Report Finds Drug Discounts to Insurers Continue to Rise

Analysts found that the average sale, rebate, and allowance offered to insurers for prescription medications increased from 28 percent in 2012 to 41 percent in 2016. This trend is expected to increase, according to a recent Wells Fargo analysis.

Among large-cap pharmaceutical companies (defined as a market capitalization value of more than $10 billion), Eli Lilly saw the largest increase, with average rebates and discounts rising from 19 percent to 39 percent over the same four-year period. Merck followed, with discounts rising from 22 percent to 41 percent. Some specialty pharmaceutical companies also saw greater discounts, including Horizon (from 18% to 70%) and Valeant (19% to 41%).

“In reality, we believe that drug price increases are both a way to ‘feed the beast’ and a way to increase product profitability,” wrote David Maris, MBA, author of the Wells Fargo report, in a note to investors. “Many drug companies say they only net approximately half of the price increases they announce.”

Mylan representatives made a similar argument in a September 2016 congressional committee hearing on the company’s continual list price increases for its EpiPen product.

Because insurance copays are tied to the list price (not the lower discounted price for a medicine), consumers still pay more at the pharmacy counter. Drug makers have lobbied for a change that requires copays to be based on the discounted price.

Sources: FiercePharma, January 23, 2018; STAT News, January 24, 2018.