How are prescription drug prices determined?

Sara Berg
Senior Staff Writer
AMA Wire
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The U.S. spends nearly $330 billion a year on prescription drugs. In 1990, the share the nation spent for pharmaceuticals accounted for 5.6 percent of total health care spending, but grew to nearly 10 percent in 2016.

Prescription drug price increases can lead some patients to not be able to afford critical medicine, causing them to skip doses of their medications or split pills, or force them to abandon treatment altogether. Physicians and patients are often left in the dark about how and why prices fluctuate year after year when ingredients stay the same.

To expose the opaque process that pharmaceutical companies, pharmacy benefit managers and health insurers engage in when pricing prescription drugs, the AMA launched the TruthinRx campaign in 2016. This grassroots campaign provides opportunities for patients and physicians to share their experiences with prescription drug price and cost challenges and rallies grassroots support to call on lawmakers to demand drug price transparency.

Prescription drug price negotiations often happen behind closed doors, leaving patients and physicians out of the negotiating room despite the impact drug pricing has on the health and treatments of patients. To improve prescription drug price transparency, the TruthinRx campaign is focusing on three major market players who significantly impact drug prices:  

Pharmaceutical companies. Pharmaceutical companies make and sell drugs, but don’t explain pricing or why costs can greatly exceed research-and-development (R&D) expenses. Some even buy existing drugs, spend nothing on R&D, and still raise prices.

Pharmacy benefit managers (PBMs). Working on behalf of health insurance companies or employers, PBMs negotiate upfront discounts on the prices of prescription drugs with pharmaceutical companies, as well as rebates, which reward favorable coverage of a particular drug (and the resulting increase in utilization by a health plan’s patients).. These prescription drug agreements are kept secret, so it is unknown if savings ever reach the patients.

Health insurance companies. Health insurance companies approve treatments, set co-pays, and price out with PBMs how much patients pay for drugs. Often, they decide coverage options based on what maximizes company profits.

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President Bush permitted Medicare Part D to go into effect without the ability to negotiate drug prices. Obama, Trump and Congress have been doing likewise. All other industrialized countries negotiate drug prices and the companies take all of their profits in the US. The following is a letter I wrote to my County and State Medical Society leaders in July 2015 and it gets worse every year with little action from all involved. Please review the comparative cost of 3 simple eye drops as examples of what is happening as a result of pharmaceutical gouging in the US. COST OF STEROID EYE DROPS in 2015 United States (US) vs. New Zealand (NZ) Prednisolone acetate 1% generic suspension (5ml): $41.02 (US) vs. $2.98 (NZ) = 14:1 ratio Dexamethasone solution (5ml) $58.00 (US) vs. $3.89 (NZ) = 15:1 ratio FML 0.1% suspension (5ml) $182.23 (US) vs. $4.50 (NZ) = 40:1 ratio How can Americans afford healthcare when leaders/legislators refuse to negotiate drug prices for socialized programs like Medicare? With whom are they sharing their brains? And this is only the tip of the iceberg; it is happening across the board. Lower prices are similar throughout the world. Are we the only profit center left for the pharmaceuticals? When will medicine do something to protect their patients. We are accessories to the crime if we know this and do nothing! IF OUR GOVERNMENTAL LEADERS DON’T CARE, WHERE THE HECK IS OUR AMA? WHY DON’T I SEE A BROAD-SCALE ANALYSIS OF DRUG PRICES AROUND THE WORLD BY THE AMA? THEY HAVE THE RESOURCES WITH OUR DUES. THIS COULD BE FOLLOWED BY A GRASS ROOTS AMA LETTER TO ALL STATE AND FEDERAL LEGISLATORS REQUESTING LEGISLATION TO NEGOTIATE MEDICARE DRUG COSTS TO GET THE BALL ROLLING. WHEN DRUG COMPANIES BEGIN TO SEE AMERICAN PROFITS DIMINISH, THEY WILL NEGOTIATE HIGHER COSTS IN ALL OTHER COUNTRIES TO EQUALIZE PRICING. This issue cannot be put on the back burner any longer. Al Cossari, MD July 2015
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Nov 07, 2018
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