We hear from more and more people living with diabetes about the challenges they face affording healthcare, including the medicines we make. We take this issue seriously and have been thinking about what we can do to better support patients. This has become a responsibility that needs to be shared among all those involved in healthcare and we’re going to do our part.
As a first step, we‘ve taken a position on affordability, outlining three tenets that will be our focus. One is creating more pricing predictability so customers like pharmacy benefit managers (PBMs) and payers can effectively anticipate and budget for our price increases. We will support that by limiting any potential future list price increases for our medicines to no more than single-digit percentages annually. This is one action we are taking immediately.
A second area of focus is transforming the drug pricing system, which is incredibly complex and has resulted in a lot of confusion around what patients pay for medicines. News reports on drug prices have left the public with an impression that companies like ours realize all the profits from the “list price” increases we’ve made over the last decade. In other words, a list price increase by XX percent leads to an automatic XX percent profit for the drug maker. We believe that is misleading and here’s why: As the manufacturer, we do set the “list price” and have full accountability for those increases. However, after we set the list price, we negotiate with the companies that actually pay for the medicines, which we call payers. This is necessary in order for our medicines to stay on their preferred drug list or formulary. The price or profit we receive after rebates, fees and other price concessions we provide to the payer is the “net price.” The net price more closely reflects our actual profits.
In the graphic showing our insulin, NovoLog®, you’ll see the difference between list price, which increases a lot after 2010, and the net price. The list price increases after those negotiations and concessions translated year-over-year to mid-single-digit net price increases for all our insulins, even when you don’t account for inflation. And when you do, those net prices were closer to the Consumer Price Index – Urban, a common measure of the average price of goods.
So that probably prompts two questions: what does that mean for patients? And, what’s the point of increasing the list price if the drug maker is not necessarily realizing that profit?
For patients, the reality is that many of the insured may benefit from the net prices payers negotiate (on average, insured patients pay a co-pay for Novo Nordisk insulins between $1 - $1.40 per day) while others may not. Uninsured patients or those in certain insurance plans may be subject to list price. More on that below.
For Novo Nordisk, those price increases were our response to changes in the healthcare system, including a greater focus on cost savings, and trying to keep up with inflation. PBMs and payers have been asking for greater savings – as they should. However, as the rebates, discounts and price concessions got steeper, we were losing considerable revenue – revenue we use for R&D, sales and marketing, education, disease awareness activities and medical information support. So, we would continue to increase the list in an attempt to offset the increased rebates, discounts and price concessions to maintain a profitable and sustainable business. We also monitored market conditions to ensure our prices were competitive with other medicines as part of our business model.
All in all, we’ve simply tried maintaining a profit margin that has been dropping significantly since health policy changed in the US. With that, we also need to work together to improve the system and create more transparency.
While we can debate who pays what in different scenarios, it doesn’t change the fact that many patients simply can’t afford the medicine they need. We currently offer several options for eligible patients including a Patient Assistance Program and co-pay cards to defray costs. Patients can also get our human insulin – sold as ReliOn® through Wal-Mart and as Novolin® in community pharmacies – which might be an affordable option for some patients. However, new issues are surfacing that require more solutions. For instance, there are a growing number of people enrolling in high-deductible health plans that are facing higher costs at the pharmacy counter. In our view, high-deductible health plans are becoming a greater part of the affordability issue requiring attention. That’s one of the reasons why our third commitment is focused on reducing the burden of out-of-pocket costs to patients.
As a leader in diabetes care, we recognize patients need more. We are poised to do more, but can’t do it alone. We need a partnership approach involving PBMs, insurance companies, employers, patient organizations and policy makers – to help find sustainable solutions. With these three tenets top-of-mind, we will work in collaboration to support those who face affordability challenges.
We plan to talk more about these issues in the coming months. Please stay in touch by connecting through @NovoNordiskUS if you’re not following us already.