Note: before the virus crisis dominated the news, I had composed and scheduled a lot of posts. There are still a few left to run. This is one of them.
Pragya Kakani, Michael Chernew, and Amitabh Chandra write,
Annual inflation of list prices was 12% while that of net prices was 3%, implying that financial rewards to manufacturers per unit sold have not grown proportionally to list prices. This pattern is mirrored in 19 of the 20 top drug classes by revenue including insulins, where list and net price inflation were 16% and 2% annually respectively. Finally, we find price growth explains 76% of revenue growth when measured by list prices but 31% of revenue growth when measured by net prices. Moreover, new product entry is the most important factor affecting pharmaceutical revenue growth. These findings provide a cautionary note on using list prices for policy analysis.
Of course, we already knew about price discrimination in the form of lower prices charged in foreign countries with price controls. If demand is more elastic in foreign countries, then that sort of price discrimination might be efficiency-enhancing.
If the government allowed mask suppliers to bill hospitals the way it allows hospitals to bill patients, there would be plenty of masks for every patient in every hospital.
Higher education (at least in the US) is the other sector famous for sticker-shock list prices for the same services (i.e., no premium versions) that are then frequently discounted by different amounts according to an unpredictably opaque and obscure system of arbitrary discretion such that they bear little connection to the typical amounts the customers actually pay. I wonder how such a “list vs net” analysis would look for those institutions.