Bill Roth, IntegriChain

Popping the Gross-to-Net Bubble, Part V: Innovative Pricing Models

Popping the Gross-to-Net Bubble, Part IV: Extreme Examples of Who Grew the Bubble

Popping the Gross-to-Net Bubble, Part III: The Pharmacy Benefit

This is the sixth and final installment in my “Popping the Gross-to-Net (GTN) Bubble” series. Over the past five articles, I’ve unpacked the inner workings of GTN, including how statutory and commercial rebates distort gross and net pricing; how pharmacy benefit managers (PBMs) and intermediaries incent and exploit pricing structures; mistakes made by manufacturers along the way and how they are now experimenting with new models to not just survive the construct set by payers but are seeking to evolve the market back to appreciate the science; and ensuring patients and plan sponsors regain their proper positions as the true economic buyers.

Now, it’s time to look ahead. What forces will actually deflate the bubble over the next five years? And what dynamics will continue to inflate it, keeping this distorted system alive for longer than many of us would like?

1. Switching from brands to generics and biosimilars as part of the patent cliff

The single-largest deflationary force between 2025 and 2030 is the loss of exclusivity (LOE) on nearly $400 billion in branded drug sales. Few events reshape market economics as dramatically as patent cliffs.

Flagship brands such as Humira and Stelara have already lost exclusivity, as have Copaxone 20 mg, Gilenya, Aubagio, and Tecfidera. For large general medicine products such as Eliquis, Xarelto, Jardiance, Januvia, Entresto, and Farxiga, losses of exclusivity are looming. While the pending maximum fair price (MFP) is definitely adding incremental confusion and pressure, the combination of the two are all providing early views into where the market is moving. Wholesale acquisition cost (WAC) prices are coming down; some are preempting their patent expiries by launching early authorized generics. The most significant aspect of the patent cliff is how I think new science will be treated as it comes into crowded drug classes with ubiquitous generic competition. I personally don’t see a bounce back.

2. Manufacturers leaving government programs

The second deflationary driver comes from the government’s own policies. We’ve seen this unfolding since the mid-1970s, but it has picked up pace in the last 15 years. I spoke with a Department of Health and Human Services (HHS) representative about five years ago, and the agency does believe its mission is to lower pricing, not just for government but for commercial plan sponsors and consumers. As of writing this in late August, 35 manufacturers—both brand and generic—have terminated their labeler codes with the Centers for Medicare & Medicaid Services, effectively walking away from Medicaid, the 340B Drug Pricing Program, and the Federal Supply Schedule (FSS) just between Oct. 1, 2025, and Jan. 1, 2026, joining the dozens that have already left. This should be especially concerning.

Why? For many pharmaceutical products and portfolios, the economics of selling to government programs no longer work for the science. The exposure from Medicaid unit rebate amounts, which ties to increasing 340B and FSS discount, now costs more than it is worth to keep on supporting them. These compulsory and aggressive price concessions, inflation penalties, and 340B discounts have crossed the line from painful to untenable. I predicted this very scenario when testifying before the Senate Subcommittee on Pharmaceutical Pricing in 2019, warning that if policymakers pushed too far, manufacturers would exit. That prediction is now reality. The political fallout will be significant, as patients, providers, and safety-net systems grapple with the consequences of fewer products available under government programs.

3. WAC price drops stemming from the IRA’s maximum fair price

The Inflation Reduction Act (IRA) introduced the MFP mechanism, which will reset economics in both the pharmacy and medical benefit by forcing pharma manufacturers to deliver a lower price to a pharmacy in order to be able to service the Medicare beneficiary at the negotiated rate. The complexity and financial exposure of selling at a high WAC and reimbursing or crediting pharmacy for a sizeable differential is risky.

For pharmacy benefit products, the first round of negotiated prices takes effect in January 2026. Conservative projections already estimate $30 billion in WAC reductions with only a portion of the products with announced price decreases, causing negative ripple effects for PBMs, pharmacies, distributors, and group purchasing organizations. These WAC decreases reduce the overall GTN bubble and also set pricing more in line with a self-pay price for some products.

