CONTENTS

6 EXECUTIVE SUMMARY
6 Paying the price for unrivaled access to prescription drugs
6 Rebating has fueled a period of dramatic list price inflation
6 Winners and losers under the current system
7 Prospects for change

8 THE PRICING DEBATE RESURFACES
8 A familiar problem that never went away
14 Bibliography

17 PUBLIC SECTOR PRICES
17 Not so free in practice
17 Labyrinthine rules limit public purchasing and reimbursement prices
22 The public sector drugs bill is still rising rapidly
26 Bibliography

30 PRIVATE SECTOR PRICES
30 Where market forces truly do run free
30 PBMs – the pharmaceutical industry’s main adversary
33 PBM pressure has driven a rebating arms race
37 Bibliography

40 THE REBATING BONANZA
40 A solution, or part of the problem?
40 List prices versus net prices: the gap becomes a gulf
42 List price hikes have been used to create headroom for rebates
44 Rebates soar, but net prices still comfortably outpace inflation
46 Resetting the drug pricing debate
47 Winners and losers under the current system
50 Bibliography

54 DRUG PRICE REFORM PROSPECTS
54 How might the drug pricing debate play out?
56 Public support for pricing intervention is strong
57 Public program prices and spending top the federal agenda
64 Federal inaction prompts states to begin legislating on prices
66 Market dynamics in the private sector begin to shift
68 Seeking “value for money”
73 Endgame scenarios
76 Bibliography

84 APPENDIX
84 About the author
84 Scope
84 Methodology

LIST OF TABLES
9 Table 1: Pharmaceutical share of total healthcare spending in the US, Canada, and the five major EU markets
10 Table 2: Per capita pharmaceutical spending in the US, Canada, and the five major EU markets
11 Table 3: Pharmaceutical share of total healthcare spending in the US, 2000–14
13 Table 4: Invoice and net price growth for protected brands in the US, 2011–16
19 Table 5: Price caps, discounts, and rebates to publicly funded health programs
22 Table 6: Statutory rebates and fees paid by manufacturers to public health programs, 2013–15
23 Table 7: Medicare and Medicaid enrollment and drug spending growth rates, 2014–15
23 Table 8: Forecast contribution of Medicare and Medicaid to national spending on prescription drugs, 2015–25
25 Table 9: Impact of prescription drug price spikes on Medicare gross spending, 2014–15
26 Table 10: Changes in gross unit cost of best-selling Medicare drugs, 2015
31 Table 11: PBM market shares by prescriptions managed, 2015
32 Table 12: Number of products excluded from standard national formularies operated by leading PBMs, 2012–17
33 Table 13: New-generation hepatitis C drugs in the Express Scripts standard formulary, 2017
34 Table 14: Value of commercial rebates and patient cost-sharing assistance for branded drugs, 2013–15
36 Table 15: Relative impact of rebates on leading US manufacturers, 2007–14
37 Table 16: Impact of rebates on AstraZeneca’s US business, 2005–16
41 Table 17: Growth in the value of rebates and discounts on branded prescription drugs, 2013–15
42 Table 18: The widening gap between AstraZeneca’s gross and net US product sales, 2005–16
44 Table 19: List price growth of leading prescription drug brands, 2011–15
45 Table 20: Average US list and net price growth reported by three leading companies, 2012–16
55 Table 21: Key drug pricing issues and possible solutions
57 Table 22: Public support for measures to keep prescription drug costs down
62 Table 23: Differences in the pharmacy price of prescription drugs in the US and Canada, 2016
69 Table 24: Health plan interest in entering into outcomes-based contracts with manufacturers