Pricing and Reimbursement in US Pharmaceutical Markets

Abstract

This survey article on pricing and reimbursement in US pharmaceutical markets first presents a theoretical framework for pricing of branded pharmaceuticals, initially without and then in the presence of prescription drug insurance, noting how the common designs of the insurance policy, coinsurance and co-payments, affect prices and utilization. It treats the pricing of generic drugs as a limiting case. It next provides information on important federal legislation, distribution channel logistics, definitions of alternative price measures, historical developments, and reasons why price discrimination is prevalent among branded pharmaceuticals. It then summarizes long-term trends in co-payments and co-insurance for retail and mail order purchases, and describes the average percentage discounts off Average Wholesale Price paid by third-party payers to pharmacy benefit managers as well as average dispensing fees and generic penetration rates. The article concludes with a summary of how the 2006 implementation of the Medicare Part D benefits affected pharmaceutical prices and utilization and comment on the recent entry of large retailers such as Wal-Mart into domains traditionally dominated by large retail chains and the "commoditization" of generic drugs.