For medical benefit, we assumed this area to be resilient to MFP. However, as we’ve dug deeper into it, because MFP discounts on Part B drugs will flow to the providers and into average sales price (ASP), the manufacturers’ desire to maintain a high WAC will dissipate. Since the mid-2000s, the pricing and reimbursement construct for medical benefit products was seen as a strong model against the GTN bubble and GTN erosion. From the way we’re reading the regulations, it appears the government is aware of the loophole and seeking to course-correct.

Expect oncology’s PD-1 inhibitors to be the first real test case. Depending on how aggressive the MFP is in relation to the then-current WAC of the product, we’d expect a WAC decrease would be needed to better align provider acquisition cost with the ASP base of reimbursement.

Another very concerning aspect of this artificial deflation is the fact it lowers the value for generics to come to market. A 50% WAC reduction for a brand as it arrives at LOE is a 50% reduction in the value of the generic market.

4. Self-pay and reduction/removal of copay assistance programs

Another deflationary force at play is the emergence of self-pay models, particularly for non-specialty therapeutics where the insurance-based access and channel tolls are simply unsustainable.

For many emerging pharma companies, paying rebates, distribution fees, affordability program costs, and pharmacy margins is no longer economically viable.

Patients are noticing, too. In categories such as hypertension, depression, and hyperlipidemia, insurance restrictions have effectively suppressed demand. After LOE, demand for the molecules has seen a 300% surge in utilization. With the simple removal of the payer-control mechanisms, it comes down to a pricing and volume equation. That raises the uncomfortable question: has insurance been supporting demand, or suppressing it?

A related GTN bubble item is copay support programs. Many manufacturers blindly set and follow the industry’s misplaced obsession with $0 copays. If patients can pay $100+ per month for vitamins, supplements, and even GLP-1s, why give away branded therapies for free? Building sustainable cash markets will require manufacturers to rethink the out-of-pocket cost differential between insurance and cash-based transactions.

The final deflationary force may come from a rising staff-model HMO surge.

With Kaiser Permanente as the national model and UPMC as the model in Pennsylvania, when Kaiser Foundation Hospitals launched Risant Health in 2023, this nonprofit entity is designed to extend Kaiser’s value-based model beyond its traditional eight-state footprint.

Risant provides governance, strategic direction, and capital, while health system partners such as Geisinger contribute scale and community access. Think of Risant as a Trojan horse for the next generation of integrated care and more importantly, capitated care. By aligning payer and provider incentives under capitation, Risant has the potential to undercut both bloated hospital systems and profit-heavy commercial insurers.

Private equity is already eying the model as a platform for expansion. If Risant succeeds, it could dramatically reshape access and pricing management in US healthcare.

The forces still inflating the GTN bubble

For all these deflationary forces, one stubborn dynamic continues to keep the GTN bubble inflated: high-priced new product entrants.

Look at recent launches in immunology or multiple sclerosis. Despite all the noise about reform, manufacturers still introduce products at eye-popping WACs, with rebate structures designed to satisfy PBMs’ pass-through programs and benefit consultants. Plan sponsors, guided by consultants incentivized to preserve the rebate model, remain focused on “discounts off AWP (average wholesale price)” or “peer-class benchmarks”—illusions that mask the underlying distortion.

For infused products, the WAC-to-ASP alignment strategy remains alive and well. Providers are incentivized to use therapies where reimbursement covers not just the drug but a margin. Manufacturers know this and design pricing accordingly. As long as plan sponsors tolerate these dynamics, the inflationary pressures will remain.

As I wrap up this six-part exploration of the gross-to-net bubble, one truth stands out: deflation and inflation will coexist through the end of this decade. Some cracks are widening—the patent cliff, government price setting, cash-pay models, and new care delivery platforms. But other forces, particularly high-priced launches and rebate-driven contracting, will keep the bubble afloat.

The real question isn’t if the bubble will pop—it’s where will it pop, in which sequence, and how much damage it will do when it does. Manufacturers risk margin compression, PBMs risk losing their role as gatekeepers, providers risk losing buy-and-bill economics, and patients risk even greater barriers to access.

My hope, and my challenge, is that manufacturers, payers, and policymakers use this moment to rethink pricing altogether. We need sustainable models that value science appropriately, ensure patient access, and restore transparency to the system. Because if we don’t chart that course ourselves, the market—and eventually the government—will do it for us. HHS has and is making that very clear.

