Last year, Sanofi paid nearly $14 billion in rebates to insurance companies and other payers. To put that in perspective: That is more money than the Avengers: Endgame made last year. Or the new Star Wars. Or The Lion King. In fact, those payments are larger than Hollywood’s total gross from all 900-plus films in 2019.
Rebate payments are a big part of the reason that our average net price — the amount we actually receive for our medicines after accounting for those rebates — fell by more than 11 percent in 2019. And as we documented in our fourth-annual Pricing Principles report, this decrease is part of a significant trend: Our net price decreased by 8 percent in 2018, 8.4 percent in 2017 and 2.1 percent in 2016.
Drug prices are not “skyrocketing,” as is sometimes claimed by those who look only narrowly at list prices: the prices at which we sell our medicines to wholesale drug distribution companies. Net prices have seen a long and meaningful drop, one that we’ve documented in our annual Pricing Principles report, spelling out the financial realities of the market for medicines.
In theory, decreasing net prices for prescription medicines should be great news for the rest of the health care system, acting as a break against health care inflation from other parts of the system, including increasing hospital charges. But not everyone is benefiting: Patients are seeing little of that benefit, fueling frustration about the price of pharmaceuticals.
Part of the confusion comes from the disconnect between list prices and the net prices that reflect the amount a manufacturer receives after accounting for rebates negotiated by insurance companies and their pharmacy benefit managers.
Our health care system currently creates perverse incentives for higher-priced medicines. The PBMs that negotiate drug prices on behalf of insurance companies will see more cash flow from a $300 drug with a 20 percent rebate ($60) than they would for a $125 drug with a 20 percent rebate ($25). Simply put, it is more profitable for PBMs and payers to cover higher-priced medicines than lower-priced ones.
PBMs’ bargaining power has grown through consolidation. They have used their power to demand larger rebates from drug manufacturers, which are competing to ensure that insured patients have access to their medicines. As PBM demands for rebates have grown, insurance companies have paid less and less for medicines.
Unfortunately, this system comes with a major side effect: Insured patients are not reaping the benefits of those lower prices, a particular problem for increasing numbers of Americans enrolled in high-deductible health plans. For example, our most prescribed insulin, Lantus, has a lower net price today than a decade ago, and yet some patients struggle to afford it.
Sanofi wants to help fix this system. And while the ultimate solution to high out-of-pocket costs will require action by stakeholders from across the system, Sanofi has already taken substantial steps to help address the holes in a broken system and support patient affordability.
Our Pricing Principles report reflects Sanofi’s commitment to improving patient access and affordability. So do our patient assistance programs, which include co-pay assistance for insured patients, free-drug programs for low-income patients and the “Valyou” insulins program that offers uninsured patients access to insulin for a low cash price each month.
We’ve also worked to cut the prices of some medications, including our insulin product Admelog. Last July, Sanofi reduced the list price of Admelog by 44 percent to ensure it remained the mealtime insulin with the lowest list price.
Additionally, when our rheumatoid arthritis treatment, Kevzara, was approved in 2018 with clinical trial data showing better efficacy compared to the most prescribed rheumatoid arthritis treatment, we set the launch list price 30 percent lower than the two most widely used RA drugs at the time. Given the perverse incentives described above, however, neither of these list price decisions resulted in improved access or affordability for most patients.
That is one reason we know our actions alone aren’t going to cut it. We need policy changes that focus on patient affordability. Sanofi supports efforts to make insulin affordable, such as prohibiting health plans from charging patients more than the net price that the health plan pays or requiring health plans to use a portion of the rebates they receive to lower out-of-pocket costs for patients at the pharmacy counter.
We stand ready to work with Congress, as well as others within the health care system, to create a new reality where medicine prices aren’t just dropping for insurance companies. We need to make sure they’re dropping for the people who need lower prices the most: the patients.
Adam Gluck is head of Sanofi U.S. and Sanofi Genzyme Corporate Affairs.
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This op-ed has been updated with Adam Gluck’s new job title.