Accurate and current Price Information that needsvigilance to maintain correct profit margins on prescribed sales of drug.Operational Performance can be seriously affected bydelays in product information as well as pricing updates. What is Drug Pricing Control?Drug pricing is a process to control and regulate theprices of different drugs including essential medicines.
In the past few Years,many steps have been taken by the government to regulate and control thepricing of different drugs along with different medical tools in order toprovide proper medical facilities to all at reasonable prices. In order tocontrol the price of drugs, Drug (Price Control) 2013, has been issued by theGovernment. Reasons for Drug Pricing:1. Government Policy-Government issued policies is the most lethal factor in raising drug prices. Ata Recent survey made by researchers at Harvard university, it was found that inUS, Government “monopoly” rights are the main factor for higher Drug Price. 2. Unusual and Lengthypatents –Process of providing Patents for any drug varies from one country toanother. If a patent lasts for 20 years, it gives manufacturers an advantagewhere it prevents competition for 20 years.
This leads to a monopoly of newdrugs for dozen years. Also these drug manufactures increase the drug priceevery year as they have got the patent. This increment adds up at the time ofPatent expiration. 3. RestrictedCompetition- There are many drugs, for which there isn’t enough manufacturersthat can hold down prices.
There are many older drugs which are priced too lowto make them profitable, due to this many drug manufacturers stoppedmanufacturing them. When one or two company manufactures the same drug, theprice goes up. Branded and older drugs has a higherdemand in market.
Their manufactures rapidly increase the price as they have monopolyin drug market. For some drugs, only two or threeversions has been approved by the government. Their makers enjoy monopoly forthat specific drugs. Some drug were cheap decades ago. Nowthis type of drugs is in short supply due to raw material shortages, impropermanufacturing including poor and dirty factories, Pills containing wrong amountof advised ingredient and many other problems related to less knowledge ofdrugs in many countries. Many drug manufactures are buying rightsfor making older drugs. Due to this price increases.
Few years ago, the price of a drug namedDara prim increased overnight. This happened as a new Drug maker took therights to distribute it. Before 2010 the price of Dara prim was $1, while in2016 its cost was $310. 4. Small markets for rare drugs –There are somedrugs that are used for rare conditions such as cancer or cancer subtypes. asthese conditions involve a genetic mutation in particular, they can help curemany patients carrying such condition.
Drug makers set very high pricesinvolving such drugs in research and production. 5. Manufacturing costs – Decades ago, Productioncosts of some drugs were low.
But now a day, cost of research process is veryhigh. It takes around a decade and more than $1 billion to get a new drugapproved. This research includes testing of many drugs which fails during labtesting.
6. New generics of drugs – A lot of patent gotexpired between 2010 to 2013 causing a heavy rise in prices. As number ofpeople taking these drugs were high, new drug makers took a chance to increasethe price. 7. No Price controls – Many countries don’t set a limit on prices,whereas many countries regulate prices.
Pricing Terms:Average ManufacturerPrice (AMP): A Pharmaceutical company sell its drug productto wholesaler buyer at some price. This measurement of price is called Average Manufacturer Price. Ampis a process to calculate the average cost of a drug after applying discount orrebate directly from drug manufacturer. Average Sales Price(ASP):Manufactures sell its products including total discounts including credit ofdrugs, rebates and charge books at a certain price level. This measurement ofprice is called Average Sales price. Average WholesalePrice (AWP):Drug wholesaler sell their products to different types of customers includingphysicians, pharmacists and many other drug vendors at a certain price. Thismeasurement of price is termed as Average wholesale price.
Inthe Recent years, AWP has become an important element in drug industry. It isbeing used as benchmark for drug payers throughout the world. Estimated AcquisitionCost (EAC): It is also referredas cost of acquisition or it can be said that it is the cost that amanufacturer understands its manufacturing cost after providing rebate,discounts, market as well as other expenditures.
Maximum AllowableCost (MAC): Itis the highest level of cost that a pharmacy benefit manager pays to a pharmacydealer for any drug that are generic or any drugs that have generic versions. Wholesale AcquisitionCost (WAC):Whenever a drug manufactures sells its products to a wholesaler on a list priceor any purchase that are done without any rebate, the cost is said to beWholesale Acquisition Cost. Advantage of Drug Pricing Policy:· Large Percentageof National List of Essential medicines (NLEM) having more than 1 percent ofmarket share have resulted in maximum weighted average price reduction of manybrands.
· WAPmechanism which was introduced to curb the rising price of essential medicineshas achieved significant objectives of public health and industrial growth.· Many essential drugs which cure diseases likecancer and HIV has come under the drug pricing policy.· The drugpricing policy has results in reduction of price from 40%- 70%.· After introductionof the policy, many people who were deprived of essential drugs are now able touse these drugs.· Theexpenditure on research and development of essential drugs has reducedconsiderably. Disadvantages of Drug Pricing Policy:· As perIndian Pharmaceutical Alliance and Pharmaceutical Producers of India, theprofit percentage of Indian Pharmaceutical companies has considerably reduceddue to introduction of new drug pricing policy.· The localdrug makers have to cut their price by 20%- 30% across every portfolio.
· Big playerswho are multinational drug companies have to reduce rates by a huge margin.· There is ahuge competition among drug manufacturers as copping with reduced rates is noteasy in a country like India.· Manymultinational companies are denying to invest or expand their production unitin India. This is resulting in limited supply of many essential drugs. Working of Drug pricing:Microeconomics describesthe pricing of goods and services in relation to supply and demand. Supply and demandmainly influences the market price and then this market price affects consumerdecisions on what to purchase. Taking the case of Drug pricing, many factorshave stimulated its market. Stability of Demand:Physicians, DrugPrescribers have a great influence on demand of Drugs.
