Exam 2 Flashcards
List price
-The estimated average price for a drug
-Often publicly disclosed
-Price before discounts and rebates
Net price
Actual price paid for a drug
Price after discounts and rebates
Estimated price
Payer estimate of net prices
Commonly determined based on list prices
Structure of third party prescription industry
Manufacturers –> Wholesalers –> Pharmacies –> Patients
Goals of drug pricing
Manufacturers: they want to set a price that’s going to help cover some of their R&D costs and they want to make a profit
Wholesalers: Make a very narrow profit margin because they buy from the manufacturer and sell to the pharmacy so they make money by operating efficiently
Pharmacies: Want to cover their drug costs and other expenses for the pharmacy and want to make a profit
Patients: Want the lowest possible price or cost for their medication
Manufacturing drug pricing
Manufacturer sets the list price
Price is determined by:
-Production costs
-R and D costs
-Taxes and other costs
-Profits
Manufacturers want to make the highest profit
Problem: List price doesn’t reflect actual costs
Manufacturers rationale for drug pricing
Cost of R and D
Potential savings to the health care system
Strategic position relative to competing products on the market or in the pipeline
Wholesaler drug pricing
-Purchase drugs from the manufacturers
-Negotiate prices based on WAC
-Work with relatively small margins, which reinforces the need for efficient operations
WAC and AMP
List price: Wholesaler acquisition cost (WAC)
Net price: average manufacturer price (AMP)
AMP = actual price paid by wholesaler
Pharmacy drug pricing
Pharmacies purchase drugs from wholesalers
-List price: Average wholesale price (AWP) (estimated price paid by pharmacies-Heavily criticized)
-Net price: actual acquisition cost (AAC)
(actual price paid by pharmacies)
Negotiate prices based on WAC
-Discount ex similar to wholesalers
-Size of discounts tied to market power
-Group purchasing orgs (combine purchasing power)
Profitability tied to buying/selling prices
AWP ~ WAC + 20%
AAC
Actual price paid by pharmacies
-Prices vary considerably by drug (brand~AWP-17%)
-Deeper discounts on generic drugs = more profitable
AWP
Estimated price paid by pharmacies
-Historically used as basis for reimbursement
-Heavily criticized price -> Fallen out of favor
Patient drug pricing
Purchase drugs from pharmacies
*With no insurance
-Indemnity insurance structure
Pay full retail price for drugs
-Usual and customary price (U&C)
U&C price
Goal: Payment accurately reflects costs
Sum of the drug ingredient cost + cost of dispensing + net profit
Drug ingredient costs
What pharmacy pays for drugs (AAC)
Cost of dispensing
Costs other than drug (salaries, benefits, utilities, rent, etc.)
net profit
reasonable profit
Third party payer
Any entity other than the patient or health care provider that reimburses and manages health care expenses
Third party prescription industry
Acquisition of prescription drugs involves multiple parties
-Contributes to complexity of health care system
*Not directly involved in patient care, but influences decisions made throughout process
PBMs interaction with health care system
Primarily interact with manufacturers and pharmacies
Employers/health plans contract with PBMs to manage drug benefits
Factors influencing how much PBMS pay for drugs
Administrative costs
Performance metrics
Drug rebates from manufacturers
PBM activities
-Negotiating with pharmacies for reimbursement / payment of prescription drugs
-Negotiating with pharmaceutical manufacturers for drug rebates
Contracts between pharmacies and PBMs
-Participating pharmacy agreements
*Stipulate services to be provided by contracting pharmacies in exchange for a specified reimbursement
-Specify roles and responsibilities
*Services to be provided
*Specify reimbursement amounts
*Other details
CONTRACTS ARE NEGOTIATED BETWEEN PHARMACY AND PBM
Goals of contracts between pharmacy and PBM
PBMs: increase patient access to pharmacies, increase quality and safety, decrease costs
Pharmacies: increase prescription volume and profits`