Bill Roth is General Manager and Managing Partner of IntegriChain’s consulting business, which includes Blue Fin Group, a strategy consulting company he started in 2001, and the IntegriChain advisory services business.

Articles

From patent cliffs and government price controls, to self-pay models and staff-model HMOs, a look at the forces that could deflate the bubble—and those factors likely to keep it afloat a while longer.

Popping the Gross-to-Net Bubble, Part VI: The Future of Pharmaceutical Pricing

The first set wholesale acquisition cost heavily influences long-term gross-to-net (GTN) outcomes, and treating it as a short-term tactic instead of a strategic anchor can lead to major revenue pitfalls.

 Instead of prioritizing commercial PBM contracts, manufacturers should model GTN impacts starting from government payer obligations (e.g., Medicaid, 340B, IRA provisions) to avoid future rebate-driven net revenue collapse.

GTN strategy is now a cross-functional imperative.

 Sustainable pricing requires enterprise-wide governance, with mature GTN frameworks and strategic foresight becoming essential to navigating an increasingly regulated and payer-driven market.

Welcome to the fifth installment in our “Popping the Gross-to-Net (GTN) Bubble” series. In Parts I through IV, we explored the structural roots of the GTN problem, what inflates the bubble, how drug manufacturers and vendors contribute to its expansion, and the extreme consequences for patients and the system when pricing goes unchecked. In this chapter, we pivot toward solutions—specifically, how forward-thinking pricing models can realign incentives and create more sustainable revenue paths for branded pharmaceutical products.

The first price is the first impression that never goes away

In pharmaceutical commercialization, pricing decisions often yield short-term gains while carrying long-term consequences. The initial wholesale acquisition cost (WAC) is more than just a sticker price—it anchors every downstream discount, rebate, and regulatory calculation. Whether the brand succeeds or stumbles often hinges on that very first pricing decision.

There’s truth in the adage, “You never get a second chance to make a first impression.” Pricing is no exception. Yet, too many manufacturers still treat WAC as a tactical placeholder rather than a strategic move. Historically, global consultancies such as Simon-Kucher guided launch pricing based on international reference markets. But over the last 10–15 years, US-specific complexities—particularly those related to GTN and statutory obligations—have reshaped the pricing function. This shift has demanded deeper domestic expertise and more rigorous financial modeling, particularly as the pricing environment has become increasingly volatile under regulatory and payer scrutiny.

The backward logic of ‘big first, statutory later’

Many pharma pricing teams still begin by modeling for commercial success—especially how to win preferred formulary placement or tiering from commercial insurers-pharmacy benefit managers (PBMs). On the surface, the logic seems sound: start with the greatest number of lives managed and work downward from there. PBMs manage access for millions of lives across commercial, Medicare, and Managed Medicaid, and negotiate aggressively on behalf of plan sponsors. From a volume lens, commercial can appear paramount.

However, that approach is deeply flawed—and outdated.

Government programs, including Medicare, Medicaid, and the Veterans Health Administration, now account for the majority of US covered lives, averaging over 55% across most drug classes. Ignoring the statutory components of GTN—Medicaid rebates, 340B discounts, Best Price triggers, and Federal Supply Schedule benchmarks—can turn an initially “winning” commercial contract into a long-term net price catastrophe. Rebate structures that seem sustainable on paper can implode once government formulas catch up with reality.

A better starting point: Model backward from statutory floors

Instead of beginning with PBM deal structures, a better pricing approach starts by understanding the full universe of payer types and their respective GTN impacts. This begins with a robust patient-level forecast, distributed by payer mix and layered over channel mix. From there, the pricing and analytics team can model forward, planting a draft WAC—even if just directional—to evaluate baseline GTN exposure for Medicaid, Medicare, FSS, and 340B.

The model should incorporate statutory mechanisms such as:

Average manufacturer price-based discounts and inflation penalties

Consumer Price Index for All Urban Consumers (CPI-U) constraints on price increases

Medicare Part D redesign implications (including Inflation Reduction Act [IRA]-related penalties)

With these guardrails in place, the team can then build upward and outward, layering in commercial access assumptions, formulary discount strategies, and PBM rebate negotiations.

