Why do companies jack up their drug prices each year in U.S.? In recent years, some drugmakers have tried to answer this question with annual statements dressed up as “transparency” reports.

Now, pharma giant Johnson & Johnson has presented (PDF) its 2022 document, arguing that its rising prices are necessary to cover the growing costs it pays in the form of rebates, discounts and other fees to insurance companies, government programs, distributors and other players in the healthcare system.

J&J’s rebates, discounts and fees added up to $39 billion last year, according to the report, with $11.2 billion going to commercial payers and pharmacy benefit managers, while $8.9 billion went to Medicare and Medicaid programs. 

J&J added that more than half (58%) of its list prices of products “went to commercial insurers and others in the healthcare system.” This comes after the pharma's revenue in 2022 added up to $94.9 billion, with net earnings (profit) totaling $17.9 billion, according to its end-of-year report.

While wholesale prices of J&J drugs rose as usual in 2022, their net prices—after figuring in discounts and rebates—came to a decline of 3.5%. J&J said it was its sixth straight year of negative net prices for its products.

How much did J&J’s list prices increase in 2022? That’s tough to say. While other companies, such as Sanofi in a transparency report last year, compared the net prices of its drugs to the list prices, J&J’s report only discusses net prices.

J&J says that the difference between list price and net price has grown significantly over the last five years. The company pointed to 2017 when rebates, discounts and fees came to $14.9 billion versus $39 billion in 2022. The company says that the primary beneficiaries have been insurance companies, distributors and other payers.

“While commercial insurers pay lower net prices, many patients do not directly benefit from these lower prices,” J&J wrote in the report. “Patients pay higher out-of-pocket costs because their cost-sharing amount, set by their insurance plan, is often based on the initial list price, not the negotiated lower net price the commercial insurer pays.”

Another subject often discussed in the report is R&D spending. Without revealing its 2022 R&D costs, the company referred several times to its R&D expenses since 2016 coming to $65.7 billion.

Companies and industry association PhRMA have repeatedly said that R&D investment will be negatively impacted by the Inflation Reduction Act. J&J continued the refrain in its report.

“This new law may undermine the industry’s ability to develop new uses for existing therapies, reach new patient populations with unmet medical needs, including rare diseases, and advance product improvements that significantly increase adherence, tolerability and safety or reduce healthcare costs,” J&J wrote.