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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.