Accurate and current Price Information that needs
vigilance to maintain correct profit margins on prescribed sales of drug.
Operational Performance can be seriously affected by
delays in product information as well as pricing updates.
What is Drug Pricing Control?
Drug pricing is a process to control and regulate the
prices of different drugs including essential medicines. In the past few Years,
many steps have been taken by the government to regulate and control the
pricing of different drugs along with different medical tools in order to
provide proper medical facilities to all at reasonable prices. In order to
control the price of drugs, Drug (Price Control) 2013, has been issued by the
Reasons for Drug Pricing:
1. Government Policy-
Government issued policies is the most lethal factor in raising drug prices. At
a Recent survey made by researchers at Harvard university, it was found that in
US, Government “monopoly” rights are the main factor for higher Drug Price.
2. Unusual and Lengthy
patents –Process of providing Patents for any drug varies from one country to
another. If a patent lasts for 20 years, it gives manufacturers an advantage
where it prevents competition for 20 years. This leads to a monopoly of new
drugs for dozen years. Also these drug manufactures increase the drug price
every year as they have got the patent. This increment adds up at the time of
Competition- There are many drugs, for which there isn’t enough manufacturers
that can hold down prices. There are many older drugs which are priced too low
to make them profitable, due to this many drug manufacturers stopped
manufacturing them. When one or two company manufactures the same drug, the
price goes up.
Branded and older drugs has a higher
demand in market. Their manufactures rapidly increase the price as they have monopoly
in drug market.
For some drugs, only two or three
versions has been approved by the government. Their makers enjoy monopoly for
that specific drugs.
Some drug were cheap decades ago. Now
this type of drugs is in short supply due to raw material shortages, improper
manufacturing including poor and dirty factories, Pills containing wrong amount
of advised ingredient and many other problems related to less knowledge of
drugs in many countries.
Many drug manufactures are buying rights
for making older drugs. Due to this price increases.
Few years ago, the price of a drug named
Dara prim increased overnight. This happened as a new Drug maker took the
rights to distribute it. Before 2010 the price of Dara prim was $1, while in
2016 its cost was $310.
Small markets for rare drugs –There are some
drugs that are used for rare conditions such as cancer or cancer subtypes. as
these conditions involve a genetic mutation in particular, they can help cure
many patients carrying such condition. Drug makers set very high prices
involving such drugs in research and production.
Manufacturing costs – Decades ago, Production
costs of some drugs were low. But now a day, cost of research process is very
high. It takes around a decade and more than $1 billion to get a new drug
approved. This research includes testing of many drugs which fails during lab
New generics of drugs – A lot of patent got
expired between 2010 to 2013 causing a heavy rise in prices. As number of
people taking these drugs were high, new drug makers took a chance to increase
No Price controls – Many countries don’t set a limit on prices,
whereas many countries regulate prices.
Price (AMP): A Pharmaceutical company sell its drug product
to wholesaler buyer at some price. This measurement of price is called Average Manufacturer Price. Amp
is a process to calculate the average cost of a drug after applying discount or
rebate directly from drug manufacturer.
Average Sales Price
Manufactures sell its products including total discounts including credit of
drugs, rebates and charge books at a certain price level. This measurement of
price is called Average Sales price.
Drug wholesaler sell their products to different types of customers including
physicians, pharmacists and many other drug vendors at a certain price. This
measurement of price is termed as Average wholesale price.
the Recent years, AWP has become an important element in drug industry. It is
being used as benchmark for drug payers throughout the world.
Cost (EAC): It is also referred
as cost of acquisition or it can be said that it is the cost that a
manufacturer understands its manufacturing cost after providing rebate,
discounts, market as well as other expenditures.
Cost (MAC): It
is the highest level of cost that a pharmacy benefit manager pays to a pharmacy
dealer for any drug that are generic or any drugs that have generic versions.
Whenever a drug manufactures sells its products to a wholesaler on a list price
or any purchase that are done without any rebate, the cost is said to be
Wholesale Acquisition Cost.
Advantage of Drug Pricing Policy:
of National List of Essential medicines (NLEM) having more than 1 percent of
market share have resulted in maximum weighted average price reduction of many
mechanism which was introduced to curb the rising price of essential medicines
has achieved significant objectives of public health and industrial growth.
Many essential drugs which cure diseases like
cancer and HIV has come under the drug pricing policy.
pricing policy has results in reduction of price from 40%- 70%.
of the policy, many people who were deprived of essential drugs are now able to
use these drugs.
expenditure on research and development of essential drugs has reduced
Disadvantages of Drug Pricing Policy:
Indian Pharmaceutical Alliance and Pharmaceutical Producers of India, the
profit percentage of Indian Pharmaceutical companies has considerably reduced
due to introduction of new drug pricing policy.
drug makers have to cut their price by 20%- 30% across every portfolio.
who are multinational drug companies have to reduce rates by a huge margin.
