It is no news that finding the right pharmacy to fill or refill prescription medication (Rx) especially during the Corona Virus Pandemic has been more difficult than most people thought. This has led many customers especially those who need to refill from time to time, wondering why there has been an increase in the prices of prescription medication during this period. Although this varies from one pharmacy to the other, it is quite surprising to many consumers that even prices of the most common prescription medication such as amoxicillin, zithromax, paracetamol have also increased during the COVID-19 pandemic period. This increase in the prices of prescriptions could be influenced by multiple factors such as;
- Insufficient or low competition when the prescription medication market exclusivity ends.
- Differences in the bargaining power between buyers and sellers. This may very vary from pharmacy to pharmacy.
- Research, development, and marketing expenditures as well as other business expenses specially highly recognized or most popular pharmacies.
- Insurance benefit designs with significant patient cost-sharing provisions.
- Inadequate performance of patient assistance programs and other public programs intended to make medicines more affordable for patients.
A number of countries including Canada, parts of Europe and Brasil use external reference pricing as a means to compare drug prices and to determine a base price for a particular prescription medication.
External reference pricing (ERP; also known as international reference pricing) refers to the practice of using the price of a pharmaceutical product (generally ex-manufacturer price, or other common point within the distribution chain) in one or several countries to derive a benchmark or reference price for the purposes of setting or negotiating the price of the product in a given country. Reference may be made to single-source or multisource supply products.
There a so many factors which determine the pricing scheme for various pharmacies which may range from the manner at which their profit is being managed that being the cost of the business in question (pharmacy) to the prices charged to them by larger pharmaceutical companies as they are just out to prescribe and supply.
1). Insufficient or low competition when the prescription medication market exclusivity ends.
Increase in the healthcare expenditures have been a call for concern for many years, but more recently with the coming of the Covid-19, the concern has begun to focus specifically on prices and spending on prescription drugs, and for good reason. In 2015, expenditures on prescription drugs rose faster than overall healthcare spending. According to a report issued by the Department of Health and Human Services (DHS), while overall healthcare spending has risen at a consistent rate, pharmaceutical spending sharply rose from 2010 to 2014. The high prices of prescription drugs are more frequently being felt by individuals in the form of out-of-pocket costs, which has made prescription drug prices a key public issue. Despite this momentum to address the ever-increasing cost of drugs, reforming the pharmaceutical pricing system is no easy task. There are many aspects of the pharmaceutical and healthcare system to blame for high prices.
With respect to competition there are several reasons why the pharmaceutical market lacks competition, some of which include
(1) inherent characteristics of the market for pharmaceutical products|
(2) laws and regulations inhibiting competition|and
(3) generic delay tactics by pharmaceutical companies. We then discusses possible strategies for promoting competition in pharmaceutical markets.
2). Differences in the Bargaining Power between Buyers and Sellers.
Bargaining power refers to the pressure that customers/consumers put on businesses to get them to provide higher quality products, better customer service, and/or lower prices.
It is important to keep in mind that the bargaining power of buyers analysis is conducted from the perspective of the seller (the pharmacy). The bargaining power of buyers would refer to customers/consumers who use the products/services of the company.
In order to determine if the bargaining power faced between buyers is either high or low, the following are to be put into consideration:
1. The number of buyers compared to number pharmacies:
There is a greater number of Rx buyers compared to the number of suppliers (pharmacies) Hence, buyers tend to make choices out of several pharmacies resulting to a high buyer power.
2. Buyer Dependence on a Particular Supplier
Although pharmacies face a lot of competition specially in the prescription medication market there are some who ensure the provision of better services than others. There are pharmacies with little or very poor services where as some put on their best to make sure their services are outstanding. This also leads to a medium consumer power.
3. Switching Cost:
There are several pharmacies available to choose from with a low switching cost – buyer power is medium/high.
4. Backward Integration:
Since buyers (consumers) of prescription medication are not able to do backward integration, the buyer power here is low compared to suppliers.
