Merck, the giant drug company known for its cancer immunotherapy drug Keytruda and its vaccines business, has published a report that outlined the company’s average list price increases for its products. The report also lists net prices – or the amount Merck actually receives after factoring in rebates and other discounts that drugmakers payout. It’s an effort to diffuse criticism faced by the entire industry that drug prices are out of control. While it has been a hotly covered topic for several years, President Donald Trump recently raised the stakes by saying that drug companies are “getting away with murder.”
In 2016, Merck raised prices by an average of 9.6%. But after factoring in rebates, that was just 5.5% (a rate that’s still higher than the rate of inflation).
“We’ve taken a close look at our pricing practices – and we believe we have a good track record,” Adam Schechter, president of global human health at Merck wrote in an accompanying post on the company’s Website. “Since 2010, Merck’s average net price increase across our portfolio each year has been in the low to mid-single digits: specifically, 3.4 percent to 6.2 percent.”
Pharmaceutical companies have been criticized for their routine list price increases, which are often the only numbers the public has access to. But, as those companies have argued, the list price doesn’t tell the whole story. There are other players in the system that each take a piece, which means that what a drugmaker actually receives could be lower even as the list price rises.
For example, Merck showed that since 2010, the discounts it pays out to middlemen in the pharma supply chain rose to 40.9% in 2016. Drug companies offer these higher discounts to stay on the lists of preferred medicines that pharmacy benefit managers maintain when competition gets tough.
Drugmakers are hoping to shift the discussion over drug prices in this direction. For example, Lilly, which has routinely taken list price increases to its insulins, told Business Insider that the net price for its insulin Humalog was down 24% in the third-quarter of 2016, from the third-quarter of 2015.
Merck said it plans to update the information on pricing every year in January going forward, which could be a signal of broader changes to come among drug pricing. Some companies have tried to tackle the drug pricing criticism by committing to only single-digit list price increases, while Johnson & Johnson plans to join in with Merck in February with a report on their list and net prices on average.