There is a
huge competition among drug manufacturers as copping with reduced rates is not
easy in a country like India.
multinational companies are denying to invest or expand their production unit
in India. This is resulting in limited supply of many essential drugs.
Working of Drug pricing:
the pricing of goods and services in relation to supply and demand. Supply and demand
mainly influences the market price and then this market price affects consumer
decisions on what to purchase. Taking the case of Drug pricing, many factors
have stimulated its market.
Stability of Demand:
Prescribers have a great influence on demand of Drugs. A physician provides a
prescription to a consumer for medication purposes. A pharmacist dispenses a
medication on request of
a prescriber. Cost
decision making is the foremost part for a prescriber which they usually hide from
their customers. If a patient is sick, he needs medication at any cost which
lowers the demand elasticity of price. When a patient is not ill, the price is
more elastic in terms of prescribed medication when compared with general
health care. So if any preventive measures go up or when the patients pay for
their treatment, the demand comes down at an unusual rate.
Impact of supply chain:
The increasing numbers
of pharmaceutical companies makes purchasing of essential drugs difficult for
pharmacies as they are not able to purchase directly from the factory.
Distribution of Drugs to patients through Pharmacies involves a chain of
wholesalers. In US, Wholesalers buys a huge orders of Drugs and then they sell
it to pharmacies at higher price. As Pharmacy enjoy less transportation cost
they do not coordinate with manufacturers. Supply chain consists of three layer
1. From Drug
Manufacturer to Wholesaler
Wholesaler to pharmacy
3. Pharmacy to patients.
The measurement of drug
pricing is done through above stated pricing terms.
The purchasing of Drug
by wholesaler from Manufacturer is the first step towards drug pricing. There
are several measurements for drug pricing. The AMP (Average manufacturer price)
play a key role in purchasing of drug products from Pharmaceutical
manufacturer. It is quite hard to obtain actual price of the drug without
provided discounts and other offers provided by Drug manufactures.
The next part involves
the deal between wholesaler and the pharmacy, which is another phase of drug
price calculation. Here Average Wholesaler price comes into picture which is
paid by local pharmacies to purchase Drug products from different
Wholesalers. The Estimated Acquisition
cost is not a published figure, but it is the price of the drug that pharmacies
buy. After deducting all the discount and offers, The Average actual cost comes
into picture. It is the final price of the drug that are being paid by
After the Pharmacies
buys the drug, the patient or the end consumer uses these drug. This is the
final step of the supply chain and it occurs at retail level. Usual and
customary (U & C) prices is the cost of drug that patients use it. These
drugs are without insurance.In present market
system, every customer visualizes the price for the service or the drug they
use. In this matter, every patient is associated with some third party plan to
smoothly run this process. This third party plan can either be government
organized or any insurance company. As part of total work compensation, patient
usually 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 is
associated with a third party. This reduction in price help end consumers to
afford their medication and this increases consumer demand. If the prices will
be higher, the end users will less utilize the general health care service.Contract System: -Various Factors are
involved when Business owners set price for different goods and services. Sum
of 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 contract
between wholesalers and government. If the drug prices go up, Government sets a
limit 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, Pharmacy
revenue may not include dispensing fee which are added to prices of drugs. To
maintain supply chain and operational expenses, third parties include a
dispensing fee. These are different for different Pharmacies. Advertising,
maintenance of demand and supply, administration are included in these
dispensing fees. These dispensing fee are made up by pharmacy from the drug
price 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 only
from selling drug to customers. So the pharmacy starts selling drugs without
prescription to the customers. A major portion of pharmacies depends on this
business.Profit Incentives: -There are two types of
revenue generators: Spread pricing and manufacturers rebates.The prices paid by PBM
to Pharmacy towards a person’s health insurance is different from what PBM
charges the patient. The cost incurred during Patients treatment can be higher
than the price paid by PBM to Pharmacies. This can differ based on different
factors such as utilization, production costs, availability of the Drug
products.To put a Drug onto a
better position, Drug manufactures provides discount that are directly paid by
pharmaceutical companies. A negotiation is made between PBM (Pharmacy benefit
manager) and Pharmaceutical company to provide a specific drug for a specific
type of patients. It is quite impossible
for general public to understand these policies. If a pharmacy does a deal
which 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 cents
and from this gross income one cannot cover the overall the cost of extra
investment such as cover, packaging, lid, bags etc. If the same things applied
to somewhat costly medicines, the gross profit amounts to $ 75.
Conclusion: -Various factors add to the drug pricing. These factors
are 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 Drug
Pricing, reimbursement of the pharmacy and what the End users pays for a Drug.
Implementation of Drug
Pricing policy has resulted in improved health care facilities in terms of
access to essential medicines for each human being. It will also improve the
quality of drugs as this policy will reduce the manufacturing cost. A secured
implementation of Drug Pricing will also result in sales increase for many
manufacturers. As this policy is being controlled by government, there will be
a less chance of overpricing. Also this is a win-win situation for customers as
well as manufacturers.