A US manufacturer’s list price for a medicine is usually its wholesale acquisition cost, or WAC: the price to wholesalers before any discounts. Very little of the market actually pays it. Between gross sales at WAC and the net revenue the manufacturer keeps sit a series of deductions, including:
- rebates paid to pharmacy benefit managers and health plans in return for formulary access;
- statutory Medicaid rebates;
- discounts to eligible providers under the 340B program;
- chargebacks to wholesalers for sales to contracted customers;
- copay assistance for commercially insured patients;
- distribution and service fees, and returns.
The size of the gap varies widely by product and therapy area. For some heavily rebated brands, the net price is a small fraction of the list price.
Gross-to-net matters because list price is what patients and the public often see, while net price is what determines the manufacturer’s revenue and what payers actually pay. It is also one of the most inconsistently defined figures inside companies, because finance, market access and brand teams look at it for different purposes. A written definition of exactly which deductions are included, and on what basis, avoids a great deal of confusion. See KPI drift.