Drug Pricing

Written by Norene Anderson
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Drug pricing is crucial for the manufacturer and the consumer. While a drug is still in the pipeline, the potential to generate revenue is being considered by the manufacturer. If the biotech company does not keep in mind during production the potential maximum cost of the drug, it may have difficulty finding a viable market. Drugs that could potentially have a profound effect on healthcare may prove infeasible during production and have to be terminated.

Payers have a great influence on the market for prescription drug pricing. If a drug is proven to play a significant role in meeting a medical need, the payer is likely to reimburse at a high rate. On the other hand, if the drug fails to meet the expected results, the payer can control the price and reduce payments. Medicare, HMOs, and Medicaid have the biggest influence on the price of drugs.

The Tug of Drug Pricing

Many HMOs look at drug pricing in relation to generic versus brand name. The copayment is often set in three levels. The first level is a no copay or very limited copay for the use of generic drugs. The second level includes one name brand for a moderate copay. The third level is for the remaining name brand drugs and requires a high copay or a percentage of the cost, depending on the policy.

Drug pricing is so high in the United States that the US market brings in more than 75 percent of the revenue around the world for pharmaceuticals. The high cost of prescription drugs continues to be an issue in the minds of politicians, insurance companies, physicians, and consumers. This squeeze of power struggle is demanding that if drugs are to remain on the market, they must target an unmet need.

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