Healthy Skepticism Library item: 8337

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Journal Article

Monaghan MJ, Monaghan MS.
Do market components account for higher US prescription prices?
Ann Pharmacother 1996 Dec; 30:(12):1489-94

Abstract:

Identified components of the pharmaceutical industry that allow U.S. prescription drugs to appear to be highly priced were examined and the apparent factors that affect pricing policies for pharmaceuticals are considered. Key factors that account for the fact that U.S. prescription drug prices are higher and that price discrimination occurs in the pharmaceutical industry within the U.S. and among other countries include the unique market structure of the pharmaceutical industry, asymmetry of information, research and development costs, numerous channels of distribution and the differences among them, and government laws and regulations of prescription drugs. Pricing policies of pharmaceutical companies were based on manufacturing, promotion, and distribution costs; drug characteristics; and economic goals of the parent company.

BACKGROUND: Although only 7-8% of US healthcare expenditures are spent on prescription drug products, the pharmaceutical industry’s profitability and high cost of prescriptions to consumers make prescription drugs a visible target for reform. When compared with other products, it appears as if unfair pricing tactics are used. The pharmaceutical industry cites costs of research and development and a short patent life as justifiable grounds for high prices, but the reason why US drug prices appear to be so high has yet to be answered. OBJECTIVE: To examine identified components of the pharmaceutical industry that allow US prescription drugs to appear to be highly priced and to review the apparent factors that affect pricing policies for pharmaceuticals. DATA SOURCES: The literature was reviewed to identify current research regarding the pharmaceutical market. Sources included MEDLINE, Econolit, Business Periodical Index, International Pharmaceutical Abstracts, the Wall Street Journal, New York Times, and the F-D-C Pink Sheet. SUMMARY: Key factors account for the fact that US prescription drug prices are higher and that price discrimination occurs in the pharmaceutical industry within the US and among other countries. These factors include the unique market structure of the pharmaceutical industry, asymmetry of information, research and development costs, numerous channels of distribution and the differences among them, and government laws and regulations of prescription drugs. Pricing policies of pharmaceutical companies are based on manufacturing, promotion, and distribution costs; drug characteristics; and economic goals of the parent company.

Keywords:
Drug Costs* Drug Industry/economics* Health Expenditures/statistics & numerical data United States