Consumer Out-Of-Pocket Drug Prices Grew Faster Than Prices Faced By Insurers After Accounting For Rebates, 2007-20

Abstract

The rising price of branded drugs has garnered considerable attention from the public and policy makers. This article investigates the complexities of pharmaceutical pricing, with an emphasis on the overlooked aspects of manufacturer rebates and out-of-pocket prices. Rebates granted by pharmaceutical manufacturers to insurers reduce the actual prices paid by insurers, causing the true prices of prescriptions to diverge from official statistics. We combined claims data on branded retail prescription drugs with estimates on rebates to provide new price index measures based on pharmacy prices, negotiated prices (after rebates), and out-of-pocket prices for the commercially insured population during the period 2007-20. We found that although retail pharmacy prices increased 9.1 percent annually, negotiated prices grew by a mere 4.3 percent, highlighting the importance of rebates in price measurement. Surprisingly, consumer out-of-pocket prices diverged from negotiated prices after 2016, growing 5.8 percent annually while negotiated prices remained flat. The concern over drug price inflation is more reflective of the rapid increase in consumer out-of-pocket expenses than the stagnated inflation of negotiated prices paid by insurers after 2016.