One added layer: it’s now vital to account for IRA provisions such as Medicare Drug Price Negotiation (MFP) and the newly enforced $2,000 out-of-pocket cap. These dynamics reshape volume and rebate strategies, particularly for products that will reach high-cost beneficiaries or threaten to trigger catastrophic coverage rebates. Obviously, this also impacts patient affordability programs as well, another often overlooked impact of GTN erosion.

The value of holistic, longitudinal GTN modeling

The most forward-thinking manufacturers are building three-dimensional GTN frameworks that integrate volume forecasts, payer mix, benefit design (pharmacy vs. medical), and statutory mechanics. These tools help answer questions, such as:

What happens to URA if a price increase exceeds CPI-U?

Will a staff-model HMO discount create an unintended best price?
Has the patient forecast been adjusted for front and back-end patient and pharmacy abandonment?

How does a 10-year WAC increase path affect future eligibility for Medicare price caps?

How will this impact a cash pay strategy, either now or at product loss of exclusivity?

This approach moves pricing strategy out of quarterly fire drills and into long-range strategic planning, yet it’s only effective if governance and leadership embrace a forward-looking mindset. Too often, brand teams make reactive decisions to meet short-term sales targets—only to have the newly appointed brand manager regret them when net revenues collapse under rebate pressure 18–24 months later.

Innovation is thriving in the least expected places

Interestingly, we’re seeing some of the most creative pricing models emerge not from cell and gene therapies, orphan and rare disease drugs, nor oncology, but from general medicine—specifically, products in crowded, aging therapeutic classes such as:

Here, teams are reevaluating what “access” even means. They’re not just optimizing for insurers and payers. They’re also building dual strategies for:

 Leveraging cash pay models and price transparency platforms.

Offering direct-to-patient programs that bypass complex step-edits and prior authorizations.

Rethinking national drug code block placement and pharmacy-level discounting and navigating step-edits.

A particularly powerful insight: when a consumer pays cash, the payer doesn’t see it. There’s no “look-back” step therapy logic, no prior claims history to satisfy. Brands that build early consumer-focused GTN pathways are realizing more flexibility—and fewer constraints—from traditional payer rules.

Specialty therapies: Disciplined, but not untouchable

On the specialty side, oncology continues to outperform other areas in terms of net revenue durability. But even here, we’re seeing early signs of erosion. Each new entrant in a class once dominated by two or three brands dilutes contracting power.

Other therapeutic areas such as immunology and neurology are already in flux. Multiple sclerosis, in particular, has seen a wave of generics and biosimilars enter the market, destabilizing the longstanding net price equilibrium. The companies that continue to perform best in this environment are those with rigorous GTN governance and long-memory discipline—often carried over from their experience managing orphan/rare, cell and gene, or other small population disease products.

GTN optimization is not just a function of strong analytics—it’s an organizational discipline. Top-performing companies typically exhibit the following best practices:

Standardized decision trees for WAC and price increases

Scenario planning that includes and reflects statutory and commercial downside risk

Ongoing review of best price risks (e.g., staff-model HMO agreements)

Clear accountability for cross-functional GTN implications

This is about elevating GTN from an operational metric to a C-suite priority. In today’s environment—shaped by IRA penalties, price inflation caps, and transparency mandates—GTN is no longer a back-office concern. It’s a core determinant of brand viability.

Final thoughts: Whose game are you playing?

Manufacturers today are increasingly forced to ask a hard question: Whose rules are we playing by? While PBMs may be loud, the real rules are being set by the federal government—through statutes, inflation caps, coverage mandates, and drug pricing negotiations.

Pricing decisions are no longer confined to a quick analysis and discussion between the market access and brand lead. Stretching well beyond a pricing committee, these decisions require full commercialization expertise, and decisions cannot be made in silos. In this reality, GTN cannot be owned by any single function—it must be a coordinated, enterprise-level strategy lead by a cross-functional leader.

In our sixth and final installment, we’ll forecast where the GTN paradigm is headed between now and 2030—highlighting key trendlines, legislative risks, payer model shifts, and disruptive access and channel strategies worth watching.

