What Does Gross to Net Mean for Drugs?
Gross to Net (GTN) is the income from all sales compared to revenue after discounts on the sales. When considering the gross to net for drugs, the calculation of the net revenue includes several components, courtesy of the complex outpatient drug distribution and reimbursement systems. The following are included in the calculation of net price:
- All discounts and rebates, whether negotiated or mandatory. Rebates and discounts are paid to payers, pharmacies, wholesalers, and other entities in the supply chain, like Group Purchasing Organizations (GPOs). Each unit sold is linked to one or more of these rebates
- Returns that cannot be resold. Units returned from wholesalers, distributors, and pharmacies that are damaged or expired cannot be resold, so they are included in the drug’s gross to net as a deduction
- Fees. Fees to wholesalers and distributors are paid on every unit. Bonafide service fees paid to dispensing pharmacies for patient services are a factor for some high-touch therapies
- Chargebacks and adjustments. Changes in contracting, pricing, and reimbursement that occur during the time between sale to the wholesaler and payment by the payer for a dispensed drug can require a deduction or addition to the gross revenue
GTN Calculation for Pharmaceutical Products
Understanding the GTN calculation of any product is important. In the pharmaceutical industry, the potential for several discounts to different entities on a particular unit makes gross to net even more complex and more important. Here is an example of a product with typical fee and rebate commitments.
Gross Revenue:
- List Price: $1,000 per unit
- Sales Volume: 10,000 units
- Gross Revenue = List Price × Sales Volume = $1,000 × 10,000 = $10,000,000
Deductions:
- Discounts and Rebates: $1,500,000 (discounts to wholesalers, pharmacies or payers)
- Returns: $200,000 (unsold products returned by wholesalers)
- Chargebacks: $300,000 (price adjustments for sales to Medicaid or other programs)
Total Deductions:
- Total Deductions = Discounts + Returns + Chargebacks
- Total Deductions = $1,500,000 + $200,000 + $300,000 = $2,000,000
Net Revenue:
- Net Revenue = Gross Revenue – Total Deductions
- Net Revenue = $10,000,000 – $2,000,000 = $8,000,000
Summary:
- Gross Revenue: $10,000,000
- Total Deductions: $2,000,000
- Net Revenue: $8,000,000
Further Understanding GTN in Pharma
Whether you’re involved in pricing strategy, market access, or financial planning, grasping the nuances of GTN calculations can significantly impact your organization’s success. Contact us if you’re looking for tailored market access strategies to optimize your GTN approach and drive meaningful results.
Magnolia Market Access Authors: Amanda Forys, Parker Edman
