How Drug Prices Work
Drug pricing is complicated and secretive. The rise of health care costs has lawmakers and employers scrambling to find ways to provide access to care without going bankrupt. Physicians and patients are often left in the dark about why prices fluctuate yearly when ingredients stay the same.
Wall Street Journal explains how the flow of money, drugs and rebates behind the scenes may drive up the price of prescription medicine for consumers. The supply chain has three transaction areas of particular interest: from manufacturer to wholesaler, from wholesaler to pharmacy, and from pharmacy to patient.
The first transaction in the supply chain between the manufacturer and wholesaler or pharmacy as a direct purchaser produces several different measurements for drug costs. Pharmaceutical companies don’t explain pricing or why costs can greatly exceed research and development expenses. Health insurance companies approve treatments and price out with Pharmacy benefit managers how much patients pay for drugs. Often, they decide coverage options based on what maximizes company profits. Working on behalf of health insurance companies or employers, Pharmacy benefit managers negotiate upfront discounts on the prices of prescription drugs with pharmaceutical companies, as well as rebates, which reward favorable coverage of a particular drug.
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