By Christopher V. on Linkedin
What does “Gross to Net” really mean?
Yesterday I posted about the Assistant Secretary for Planning and Evaluation – HHS report on the first two years of RxDC data.
Gross to net in plain terms refers to the difference between a drug’s list price (the sticker price set by the manufacturer) and the actual amount that is paid after discounts, rebates, and other price concessions are applied.
Let’s break it down:
1. Gross price: This is like the full price on a car sticker at a dealership. It’s the starting price.
2. Rebates and discounts: These are like deals, coupons, or negotiations that lower the price. Health plans, pharmacies, and government programs negotiate these to reduce costs. Think of this like the “conquest cash” when you trade in a competing car.
3. Net price: This is the final amount the manufacturer receives after all those rebates and discounts are taken out. This is what it actually costs to drive the car off the lot, or leave the pharmacy with the medication.
For example:
• A drug has a gross price of $100.
• After rebates and discounts, the manufacturer might only get $70.
• The $30 difference is the “gross-to-net gap.”
This gap has been growing because gross prices (list prices) are increasing faster than the actual net prices (what manufacturers take home).
So, while patients might see rising list prices, behind the scenes, insurers and programs are often paying less—thanks to those rebates and discounts. But the complexity of this system can leave patients facing higher out-of-pocket costs.
Is a bigger gross-to-net gap good?
Whether a bigger gross-to-net gap is good depends on your perspective—and who you are in the system:
1. For patients:
A bigger gap can be bad. Even though insurers and pharmacy benefit managers (PBMs) negotiate discounts, patients often pay out-of-pocket costs (like deductibles or coinsurance) based on the gross price—not the discounted net price. So, if the gross price keeps rising, patients may end up paying more, even if insurers pay less.
2. For health plans and PBMs:
A bigger gap can be good. It means they’re securing larger rebates and discounts, which can be used to lower premiums or keep healthcare costs stable for everyone. However, the rebates don’t always directly reduce costs for the individual patient.
3. For drug manufacturers:
A bigger gap is challenging. While list prices rise, manufacturers often earn less due to hefty rebates and discounts. This means their “net price” (actual revenue) may not increase as much as it appears on the surface.
In short: A bigger gross-to-net gap highlights inefficiencies in the system. While it can benefit health plans and lower premiums, it does so by shifting costs to patients and adding to confusion about drug pricing. Patients rarely see the benefits of those discounts, even as the gross prices continue to climb.
Graphic taken from KFF to reinforce the complexity of the system. How much could simplifying save?
