Unbiased Analysis of Today's Healthcare Issues

How much money do drug companies get for their drugs?

Written By: Jason Shafrin - Jan• 25•17

Let’s say a you fill a 30-day prescription and the list price of the drug is $100.  Let’s say that you pay a $10 copay and your insurer pays $90.  What share of this $100, does the drug company receive.

Most people would guess pretty close to $100, but a recent report by Aaron Vandervelde and Eleanor Blalock finds that the actual much lower.  They find that branded pharmaceutical manufacturers only receive 39% of all revenues paid by patients and insurers.  Even if you take into price concessions granted by pharmaceutical manufacturers, this number still would only be 47%.

So who gets all the rest of the money?   Non-manufacturer entities including amounts realized by participants in the supply chain received $22.  These stakeholders would include the pharmacy benefit manager (PBM), the pharmacy and any drug wholesalers.  An addition 20% of the cost is paid through wholesaler stocking fees, rebates to PBMs, rebates to Medicaid and TRICARE, funds to cover cost patient sharing assistance and the Part D coverage gap, program 340B chargebacks and a federal excise fee on brand drugs.

The share of revenue received by pharmaceutical manufacturers is declining although the trend is modest.  In 2013, pharmaceutical manufacturers received 40.5% of revenue compared to 38.8% in 2015.

Readers should recognize that it is not clear what the “right” level of revenue the pharmaceutical manufacturers receive.  Giving more funds to pharmaceutical firms is likely to increase innovation as they are the groups creating the new treatments.  At the same time, wholesalers, pharmacies, and PBMs do provide valuable services and clearly need to be compensated in one form or another.

The report does note that many of these discounts “are not plainly visible, leading to misperceptions about the relative share of gross and net drug expenditures realized by brand manufacturers.”  At the same time, pharmaceutical firms have been hesitant to share information on these negotiated prices.  To get to a world where we measure treatment value, we need not only good research on treatment benefits, but also additional clarity on drug prices.  This report is a step in the right direction towards better understanding  of the prices paid and the stakeholders to whom these funds go.

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One Comment

  1. They still make enough money to lower the cost of prescription drugs.

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