3). Research, development, and marketing expenditures as well as other pharmacy expenses
Most pharmacies typically claim that one of the reasons for high prescription prices is because of the amount that they spend on research and development (R&D). According to the industry, it costs USD $2.6 billion to bring a drug to market. Critics of the pharmaceutical industries counter that companies are more focused on and spend more on promotion than on R&D. As of 2019, many of the largest pharmaceutical companies spend nearly 20% on R&D. Of the 20 largest R&D spending industries in the world, the pharmaceutical industry makes up nearly half the list. A report from the California-based Institute for Health and Socio-Economic Policy stated that in 2015 out of the top 100 pharmaceutical companies by sales, 64 spent twice as much on marketing and sales than on R&D, 58 spent three times, 43 spent five times as much and 27 spent 10 times the amount. To date, arguments about promotion versus R&D spending have been based on American data. This study had two aims: first to estimate total industry-wide promotion and compare that to total industry-wide R&D spending and second, to look at the ratio of R&D versus promotional spending for individual companies marketing the most heavily promoted drugs in Canada.
The percent of sales spent by companies on R&D was abstracted from the annual Patented Medicine Prices Review Board (PMPRB)reports for each of the companies with the most heavily promoted drugs and the amount spent on R&D for each company was calculated by multiplying this figure by the total sales of each company found in the QuintilesIMS reports. The combined amount and the mean percent of sales spent on R&D by the companies was calculated for each year.
Based on the available data, individual pharmaceutical companies in Canada, on average, are spending more on R&D than on promotion; however, the reverse is true for a minority of companies. For the industry as a whole, more may be spent on promotion versus R&D although a definite conclusion would require access to more complete data.
Types of Research & Development (R&D)
One R&D model is a department staffed primarily by engineers who develop new products—a task that typically involves extensive research. There is no specific goal or application in mind with this model. Instead, the research is done for the sake of research.
The second model involves a department composed of industrial scientists or researchers, all of who are tasked with applied research in technical, scientific, or industrial fields. This model facilitates the development of future products or the improvement of current products and/or operating procedures.
There are also business incubators and accelerators, where corporations invest in startups and provide funding assistance and guidance to entrepreneurs in the hope that new innovations will result that they can use to their benefit.
R&D vs. Applied Research
Basic research is aimed at a fuller, more complete understanding of the fundamental aspects of a concept or phenomenon. This understanding is generally the first step in R&D. These activities provide a basis of information without directed applications toward products, policies, or operational processes.
Applied research entails the activities used to gain knowledge with a specific goal in mind. The activities may be to determine and develop new products, policies, or operational processes. While basic research is time-consuming, applied research is painstaking and more costly because of its detailed and complex nature.
That pharmaceutical companies charge much more for their drugs in the United States than they do in other Western countries has contributed to public and political distrust of their pricing practices. When these higher US prices (which are sometimes cited as being two to five times the prices in Europe) are challenged, the pharmaceutical industry often explains that the higher prices they charge in the US provide them with the funds they need to conduct their high-risk research.
4). Insurance benefit designs with significant patient cost-sharing provisions
Over the past decade, the cost of prescription drugs has been rising at about 10 percent per year. In an attempt to control costs, many employers and insurers have modified pharmacy benefit designs to steer patients and physicians toward lower-cost drugs and to reduce overall drug spending. A common approach is to assign pharmaceuticals to different tiers—for example, generic, preferred brand drugs, and non-preferred brand drugs; the patient’s co-payment depends on the tier to which a drug is assigned.
How Does Cost Sharing lead to an increase in price of Rx Medication?
An initial study explored how various drug benefit designs affected overall spending on drugs. The analysts found that increasing a patient’s co-payment, whatever the benefit design, significantly reduced annual drug spending (see Figure 1). For example, increasing the co-payment for all drugs from $5 to $10 reduced annual average drug spending from $725 to $563 per member, about 22 percent. Doubling co-payments in plans with two or three tiers reduced average annual spending by about one-third.
The cost savings accrued primarily to health plans, not patients. Even though co-payments increased, patients’ overall costs remained about the same because patients used fewer prescription drugs. But the share of drug spending borne by patients versus health insurance plans changed dramatically. For example, doubling co-payments in two-tier plans increased the fraction of drug costs that members paid from 18 to 26 percent.
How Can Prescription Drug Cost Sharing Be Improved?
The research summarized above demonstrates that prescription drug prices are one of the most powerful policy levers available for improving compliance and managing treatment of chronic illness. But historical trends that have increased co-payments in lockstep with rising prices do many patients a disservice, and in some cases they increase overall health care costs. The challenge for the health care system is to develop better plan designs that recognize the importance of co-payments to population health.
Health insurance companies often point toward more complex prescription drug formularies that require patients to shoulder higher out of pocket costs as a way to keep coverage affordable. The fact is that requiring patients to pay more upfront in the form of deductibles and copays does little to bring down premiums. But it does impact your out-of-pocket costs significantly.
