Price Concessions By Manufacturers To Payers Rose Sharply In 2015

Net spending on all drugs rose 8.5% to $310bn in the US in 2015 when discounts, rebates and other price concessions are considered, annual IMS review says.

Manufacturer discounts, rebates and other price concessions to payers offset price increases for branded drugs still protected by patents by approximately 77%-81% in 2015, according to the IMS Institute for Health Informatics annual US drug spending review, released April 13.

As a result, although pricing for protected brands was up 12.4% on an invoice basis, net prices grew only 2.8% on average for the year. The estimates in the report apply to both “retail” drugs dispensed through pharmacies and mail and “non-retail” drugs dispensed through hospitals and clinics.

Invoice spending reflects wholesaler transactions measured at trade/invoice prices and excluding off-invoice discounts and rebates that reduce net revenue for manufacturers. Net spending reflects manufacturer-recognized revenue after off-invoice discounts, rebates and price concessions.

Net spending on all drugs increased 8.5% to $310bn in the US in 2015, IMS says. On an invoice basis, spending rose 12.2% to $424.8bn. Net spending on drugs is expected to increase 4%-7% per year over the next five years (see box).

The rate of spending growth in 2015 slowed by about 2% from 2014 on both an invoice and net basis. Spending in 2014 was driven largely by the new hepatitis C drugs (Also see "U.S. Drug Spending Growth For 2014 Is Highest In A Decade, IMS Says" - Pink Sheet, 14 Apr, 2015.).

The IMS estimate for net spending growth in 2015 is somewhat higher than the 5% rate reported recently by leading pharmacy benefit manager Express Scripts Holding Co. (Also see "Rx Spending Growth Won’t Exceed 8% In Coming Years – Express Scripts" - Pink Sheet, 15 Mar, 2016.). However, the longer-term growth forecasts by IMS and the PBM are consistent.

For specialty drugs alone, net spending reached $121bn in 2015, up more than 15% from 2014. On an invoice basis, spending on specialty drugs rose 21.5% to $150.8bn. The increase in specialty drug spending was driven primarily by treatments for hepatitis, autoimmune disease and cancer.

US Drug Spending Forecast

• Net spending will grow 4%-7% per year from 2016 to 2020
• Spending will reach $370bn-$400bn on a net basis in 2020
• Spending will rise 46% over the next five years on an invoice basis
• Invoice spending will reach $610bn-$640bn in 2020
• Invoice price increases will continue in the 10%-12% range annually
• Rebates and discounts will reduce spending by $115bn over next five years

Source: IMS Health annual US drug spending review

This year marks the first time the IMS report has offered overall spending estimates on a net basis. The metric was added in recognition of manufacturers’ increasing use of price concessions to satisfy payer demands and secure better drug access in competitive categories.

“The widening gap between invoice price growth and net price growth reflects higher levels of off-invoice discounts, price protection, rebates and price concessions since 2013, which coincides with a period of higher levels of invoice price growth and intensified competition,” IMS explains. Reports released by the firm in the past two years have included estimates of net price increases but not of overall spending.

Price concessions were particularly notable in the hepatitis, diabetes and pain therapy categories, IMS notes.

The report offers a closer look at price concessions in the hyper-competitive diabetes category. Non-discounted spending for diabetes drugs surged upward 30% to nearly $44bn in 2015. But with price concessions, the net spending increase was a more modest 8.2%.

Discounts, rebates and patient cost-savings programs for existing and new diabetes brands offset $8.6bn of the overall $10.1bn in invoice pricing growth in the class, IMS estimates.

Nearly half of the invoice price growth in the diabetes class was for insulins. But all of that increase “and more” was offset by rebates and price concessions.

For some products, price concessions have become so extensive that they adversely impact sales. A nearly 21% decline in 2015 US sales for Sanofi’s market leading insulin, Lantus, was due mainly to discounting, the company reported.

Copay Coupons, Vouchers Increase

Manufacturer “buy downs” of patient cost sharing for brand drugs dispensed at retail also escalated in 2015. The increase responded to the higher cost-sharing requirements, including copays, coinsurance and deductibles, being imposed on members by an increasing number of insurance plans.

The average patient cost exposure for a branded drug covered by a commercial plan has increased by more than 22% since 2011 and reached $44 per prescription in 2015. Seventeen percent of brand prescriptions had a patient cost exposure of greater than $50 per fill.

Copay coupons and vouchers kept patient out-of-pocket spending “fairly stable” in 2015 compared with previous years, according to IMS.

In the diabetes class, more than half of the patient savings programs targeted instances where cost sharing exceeded $50 per prescription. The SGLT-2 category of anti-diabetics made up the majority of the buy-downs in those instances. The class includes Eli Lilly & Co.’s Jardiance (empagliflozin), Johnson & Johnson’s Invokana (canagliflozin) and AstraZeneca PLC’s Farxiga (dapagliflozin).

Although final out-of-pocket costs varied across diabetes drugs, about half were able to reduce their out-of-pocket cost to zero through a patient savings plan, IMS found. Most patients ended up paying less than $10 per fill.