A Primer on Pharmaceutical Pricing, Costs and Reimbursement

This white paper attempts to explain the economic forces behind drug pricing and presents a primer on the key players in the industry, and how they impact the market. We also discuss current efforts to curb price increases and offer our predictions on what the future holds.
The best way to understand the relationships between industry players is to examine them in the context of basic economic principles and the distortions that make the market for therapeutic drugs unique.
Among the most significant of these distortions are:
1) Lack of price transparency, particularly with respect to the role of the PBM
2) The splitting of the roles of the consumer (the patient), the decision-maker on the most appropriate therapeutic option (usually the physician), and the payer (most often private insurance or Medicare)

This paper will first explain the roles of the therapeutic drug market participants and the distortions introduced by these role definitions, then discuss the current and future trends in the industry.