Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Price Differences from IMS Data

04/01/2000

IMS data on retail prices for the most commonly filled prescription drugs for the total population show that cash payers usually paid higher prices for the same drug than people with third-party payment. The IMS price data for individual drugs are highly confidential and proprietary, and their use in this report is contingent on their not being directly displayed. Instead the report will show comparisons between prices paid by different purchasers, or prices at different points in time. Here and in the following results, the category of third-party payers does not include Medicaid and the category of cash payers includes people without coverage and people with indemnity coverage.40

Figure 3-3 shows the distribution of differences in average cash-purchaser prices to average third-party prices (excluding the effect of rebates) for nearly 200 of the most commonly prescribed drugs.41 The results reported are for December 1996 and September 1999 (the most recent period that price data were available from IMS). The figure shows a simple distribution of cash to third-party ratios for both years.42 As shown later in this chapter, this distribution is somewhat different when we separate brand name and generic drugs. For the most part, the pattern displayed here reflects patterns for brand name drugs, while the generic drugs are most represented in the tails (especially the right-hand tail) of the distribution.


Figure 3-3. Percent Difference Between Average Price for Cash Purchasers and Average Price for Third Parties (Without Rebates) in 1996 and 1999, for the Most Commonly Prescribed Drugs

Figure 3-3. Percent Difference Between Average Price for Cash Purchasers and Average Price for Third Parties (Without Rebates) in 1996 and 1999, for the Most Commonly Prescribed Drugs

Note: Data exclude the effect of rebates for those with third-party coverage.

Source: IMS Price Trak ReportTM, 1996 and 1999.


The median (or midpoint) of the 1996 distribution was 8.3 percent, meaning that for half of the drugs, cash payers paid at least 8.3 percent more than those with a third-party payment, and half the drugs had a cash to third party difference of less than 8.3 percent. For a large majority of drugs (132 of 166, or 80 percent), the price paid is higher for cash purchasers (i.e., a difference of greater than zero, as shown in the figure). By 1999, the distribution has shifted to the right, meaning that the gap between cash and third-party prices has increased substantially. The median ratio has grown to 14.6 percent and cash purchasers are paying more than third parties for virtually all of the drugs (167 of 177 drugs, or 94 percent). For 25 percent of the drugs, the price difference in 1999 was more than 20 percent.

The growth in the price differentials has had a particular impact on Medicare beneficiaries. Figure 3-4 shows cash-purchaser to third-party price differentials (excluding the effect of rebates) for 19 of the 20 drugs most frequently used by Medicare beneficiaries in 1996, as determined by the number of prescriptions reported in MCBS.43 In 1996, the cash price was higher than the third-party price for 12 of the 19 drugs.44 By 1999, the cash price was equal to or higher than the third-party price for all of the 19 drugs.45


Figure 3-4. Percent Difference between Average Price for Cash Purchasers and Average Price for Third Parties (Without Rebates), 1999, for Drugs Most Frequently Used by Medicare Beneficiaries in 1996

Figure 3-4. Percent Difference between Average Price for Cash Purchasers and Average Price for Third Parties (Without Rebates), 1999, for Drugs Most Frequently Used by Medicare Beneficiaries in 1996

Note: Data exclude the effect of rebates for those with third-party coverage.

1999 difference for Lanoxin = 0%.

Source: IMS Price Trak ReportTM, 1996 and 1999. Drug rankings based on 1996 Medicare Current Beneficiary Survey


Prescription drugs exhibit a high level of price variability (the range in prices paid for a specific drug). All of the comparisons to this point have been based on average prices. Of course some cash purchasers pay more or less than the average, as do some third parties. In either case, however, the variability is considerable, and average prices are likely to be affected by extreme values. One would expect variation in prices to be somewhat greater for third parties than for cash purchasers, because not all insurers negotiate discounts on their own or through PBMs. This is true for the drugs in the IMS data: price variability was somewhat greater for third parties than for cash purchasers in 1999. The price variability percentage for third parties averaged 42.0 percent in 1999, as compared to 29.0 percent for cash payers.46

