Public Policy Considerations in the Pricing of Prescription Drugs in the United States

Abstract

The economic value of prescribed drugs consumed in the United States probably reached $10 billion in 1973. Public interest in pricing practices is traced to the involuntary nature of patient illness in general and prescribing in particular, the intrinsic attributes of drug therapy, and the growing role of third-party programs in determining reimbursement for prescription items. Drug product pricing is criticized because of the large proportion of sales revenue consumed by indirect expenses. Nine branded products are cited where the median value of revenue consumed by indirect expenses is 91 per cent. Pricing problems related to increases in active ingredients, quantities sold, and package size are also examined. Pricing at the dispensing level is assessed in terms of its relationship to the true economic cost of this function. Significant imperfections are noted and a uniform cost-accounting system for pharmacies is recommended. The issue of prescription price posting is reviewed in some detail, and it is suggested that the posting of a unique dispensing fee in each pharmacy would optimize consumer sovereignty.