebates for their medications. So, for example, if a patient went to the pharmacy for a medication that under their high deductible cost $600, that might get lowered to $300 after factoring in the rebate the insurer receives. Gottlieb on Wednesday called the move a "potentially disruptive step."