Comparative Approaches to Drug Pricing

Posted: 7 Apr 2020

See all articles by So-Yeon Kang

So-Yeon Kang

Johns Hopkins University - Bloomberg School of Public Health

Ge Bai

Johns Hopkins University - Carey Business School

Michael J. DiStefano

Johns Hopkins University - Bloomberg School of Public Health

Mariana Socal

Johns Hopkins University - Bloomberg School of Public Health

Farah Yehia

affiliation not provided to SSRN

Gerard F. Anderson

Johns Hopkins University - Department of Health Policy and Management; National Bureau of Economic Research (NBER)

Date Written: April 2020

Abstract

The United States relies primarily on market forces to determine prices for drugs, whereas most other industrialized countries use a variety of approaches to determine drug prices. Branded drug companies have patents and market exclusivity periods in most industrialized countries. During this period, pharmaceutical companies are allowed to set their list price as high as they prefer in the United States owing to the absence of government price control mechanisms that exist in other countries. Insured patients often pay a percentage of the list price, and cost sharing creates some pressure to lower the list price. Pharmacy benefit managers negotiate with drug companies for lower prices by offering the drug company favorable formulary placement and fewer utilization controls. However, these approaches appear to be less effective, compared with other countries’ approaches to containing branded drug prices, because prices are substantially higher in the United States. Other industrialized countries employ various forms of rate setting and price regulation, such as external reference pricing, therapeutic valuation, and health technology assessment to determine the appropriate price.

Suggested Citation

Kang, So-Yeon and Bai, Ge and DiStefano, Michael J. and Socal, Mariana and Yehia, Farah and Anderson, Gerard F., Comparative Approaches to Drug Pricing (April 2020). Annual Review of Public Health, Vol. 41, pp. 499-512, 2020, Available at SSRN: https://ssrn.com/abstract=3570364 or http://dx.doi.org/10.1146/annurev-publhealth-040119-094305

So-Yeon Kang (Contact Author)

Johns Hopkins University - Bloomberg School of Public Health ( email )

615 North Wolfe Street
Baltimore, MD 21205
United States

Ge Bai

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Michael J. DiStefano

Johns Hopkins University - Bloomberg School of Public Health ( email )

615 North Wolfe Street
Baltimore, MD 21205
United States

Mariana Socal

Johns Hopkins University - Bloomberg School of Public Health ( email )

615 North Wolfe Street
Baltimore, MD 21205
United States

Farah Yehia

affiliation not provided to SSRN ( email )

No Address Available

Gerard F. Anderson

Johns Hopkins University - Department of Health Policy and Management ( email )

624 North Broadway
Baltimore, MD 21205

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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