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Health Policy Issues
An Economic Perspective
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
Chapter 25
The High Price of
Prescription Drugs
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
LEARNING OUTCOME
Investigate the reasons for the rapid rise
in drug expenditures, how
pharmaceutical companies set prices
for drugs, and how their marketing
strategies have changed as a result of
managed care plans
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
LECTURE
Reasons for the Increase in
Pharmaceutical Expenditures
• Surge in Drug Prescription Use
•
•
•
•
Exhibit 25.1
Exhibit 25.2
Exhibit 25.3
Exhibit 25.4
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
LECTURE (CONTINUED)
Reasons for the Increase in
Pharmaceutical Expenditures
(continued)
• Rise in Drug Prices
• Changes in Types of Drugs Prescribed
• Exhibit 25.5
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
LECTURE (CONTINUED)
Pricing Practices of U.S. Pharmaceutical
Companies
• Pricing According to Cost
• Exhibit 25.6
• Pricing According to Demand
• Pricing Innovative Drugs
• Drug Companies’ Marketing Response to
Managed Care Plans
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
Exhibit 25.1
Annual Percentage Changes in the Prescription Drug Price
Index and Prescription Drug Expenditures, 1980–2012
return to lecture
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
Exhibit 25.2
Total Prescriptions Dispensed and
Prescriptions per Capita, 1992–2012
return to lecture
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
Exhibit 25.3
Average Number of Prescription Drug
Purchases, by Age, 2011
return to lecture
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
Exhibit 25.4
Distribution of
Total National
Prescription
Drug
Expenditures,
by Type of
Payer,
1990–2012
return to lecture
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
Exhibit 25.5
Share of Prescription Drug Spending, by
Source of Funds, Selected Years, 1960–2012
return to lecture
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
Exhibit 25.6
Prescription Sales by Outlet, US Market, 2012
return to lecture
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
DISCUSSION
What methods have managed care
plans used to limit their enrollees’ drug
costs? Why have some methods met
with more success than others?
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
SUMMARY
Prescription drug expenditures will continue to grow
partly because of greater drug utilization, which
results from the introduction of costly drugs.
The public should view rising drug expenditures and
even high price markups favorably because
• rising drug prices are often an indication that new
drugs are more effective than existing drugs or
alternative treatments, and
• when new drugs replace old drugs, purchasers value
the therapeutic benefits of the new drugs more and
are willing to pay the cost for that value.
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
SUMMARY (CONTINUED)
Drug expenditures are likely to continue to
stay enormous in the future due to
• replacing old drugs with new drugs,
• the increase in third-party payment for
prescription drugs, and
• population growth and aging.
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.
SUMMARY (CONTINUED)
The cost-containment strategies of health plans and
PBMs have caused pharmaceutical firms to
compete on price.
These firms have rolled out direct-to-consumer
advertising that puts pressure on consumers to
demand the firms’ drugs from their physicians.
To limit the effect of such tactics, health plans have
instituted tiered copayment systems that give
consumers incentives to use drugs on the health
plan’s formulary.
Copyright © 2015 Foundation of the American College of
Healthcare Executives. Not for sale.