A physician provides aprescription to a consumer for medication purposes. A pharmacist dispenses amedication on request of a prescriber. Costdecision making is the foremost part for a prescriber which they usually hide fromtheir customers. If a patient is sick, he needs medication at any cost whichlowers the demand elasticity of price. When a patient is not ill, the price ismore elastic in terms of prescribed medication when compared with generalhealth care. So if any preventive measures go up or when the patients pay fortheir treatment, the demand comes down at an unusual rate.
Impact of supply chain:-The increasing numbersof pharmaceutical companies makes purchasing of essential drugs difficult forpharmacies as they are not able to purchase directly from the factory.Distribution of Drugs to patients through Pharmacies involves a chain ofwholesalers. In US, Wholesalers buys a huge orders of Drugs and then they sellit to pharmacies at higher price.
As Pharmacy enjoy less transportation costthey do not coordinate with manufacturers. Supply chain consists of three layerof transaction. 1. From DrugManufacturer to Wholesaler 2.Wholesaler to pharmacy 3. Pharmacy to patients. The measurement of drugpricing is done through above stated pricing terms.The purchasing of Drugby wholesaler from Manufacturer is the first step towards drug pricing.
Thereare several measurements for drug pricing. The AMP (Average manufacturer price)play a key role in purchasing of drug products from Pharmaceuticalmanufacturer. It is quite hard to obtain actual price of the drug withoutprovided discounts and other offers provided by Drug manufactures.The next part involvesthe deal between wholesaler and the pharmacy, which is another phase of drugprice calculation. Here Average Wholesaler price comes into picture which ispaid by local pharmacies to purchase Drug products from differentWholesalers. The Estimated Acquisitioncost is not a published figure, but it is the price of the drug that pharmaciesbuy. After deducting all the discount and offers, The Average actual cost comesinto picture. It is the final price of the drug that are being paid bypharmacies.
After the Pharmaciesbuys the drug, the patient or the end consumer uses these drug. This is thefinal step of the supply chain and it occurs at retail level. Usual andcustomary (U & C) prices is the cost of drug that patients use it. Thesedrugs are without insurance.In present marketsystem, every customer visualizes the price for the service or the drug theyuse.
In this matter, every patient is associated with some third party plan tosmoothly run this process. This third party plan can either be governmentorganized or any insurance company. As part of total work compensation, patientusually pays a fixed or variable premium to these third parties.
For example,if a patient has to pay $100 for any drug, he will pay only $20 as he isassociated with a third party. This reduction in price help end consumers toafford their medication and this increases consumer demand. If the prices willbe higher, the end users will less utilize the general health care service.Contract System: -Various Factors areinvolved when Business owners set price for different goods and services. Sumof all cost of business should be lower than total revenue from all services.
In case of drug pricing, price of each drug is determined by written contractbetween wholesalers and government. If the drug prices go up, Government sets alimit on price by maintaining Maximum Allowable Cost (MAC). In case of loss,Pharmacy increases their Usual and Customary price for non-insured patients.Reimbursement System: -Many a times, Pharmacyrevenue may not include dispensing fee which are added to prices of drugs. Tomaintain supply chain and operational expenses, third parties include adispensing fee. These are different for different Pharmacies.
Advertising,maintenance of demand and supply, administration are included in thesedispensing fees. These dispensing fee are made up by pharmacy from the drugprice that they sale to End user customers. Gain/Loss of Pharmacy: -As in today’s market,Pharmacies are increasing day by day, it is not quite possible to gain onlyfrom selling drug to customers. So the pharmacy starts selling drugs withoutprescription to the customers. A major portion of pharmacies depends on thisbusiness.Profit Incentives: -There are two types ofrevenue generators: Spread pricing and manufacturers rebates.The prices paid by PBMto Pharmacy towards a person’s health insurance is different from what PBMcharges the patient.
The cost incurred during Patients treatment can be higherthan the price paid by PBM to Pharmacies. This can differ based on differentfactors such as utilization, production costs, availability of the Drugproducts.To put a Drug onto abetter position, Drug manufactures provides discount that are directly paid bypharmaceutical companies. A negotiation is made between PBM (Pharmacy benefitmanager) and Pharmaceutical company to provide a specific drug for a specifictype of patients. It is quite impossiblefor general public to understand these policies. If a pharmacy does a dealwhich allows for 175% on paper. If we apply this rebate in our day to day life,we can see that 30 tablets costs $1.
Here pharmacy margin is less than 75 centsand from this gross income one cannot cover the overall the cost of extrainvestment such as cover, packaging, lid, bags etc. If the same things appliedto somewhat costly medicines, the gross profit amounts to $ 75. Conclusion: -Various factors add to the drug pricing. These factorsare quite complex to the General public as well as health care professionals.We need to discuss the current as well as proposed methods of these DrugPricing, reimbursement of the pharmacy and what the End users pays for a Drug. Implementation of DrugPricing policy has resulted in improved health care facilities in terms ofaccess to essential medicines for each human being. It will also improve thequality of drugs as this policy will reduce the manufacturing cost. A securedimplementation of Drug Pricing will also result in sales increase for manymanufacturers.
As this policy is being controlled by government, there will bea less chance of overpricing. Also this is a win-win situation for customers aswell as manufacturers.