From rethinking launch price logic to implementing rebate-aware modeling and patient-first access programs, this installment explores how disciplined governance and forward-thinking models can safeguard profitability in a volatile market.


Price hikes, not launch prices, drove the GTN bubble.

 The real driver of the gross-to-net (GTN) bubble was the pharmaceutical industry's ability to raise drug prices year after year—enabled by loopholes in PBM contracts—rather than high launch prices alone.

PBMs enabled the bubble through rebate structures. 

PBMs often profited from list price increases through "price increase rebates," which incentivized drugmakers to raise prices within negotiated thresholds, contributing to widespread inflation in drug costs.

 While price hikes generated short-term profits, they led to severe long-term consequences for drugmakers, including massive rebate obligations under Medicaid, 340B, and Federal Supply Schedule programs—often wiping out margins and creating systemic financial pressures.

Welcome to Part IV of our “Popping the Gross-to-Net (GTN) Bubble” series. In prior installments, we laid the groundwork on GTN mechanics, dissecting the divergence between the medical and pharmacy benefits. We concluded that the medical benefit system is relatively insulated from the GTN bubble, thanks to the average sales price (ASP)-based reimbursement model that began in January 2006. ASP and net cost recovery work as a natural governor against bubble expansion. On the other hand, the pharmacy benefit—where list prices drive rebate structures—has remained fertile ground for distortion, shaped by incentives that favor high list prices and sustained annual price hikes.

At the historical center of the GTN bubble is not the high launch price of a drug, but the ability to raise that price year after year. I should point out that the loopholes I’m about to describe have been closed in different ways over the last 10 years, which I’ll describe in my next article. But what I’ll discuss here are the loopholes to conduct double, triple, and even quadruple-digit price increases that worked as massive inflation factors and, unfortunately, put needed medicines out of the hands of many patients. 

These increases occurred with little regard for the long-term downstream effects on Medicaid rebates, 340B pricing, or Federal Supply Schedule (FSS) obligations, which are the main problems our industry contends with today. From the mid-1990s through the mid-2010s, the ability to take price on pharmacy benefit products was relatively straightforward. It is fair to say that the pharmacy benefit managers (PBMs) enabled it, but pharmaceutical manufacturers took advantage of it. It does indeed take two to tango.

For this article, I will explain the mechanics of the loophole, provide three examples that stand out among the normal and customary backdrop, and discuss the ripple effect into Medicaid, 340B, and FSS. While at least one of the names drew significant public and political ire, the tragedy here is how these actions reshaped how regulators and even the PBMs themselves had to reconstruct the rules of the game. The research firm 46brooklyn did a nice summary of the average price increases from 2012 to 2024 (see chart below), and you can clearly see the shift in behavior from the height of the bubble growth in 2019.

The incentive machine: How the PBM 'price increase rebate' drove the bubble

PBM contracts during the GTN bubble era typically included four main rebate types:

At first glance, the “price increase rebate” looks like a deterrent to raise price, but in practice, it’s a bubble escalator. PBMs contractually allowed pharmaceutical manufacturers to raise list prices within their annual contracts to a negotiated ceiling. Based on contracts I and my firm had visibility to, these ranged from 6%-9%. This corresponds to the chart above and most companies managed their increases to this level. If the manufacturer went above this negotiated rate, however, the rest of the increase went to the PBM as their rebate. From there, the PBM would pocket the money for the spread lives they managed and likely pass it along to the pass-through lives. Either way, the PBM liked this because they and their plan sponsor customers benefited from it within that calendar year. Then in the next annual bid cycle, the new rebate negotiation would start off the newly increased price and reset the baseline for future rebate calculations.

If the PBM didn’t want this to occur, they would threaten a national drug code (NDC) block, but before the mid-2010s, the lives the PBMs managed were managed in three different buckets—open, managed, and closed. At the time, NDC blocks only applied to the closed lives, which represented about 15% of all lives. Those patients would lose insurance coverage/access to those products, but the PBM was contractually obligated to keep the product on formulary for the other 85% of lives. Some companies saw this as a winning commercial decision.

Martin Shkreli, CEO of Turing Pharmaceuticals in 2015, became a national lightning rod for pharmaceutical greed. His acquisition of Daraprim (pyrimethamine), an antiparasitic drug critical for immunocompromised patients, was followed by a 5,000% price hike—from $13.50 to $750 per pill. The loophole I just described was what he used to process that increase.

