Pricing and Reimbursement in US Pharmaceutical Markets

Ernst R. Berndt and Joseph P. Newhouse

in The Oxford Handbook of the Economics of the Biopharmaceutical Industry

Published in print April 2012 | ISBN: 9780199742998
Published online September 2012 | | DOI:

Series: Oxford Handbooks

 Pricing and Reimbursement in US Pharmaceutical Markets

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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, co-insurance 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.

Keywords: drug pricing; reimbursement; pharmaceutical industry; branded pharmaceuticals; prescription drug insurance; generic drugs; price discrimination; co-payments; co-insurance; Medicare Part D benefits

Article.  29133 words. 

Subjects: Economics ; Health, Education, and Welfare ; Financial Institutions and Services

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