If your monthly premiums aren’t affected much by cost-sharing and deductible requirements, what does affect them? Research from Avalere has found that spending for hospital land healthcare provider services are the largest drivers of insurance premium growth—not prescription drugs, which represent only 14% of premium growth. This amount is largely consistent with drugs’ share of healthcare spending, which has been remarkably stable for decades. In contrast, hospital outpatient spending (services performed at a hospital not requiring an overnight stay) accounted for 29.9% of planned premium hikes in 2017, while professional services (e.g. doctor visits, lab work) accounted for 27.7%. A previous 2015 study from Avalere found the same trend. It confirmed that two-thirds of premium increases are directly attributed to hospitals and doctors—not prescription drugs.
5). Inadequate performance of patient assistance programs and other public programs intended to make medicines more affordable for patients.
U.S. pharmaceutical manufacturers fund a variety of programs to help consumers defray the cost of prescription drugs. Industry assistance includes drug discount coupons, as well as free drugs and cost-sharing payments for individuals with lower incomes or high medical expenses. According to one analysis, drug manufacturers tendered discount coupons for more than 600 brands in 2016. Nonprofit patient assistance programs (PAPs) offered by drug manufacturers and independent charities dispense billions of dollars in assistance annually, placing them among the nation’s largest charitable organizations.
Drug manufacturers say the generous aid is evidence of their commitment to patients who cannot afford a prescribed course of medication. Many manufacturer programs are designed to reduce consumer cost sharing for high-cost specialty drugs used to treat cancer, hepatitis C, Crohn’s disease, and other serious conditions. Industry analysts and the Department of Health and Human Services’ Office of Inspector General say that the programs also are used to bolster prescription drug sales and prices and can increase costs for government and commercial health payers. For example, an insured consumer may use a manufacturer coupon to buy a more expensive brand-name drug even if a lower-cost generic is available. Although the coupon reduces the consumer’s cost-sharing obligation for the drug, it does not cut the price paid by the consumer’s health care plan.
Federal statutes, including an anti-kickback law, limit the use of coupons and manufacturer donations in conjunction with federal health care programs, such as the Medicare Part D prescription drug benefit. The anti-kickback law in Section 1128B(b) of the Social Security Act prohibits the knowing and willful offer or payment of remuneration to induce a person to buy an item or service that will be reimbursed by a federal health care program. In the private sector, some health plans have barred their enrollees from redeeming coupons for certain drugs or have chosen not to cover certain drugs that qualify for coupon discounts. Other health plans allow or encourage enrollees to redeem coupons for expensive drugs to improve the odds that the enrollees will complete a prescribed course of treatment.
This paper provides background on prescription drug coverage and consumer spending and on the role played by coupons and PAPs.
Prescription assistance programs may not be the best solution to the problem of inability to pay for medication, but they can help many people. Millions of people use PAPs to get the medicines they need but can’t afford. If you can’t afford your medicines, a prescription assistance program may be able to help you.A new Consumer Reports survey backs that up. Thirty percent of Americans who currently take prescription medicine say their out-of-pocket cost for a drug they regularly take has increased in the past year, according to CR’s September 2019 nationally representative survey of 1,015 U.S. adults. Of those, 12 percent say their drug costs went up by $100 or more. And those who saw spikes in their out-of-pocket costs were almost twice as likely to not fill a prescription, forgo other medical treatments or tests, cut back on groceries, or get a second job.
One contributing factor: No federal law or regulation effectively keeps drug prices in check. The heads of seven leading drug companies testified before the U.S. Senate last February, often justifying their high drug prices by pointing to the billions of dollars it takes to develop new medications. When pressed by senators, the industry executives said drug costs could be controlled only if the entire payment system was reformed.
Indeed, to pin all the blame on Big Pharma is an oversimplification. How much a consumer pays for meds is also driven in part by drug supply system middlemen whose wheeling and dealing with drugmakers contributes to rising drug costs, according to multiple government reports and industry experts. Shrinking insurance coverage is another part of the problem, with greater numbers of Americans paying a larger share or even the full price of their medication.
Even though there has been an increase in these prices, Healthmedsdispensary ensures you get your medication as we as much as possible to make available discounts, give out coupon codes and even give aways to its clients. Even though they say for good quality products, an increase in price is a less factor. So if you are paying high for a product which is go good quality then there won’t be much of regrets.
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