Despite widespread condemnation, Daraprim remained largely covered under open-enrollment PBM plan designs, rendering the price hike devastatingly effective. The annual treatment cost ballooned from under $5,000 to nearly $275,000. Shkreli’s defense? “Capitalism at work.”

Though he eventually resigned from Turing and was sentenced to seven years in prison, it was unrelated securities fraud charges—not pricing abuses—that led to his conviction. As of Q2 2025, Daraprim remains priced at $750 under its current manufacturer.

If Shkreli was an outlier, Michael Pearson made this exploitation corporate strategy. As CEO of Valeant Pharmaceuticals from 2008 to 2016, Pearson abandoned traditional R&D investment in favor of a buy-and-hike model—acquiring overlooked legacy drugs and dramatically increasing their prices.

Under his tenure, Valeant executed shocking increases:

In 2015 alone, Valeant’s average price hike across branded products was 66%. Pearson defended the approach as “investor-driven efficiency.” But the backlash—Congressional hearings, SEC scrutiny, and a collapsing stock price—forced his resignation in 2016. He walked away with over $100 million in stock and severance.

The 'Pharma Bros': Turning exploitation into a business model

While Pearson and Shkreli made headlines from within companies, another duo—often dubbed the real “Pharma Bros,” which I encourage you to research on your own—turned this pricing exploitation into a consulting/advisory business. As former executives at Horizon Pharmaceuticals, they leveraged their industry expertise to advise multiple manufacturers on how to engineer list price growth into their business models.

They helped manufacturers exploit loopholes in PBM rebate structures, promising explosive revenue gains. Their handiwork was visible across multiple firms:

Vimovo: $138 at acquisition (2013) → $2,979 in 2018

Evzio (naloxone injector): $575 → $4,100

These strategies weren’t theoretical. According to Senate testimony, they were systematically implemented and marketed. When I testified in 2018 before Senator Rob Portman’s Subcommittee on Pharmaceutical Pricing, I learned that Kaleo had exited the Medicaid program—not due to ethical qualms, but because the resulting rebate penalties erased any profit.

The backlash: Medicaid, 340B, and FSS repercussions

The short-term gain of list price hikes came at a significant long-term cost. In addition to the "closed-lives" patients that lost access to the product, the manufacturer faced devastating downstream GTN consequences for Medicaid, 340B, and the FSS that have become an existential issue for pharmaceutical manufacturers.

Two rebate mechanisms accelerated the pain:

Unit rebate amount: 23.1% minimum rebate off AMP, increased if any commercial deal is richer, which then sets “best price.”

CPI-U penalty: If the price rises faster than inflation, manufacturers must rebate the full difference—indefinitely.

Historically, these rules triggered a phenomenon known as “penny pricing”—where the manufacturer ends up rebating nearly 100% of the product’s value to Medicaid. This, in turn, destroys 340B ceiling pricing and can disrupt FSS contract benchmarks, especially when AMP drops too low.

In effect, today’s CEOs are paying for yesterday’s price hikes. Medicaid and 340B have become GTN sinkholes, wiping out margins and pressuring financials across the industry.

In Part V of this series, we’ll look at how PBMs restructured their contracts in the late 2010s to close many of the loopholes that enabled the GTN bubble. We’ll also explore how recent legislation borrowed Medicaid-style pricing penalties and extended them to Medicare.

The message is clear: The GTN bubble was not just a quirk of the system, it was a function of deliberate design, flawed incentives, and opportunistic execution. And now, the reckoning is well underway.

An exploration into how flawed incentives and contractual loopholes between manufacturers and pharmacy benefit managers played their part.

Welcome to the third installment of my “Popping the Gross-to-Net Bubble” series. In my previous column, I explored actionable steps pharmaceutical manufacturers can take to address gross-to-net (GTN) challenges for products reimbursed under the medical benefit. This time, I focus on products reimbursed under the pharmacy benefit.

The complexity of gross-to-net in the pharmacy benefit

Managing GTN for the pharmacy benefit is significantly more complex than for the medical benefit, due to its wide variability across payer types and product archetypes.

