Prescription Drug Pricing
Introduction
Today, the incredibly high and ever increasing price of prescription drugs is regularly under scrutiny, often sparking debate as political, social and economic interests conflict with one another. In a survey on health care, conducted by The Kaiser Family Foundation, 60% of the public believes lowering prescription drug prices should be a top priority of the United States government (DiJulio). According to the Organization for Economic Co-operation and Development, Americans spent $1,034 per capita on pharmaceuticals in 2013 (OECD), more than double the average amount among (many developed) member countries. Even more concerning, prescription drug spending increased 2.4% in 2013 and then 12.7% in 2014 …show more content…
The prescription drug industry is complex in its organization in that it utilizes a common “ladder system” with consumers at the bottom and producers at the top, often with middlemen in between, but also includes alternate negotiators. Nearly 75% of the final tier purchasers, those who use the product, secure their prescription drugs from retail pharmacies (which include stores such as Target, CVS, or individually owned pharmacies) while the rest do so through nonretail providers (such as hospitals, nursing homes or clinics) (Congressional Budget Office). Both retail pharmacies and nonretail providers acquire most of the drugs they transfer to individuals from a middleman: a wholesaler. This mediator is necessary and beneficial to the relationship between producers and providers because they greatly lower the number of transactions, thus improving efficiency among the two. However, the direct sale of prescription drugs from manufacturers to providers is not uncommon and includes large purchases, which offer prices comparable to that of a wholesaler (Congressional Budget …show more content…
Today, due to improved technology, producers are now able to focus their efforts more narrowly and specialize their products (Malerba). Each had similar general results in that within both, the firm, if successful, would most often provide variations of already present products. However, although significantly less often, manufacturers would occasionally offer revolutionary and innovative drugs. Although the latter result is much less common, the drive to continue research and development is spurred by economic motive.
Why do they get away with it? When exploring the nature of pharmaceutical markets, it is understandable as to why prescription drug manufacturers remain unharmed when setting their prices so high. In most markets in the United States, firms are held accountable by: competition from surrounding producers, a downward sloping demand curve (as well as other forms of consumer influence) and government regulation. However, in the case of prescription drug producing firms, in varying contexts, each of the above factors may become inapplicable or incredibly less influential.
Introduction
Today, the incredibly high and ever increasing price of prescription drugs is regularly under scrutiny, often sparking debate as political, social and economic interests conflict with one another. In a survey on health care, conducted by The Kaiser Family Foundation, 60% of the public believes lowering prescription drug prices should be a top priority of the United States government (DiJulio). According to the Organization for Economic Co-operation and Development, Americans spent $1,034 per capita on pharmaceuticals in 2013 (OECD), more than double the average amount among (many developed) member countries. Even more concerning, prescription drug spending increased 2.4% in 2013 and then 12.7% in 2014 …show more content…
The prescription drug industry is complex in its organization in that it utilizes a common “ladder system” with consumers at the bottom and producers at the top, often with middlemen in between, but also includes alternate negotiators. Nearly 75% of the final tier purchasers, those who use the product, secure their prescription drugs from retail pharmacies (which include stores such as Target, CVS, or individually owned pharmacies) while the rest do so through nonretail providers (such as hospitals, nursing homes or clinics) (Congressional Budget Office). Both retail pharmacies and nonretail providers acquire most of the drugs they transfer to individuals from a middleman: a wholesaler. This mediator is necessary and beneficial to the relationship between producers and providers because they greatly lower the number of transactions, thus improving efficiency among the two. However, the direct sale of prescription drugs from manufacturers to providers is not uncommon and includes large purchases, which offer prices comparable to that of a wholesaler (Congressional Budget …show more content…
Today, due to improved technology, producers are now able to focus their efforts more narrowly and specialize their products (Malerba). Each had similar general results in that within both, the firm, if successful, would most often provide variations of already present products. However, although significantly less often, manufacturers would occasionally offer revolutionary and innovative drugs. Although the latter result is much less common, the drive to continue research and development is spurred by economic motive.
Why do they get away with it? When exploring the nature of pharmaceutical markets, it is understandable as to why prescription drug manufacturers remain unharmed when setting their prices so high. In most markets in the United States, firms are held accountable by: competition from surrounding producers, a downward sloping demand curve (as well as other forms of consumer influence) and government regulation. However, in the case of prescription drug producing firms, in varying contexts, each of the above factors may become inapplicable or incredibly less influential.