A Drugmaker’s Tale: How $34 Billion in Rebates Is Keeping Commercial Insurers and PBMs Flush with Cash While Hanging Everyone Else Out to Dry
Last month, Janssen Pharmaceuticals released its 5th annual U.S. Transparency Report with a notable new addition: a detailed synopsis of how rebates, now hard-wired into insurance benefit design, essentially derail patients from accessing affordable medication. These access to care issues occur even as an elite group of Fortune 15 insurers, whose PBM divisions process more than 80% of all U.S. prescription drug claims, are getting wealthier by the billions every quarter.
Last year Janssen paid $33.9 billion dollars in rebates, discounts, and fees, including $8.3 billion to commercial insurers and pharmacy benefit managers (PBMs) — by far the largest of the 9 price concession categories listed in the report (see above graphic). Janssen, the pharmaceutical division of #36 ranked Johnson & Johnson, is just one of many manufacturers who pay PBMs for the privilege of including their products on patient plan formularies.
It’s unclear how the price concession practice began, whether it was the drug makers who first approached the middlemen or vice versa, but a 2019 white paper issued by Foley Hoag in response to the Trump Administration’s proposed rebate rule credits a series of events in the 1990s with having created the current environment that allows the practice of exchanging drug price discounts for access to patients and market share — compulsory or otherwise.
Among the Janssen report’s many eyebrow-raising statistics:
- 2021’s $33.9 billion paid in rebates, discounts, and fees equated to 55% of Janssen drugs’ list price
- During its 5 years of transparency reporting, the demand for Janssen discounts has more than tripled, as commercial insurers and PBMs have increased in size and power while Janssen’s net prices have declined over the same 5 years by nearly 17% (compounded year over year)
- While rebates and discounts have resulted in lower net prices for insurers and PBMs, patient out-of-pocket costs have increased, with patients shouldering cost-share burdens of more than $82 billion. Patient cost-share is based on the drug’s list price, thus artificially increasing patients’ costs and providing additional revenue to PBMs
The report goes on to define and explain the ways prescription benefit design drives up patient out-of-pocket costs while simultaneously obstructing access to care and interfering in providers’ treatment plans. Co-pay adjustment programs, non-medical switching, step therapy, and prior authorizations are among the insurer/PBM utilization tactics named and explained in the report.
Janssen’s transparency report is a mission-driven white paper rightly addressing rising costs for patients and the unintended consequences of proposed, but not fully informed policy. The information is intended to be actionable by a variety of stakeholders and is a good tool for gaining insight into the manufacturer’s side of the complex prescription drug pricing equation.
Our hope is that going forward, other drugmakers will follow suit to provide an even broader level of transparency into the manufacturing side of the prescription drug marketplace. The more comprehensive our understanding is of each facet of drug pricing, the more effective advocates and policymakers can be in enacting reforms that truly benefit those whom drug price concessions were intended for, employers, taxpayers, and most importantly, patients.
1 The events: amendments to the anti-kickback statute; litigation between retail pharmacies, manufacturers, and wholesalers under the Depression-era Robinson-Patman Act (an anti-competitive pricing statute); and revisions to the discount safe harbor.
2 Drug List price is like a car’s MSRP — manufacturer’s suggested retail price and assumes a level of price negotiability which is rarely passed on to the consumer. Drug net price is the drug’s price after rebates, discounts and fees have been paid and represents the amount collected and kept by the drug maker