Median prices are less likely than average prices to be affected by extreme values. Figure 3-5 provides a comparison of the ratios of median cash prices to median third-party prices (excluding the effect of rebates) in 1999. When the medians are used for comparison, the previous results (based on average prices) are confirmed. There are somewhat more drugs for which cash purchasers pay less than third parties, 15 as opposed to 10 when using averages. There are 125 drugs, however, for which cash purchasers paid at least 10 percent more than third parties, and 13 for which cash purchasers paid over twice as much. The median of this distribution is actually somewhat higher at 17.3 percent than for the distribution based on averages (median of 14.6 percent).


Figure 3-5. Percent Difference between Median Price for Cash Purchasers and Median Price for Third Parties (Without Rebates), 1999, for the Most Commonly Prescribed Drugs

Figure 3-5. Percent Difference between Median Price for Cash Purchasers and Median Price for Third Parties (Without Rebates), 1999, for the Most Commonly Prescribed Drugs

Note: Data exclude the effect of rebates for those with third-party coverage.

Source: IMS Price Trak ReportTM, 1999.


A final analysis focuses on the differences between brand name and generic drugs. Unit prices based on IMS data are four times higher for brand name drugs than for generic drugs, similar to the result reported earlier based on MEPS data (Table 3-3). As a result, it makes sense to reexamine the distribution of the differences in average price (excluding the effect of rebates) paid by cash purchaser versus third-party payer, shown in Figure 3-3, separately for brand name and generic drugs. For either category of drugs, cash customers pay higher prices than those with third-party payments at the point of sale (Figure 3-6). For the 111 brand name drugs analyzed, the median of the differences was 14.1 percent.47 The median of the differences was somewhat higher for the 66 generic drugs analyzed (22.1 percent).


Figure 3-6. Percent Difference Between Average Price for Cash Purchasers and Average Price for Third Parties (Without Rebates) in 1999, for the Most Commonly Prescribed Brand and Generic Drugs

Note: Data exclude the effect of rebates for those with third-party coverage.

Source: IMS Price Trak ReportTM, 1996 and 1999.


Figure 3-6 also shows that the differences in average price paid for brand name drugs are considerably more concentrated than for generic drugs. A large majority of the brand name drugs (75 of 111, or 68%) have a percent difference in price paid between 10 percent and 20 percent. In fact, no brand name drug in 1999 cost less for cash purchasers than it did for third-party payers (that is, all the price differences were greater than or equal to zero).

By contrast, the distribution for generic drugs is substantially less concentrated with only a slight peak in the zero to 10 percent range of the distribution. Many generic drugs are in the right-hand tail of the distribution with cash customers paying from 40 percent higher to nearly double that paid by customers with third-party coverage. But, as described previously, the smaller percentage increase on the more expensive brand name drugs amounts to a larger number in absolute dollars paid.

In sum, the analyses from MEPS and IMS tell a consistent story: people without drug coverage and other cash customers generally pay more than insurers for the same drugs at the point of sale. These price differences, however, are not the result simply of differing markups by the retail pharmacy; instead, they contrast prices charged by the pharmacy to one set of customers to the reimbursement received by the pharmacy (plus customer cost sharing) for another set of customers. The story is clearest for brand name drugs, where the absolute price difference matters the most to the cash-paying customer. The IMS data, which are the most recent available, suggest that disparities between prices paid by insurers and by individual consumers appear to have been growing in recent years.

As noted previously, a key limitation on the empirical analysis of prescription drug prices in this study is our inability to incorporate the effect of rebates. The net costs of insurers or PBMs are often further reduced by discount or rebate arrangements with pharmaceutical manufacturers that are not captured in these data. Rebate data, if available, would allow a more complete analysis of the overall differences between the amount paid on behalf of insured customers with the retail price paid by customers 103who lack coverage. Such differences would be larger than the retail price differences observed in this study.

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