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(Reuters) — With a backlash brewing over the price of medicines in the United States, drugmakers are pushing back with a new message: Most people don't pay retail.
Top executives from Eli Lilly and Co., Merck & Co. and Biogen Inc. said in interviews with Reuters this week that the media focus on retail, or "list prices," for branded medications is misplaced.
They stressed that the actual prices paid by prescription benefit managers, insurers and other large purchasers are reduced through negotiated discounts.
A couple of dramatic price hikes in 2015 exposed the whole industry to ongoing scrutiny in Congress and on Wall Street. Turing Pharmaceuticals raised the price of a generic anti-infective drug called Daraprim by 5,000%, and the larger Valeant Pharmaceuticals International raised the price on a heart drug Isuprel by more than 200%.
The largest drugmakers quickly portrayed those cases as outliers. But the industry practice of raising prices each year for treatments used by millions of people is attracting new attention.
Adam Schechter, Merck's president of Global Human Health, said the industry needs to better explain the value of drugs and how they can prevent healthcare costs down the line.
"We have to explain the difference between the list price and the net price," he said in an interview.
Toward that end, two drugmakers at the JP Morgan Healthcare Conference in San Francisco this week shared with Reuters some limited information on actual pricing.
Eli Lilly said the actual average price increase on Humalog, its injectable insulin used to treat diabetes, has been a modest 1 to 2 % annually over the last five years. The company declined to provide a list price.
Horizon Pharma plc, a small drugmaker, raised list prices across its business about 7% for this year, Chief Executive Tim Walbert said in an interview. But he said he expects the company's actual price increases to be 4% or less.
More recently, Pfizer Inc., one of the world's largest drugmakers, raised U.S. list prices on more than 100 drugs as of Jan. 1, according to data from information services company Wolters Kluwer that was published last week by UBS Securities.
The list included a 9.4% rise for pain drug Lyrica and a nearly 13% increase for erectile dysfunction drug Viagra. Pfizer said in an email the prices don't reflect "considerable discounts" to many payers, but did not provide examples of net prices.
Drugmakers keep actual pricing details close to guard their position in negotiations with commercial insurers and government health plans like Medicaid. There is no centralized catalog of U.S. list prices or rebates for medicines.
That drug executives at the San Francisco conference allowed even a glimpse into their actual pricing strategies reflects the intensity of the new attention being paid to their practices.
In meetings at the event, investors pressed pharmaceutical executives for more transparency about pricing, said Les Funtleyder, a portfolio manager for E Squared Asset Management, which holds shares in Pfizer and Lilly.
"What they really want to know is, are you thinking about this issue?" he said of the investors. "They are looking for an acknowledgement on the management team's part."
E Squared expects the new scrutiny will have an impact, projecting that drugmakers will raise U.S. list prices by 4% to 6% in 2016, less than half the rate in 2015.
The candor of some individual pharmaceutical executives follows earlier messaging by industry advocates. In a November blog post, the industry's main lobbying group PhRMA, reported that list prices grew 13% in 2014, but actual prices increased only 5%.
U.S. health insurers say that, even accounting for discounts, drug prices are rising at an unsustainable rate, and they are pressuring drugmakers for cuts.
"Whether it's a gross number, or a net number, it is still astronomical," said Daniel Hilferty, chief executive of Independence Blue Cross, which operates in Pennsylvania and New Jersey.
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