gram (Part D) is implemented through private third party insurance companies for the enrollees. The market competition among the insurance companies drives the prices down for Medicare patients. But there is an outcry from policy makers that Medicare should directly negotiate prices with pharmaceutical companies.23 The key policy question is whether the CMS is equipped to do the negotiations and implementation of the program, or let the market forces drive better pricing for the enrollees? What are the pros and cons of such a policy change? What impact will it have on new drug development and pricing?24 Finally, new benchmarks are being created to replace AWP price referencing to calculate reimbursement.25 The benchmark National Average Drug Acquisition Cost (NADAC) is being used to get much closer to the actual acquisition costs (AAC) so that reimbursements to pharmaceuticals will reflect and be in alignment to the true price of the drugs.26 Yet the newer benchmarks are slow to be adopted as the AWP reference pricing is still used commonly. What impacts will the new benchmarks have on profitability of wholesalers and pharmacies and how will it impact primarily the independent pharmacies whose primary business is prescription pharmaceuticals?
Conclusion Pricing of pharmaceuticals in the supply chain is complex. This paper is an attempt to unravel this mystery. In summary, consumers with no drug coverage pay the highest price for their medications if they do not avail the patient assistance or drug discount and coupon programs available to them if they qualify for the programs. Pricing and mark up for branded drugs differ from generics and wholesalers, and pharmacies get higher margins for generics versus. branded drugs. Policy makers are constantly finding newer methods to control costs by fostering competition and by regulatory polices.
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References 1. Medicine Use and Shifting Costs of Healthcare: A Review of the Use of Medicines in the United States in 2014, IMS Institute, April 2015 2. ibid. 1 3. Berndt, Ernst, Thomas G. McGuire and Joseph P. Newhouse, “ A Primer on the Economics of Prescription Pharmaceutical Pricing in Health Insurance Markets,” NBER Working Paper Series, Working Paper 16879, 2011 4. ibid. 1 5. ibid. 1 6. AMCP Guide to Pharmaceutical Payment Methods, 2013 Update, Version 3.0, Academy of Managed Care Pharmacy, p. 11. 7. Fri, Perry. “Understanding the Pharmaceutical Supply Chain,” HDMA, July 2015 8. ibid. 7 9. ibid. 7 10. CBO, Prescription Drug Pricing in the Private Sector, January 2007 11. ibid. 10. 12. ibid. 6 13. US Department of Veteran Affairs, http:// www.fss.va.gov/ - Accessed January 28th 2016. 14. Ibid. 12 15. EMD Serono Specialty Digest, Managed Care Strategies for Specialty Pharmaceuticals, 11th Edition, 2015 16. CMS. gov: https://www.cms.gov/Medicare/ Medicare-Fee-for-Service-Part-B-Drugs/ McrPartBDrugAvgSalesPrice/Part-B-Biosimilar-Biological-Product-Payment.html, Accessed January 29th 2016. 17. ibid. 7 18. Medicaid.gov: https://www.medicaid.gov/ Medicaid-CHIP-Program-Information/ By-Topics/Benefits/Prescription-Drugs/ Federal-Upper-Limits.html - Accessed January 29th 2016. 19. Factset Research System Inc., United States: Pharmaceutical Major, Accessed January 29th 2016 20. Factset Research System Inc., United States: Generics, Accessed January 29th 2016 21. Factset Research System Inc., United States: Medical Distributors, Accessed January 29th 2016 22. Factset Research System Inc., United States: Drug Store Chains, Accessed January 29th 2016 23. Sanger-Katz, Margot, “The Real Reason Medicare is a Lousy Drug Negotiator: It Can’t Say No,” The New York Times, Feb. 6 2016. 24. CBO Report. Competition and the Cost of Medicare’s Prescription Drug Program, July 2014. 25. Bruen, Brian and Katherine Young, “Paying for Prescribed Drugs in Medicaid: Current Policy and Upcoming Changes,” Kaiser Family Foundation, May 2014 26. ibid. 22
Dr. Thani Jambulingam is Arrupe Research Fellow and Professor of Pharmaceutical and Healthcare Marketing at Erivan K. Haub School of Business, Saint Joseph’s University in Philadelphia, whose research interests include pharmaceutical and healthcare strategy and policy. He is widely regarded as a pharmaceutical and healthcare industry expert and his research has been published in journals in marketing, management, and economics.