It may have surprised you to learn that though list prices for drugs rise every year, net prices — or what a drug company actually realizes on the product it invented and sells — are falling. The CEO of Merck recently testified in front of Congress that the company realizes only ten percent of their diabetes drug Januvia’s list price — meaning that they receive just $690 on a branded drug with a list price of $6900.
So what does a list price actually mean, and where does the rest of that money go? As you saw in the Wall Street Journal video, there are incentives throughout the entire supply chain for drugs’ list prices to continually increase. Pharmacy Benefit Managers (PBMs) pocket a growing cut of the “rebates” they “negotiate” on behalf of plans and employers in exchange for prioritizing a drug’s position on a formulary, or the list of drugs an insurer chooses to cover. That makes for some really backwards decision-making, as you also saw in the video — drugs with low list prices (and therefore low payments for middlemen and payors) can be intentionally deprioritized by insurers or not covered (placed on formulary) at all.