Pricing and Reimbursement of Biopharmaceuticals and Medical Devices in the USA

Abstract

In the US, no central body regulates prices of drugs and devices, but reimbursement rules critically influence manufacturer pricing decisions. For pharmaceuticals, reimbursement rules differ depending on where a drug is dispensed (inpatient, retail pharmacy, or physician office); whether it is an onpatent brand or generic; and health plan type (primarily Medicare, Medicaid, or private insurance). These different reimbursement rules influence manufacturers' incentives in setting list prices and negotiating discounts. For pharmacy-dispensed drugs, both private health plans and Medicare Part D prescription drug plans (PDPs) use tiered formularies with tiered copayments to negotiate discounts off list prices. For physician-dispensed drugs, which include many biologics, Medicare Part B (and many private plans) reimburses at the manufacturer's average sales price plus 6%, which creates financial incentive for use of high-priced drugs. Drugs and devices that are used in an inpatient setting are included in the payment for the admission, which makes provider-purchasers price sensitive. Overall, this system relies largely on providers and/or payers to negotiate prices, combined with patient cost-sharing. Although cost-sharing is often nominally high by international standards, especially for expensive specialty drugs and biologics, most patients are protected by catastrophic caps, supplementary insurance, and/or manufacturer copay coupons. If appropriate financial protection makes patients largely price insensitive, payers may ultimately seek more constraints on prices or access.