Estimating Drug Costs: How do Manufacturer Net Prices Compare with Other Common US Price References?

Drug costs are frequently estimated in economic analyses using wholesale acquisition cost (WAC), but what is the best approach to develop these estimates? Pharmaceutical manufacturers recently released transparency reports disclosing net price increases after accounting for rebates and other discounts.

Our objective was to determine whether manufacturer net prices (MNPs) could approximate the discounted prices observed by the U.S. Department of Veterans Affairs (VA).

We compared the annual, average price discounts voluntarily reported by three pharmaceutical manufacturers with the VA price for specific products from each company. The top 10 drugs by total sales reported from company tax filings for 2016 were included. The discount observed by the VA was determined from each drug's list price, reported as WAC, in 2016. Descriptive statistics were calculated for the VA discount observed and a weighted price index was calculated using the lowest price to the VA (Weighted VA Index), which was compared with the manufacturer index.

The discounted price as a percentage of the WAC ranged from 9 to 74%. All three indexes estimated by the average discount to the VA were at or below the manufacturer indexes (42 vs. 50% for Eli Lilly, 56 vs. 65% for Johnson & Johnson, and 59 vs. 59% for Merck).

Manufacturer-reported average net prices may provide a close approximation of the average discounted price granted to the VA, suggesting they may be a useful proxy for the true pharmacy benefits manager (PBM) or payer cost. However, individual discounts for products have wide variation, making a standard discount adjustment across multiple products less acceptable.