Payer types include commercial, Medicare, Medicaid, health maintenance organizations (HMOs), 340B, and government accounts, such as the VA, DoD, and Indian Health Service, while product archetypes feature general medicine brands, generics, vaccines, specialty lite, specialty, specialty generics, biosimilars, and orphan/rare products.

From our 24 years of experience working with pharmaceutical companies, we’ve seen many new product planning, pricing, and market access teams prioritize large commercial pharmacy benefit managers (PBMs) first, as they cover the most lives. However, the focus is typically on achieving formulary coverage rather than optimizing net revenue—a key driver of poor GTN performance.

Instead, we recommend starting with statutory discounts such as Medicaid unit rebate amount (URA), 340B, and Federal Supply Schedule (FSS), as they are fixed costs that can significantly impact GTN if not properly managed in relation to commercial payer decisions.

Let’s examine how GTN varies between two contrasting product types: general medicine brands and orphan/rare brands.

The two examples at right (click to enlarge) represent the GTN spectrum. Other product types such as specialty and specialty lite drugs fall somewhere in between, depending on factors such as budget impact analysis, payer contracting, clinical profile, and access restrictions (e.g., step edits, prior authorization, catastrophic coverage, etc.).

Key components of GTN and manufacturer strategies

Pharma manufacturers must navigate six key GTN components when planning for pharmacy benefit reimbursement:


Manufacturers should start with statutory discount analysis based on channel and payer mix. Products sold to government accounts (Medicaid, Medicare, VA, DoD, Indian Health Service, etc.) are subject to mandatory rebates, which must be accounted for upfront.


After assessing statutory discounts, manufacturers determine PBM and HMO rebates and admin fees. These discounts directly impact formulary positioning, patient access, and out-of-pocket costs. However, the net pricing decisions here will also influence statutory discount liabilities, making this a critical risk area.


Manufacturers must consider whether discounts should be extended to sites of care (e.g., hospitals, infusioncenters) either directly or via GPO contracts. Pre-formulary coverage discounts may help drive early adoption. Additional discounts for outpatient pharmacies typically apply only to long-term care facilities or hospital-affiliated GPO networks.


Prompt pay discounts vary by distributor type. Additional fees beyond bona fide FFS depend on manufacturer size, portfolio breadth, and time on market. Many emerging manufacturers are now bypassing wholesalers and selling directly to sites of care to reduce excessive distribution costs.


Traditionally designed and directed by marketing or brand teams, patient support programs are often finalized after PBM negotiations. Manufacturers have historically aimed for $0 to $35 copays for commercially insured patients, but this strategy needs reevaluation as Medicaid copays cannot be bought down; Medicare OOP costs are now capped at $2,000 annually (effective 2025); copay accumulator and maximizer programs limit the effectiveness of affordability programs; and manufacturers are becoming more strategic about applying affordability support to avoid wasted resources.

6. Penalty discounts & price increase strategy


Price increases must be carefully planned due to rebate penalties from Medicaid and Medicare. Outpacing the consumer price index results in perpetual penalties, impacting 55% of the pharmacy benefit market represented by Medicaid and Medicare collectively. The removal of the average manufacuter’s price (AMP) cap (effective Jan. 1, 2024, under the American Rescue Plan Act of 2021) has led some manufacturers to exit Medicaid due to negative GTN scenarios. Manufacturers must align pricing strategy with GTN management to avoid unintended financial consequences.

The key to managing GTN: Strong cross-functional governance

Pharma companies that effectively manage GTN integrate finance and government pricing teams into decision-making alongside marketing, field sales, market access, trade and distribution, and patient services. Conversely, companies that struggle with GTN allow each of these groups to operate independently, with finance and government pricing teams relegated to support roles rather than strategic partners.

As pricing pressures increase under the IRA and Medicaid AMP cap removal, we anticipate finance and government pricing teams will play an even greater role at the executive level.

In my next installment, I’ll examine examples of how pharmaceutical manufacturers have successfully and unsuccessfully navigated GTN challenges. I’ll highlight common pitfalls and lessons learned that can help manufacturers avoid costly mistakes.

How pharma manufacturers can steadily navigate GTN components and                                             complexities when planning pharmacy benefit reimbursement.