Prescription Drug Prices: Why Do Some Pay More Than Others Do?

Authors:
  • SRSamantha A. Roberts
    Samantha A. Roberts
  • JAJeff D. Allen
    Jeff D. Allen
  • ESEllen V. Sigal
    Ellen V. Sigal
  • JKJ.D. Kleinke
    J.D. Kleinke
  • MAMurray Aitken
    Murray Aitken
  • EBErnst R. Berndt
    Ernst R. Berndt
  • DCDavid M. Cutler
    David M. Cutler
  • JNJoseph P. Newhouse
    Joseph P. Newhouse
  • PKPanos Kanavos
    Panos Kanavos
  • AFAlessandra Ferrario
    Alessandra Ferrario
  • SVSotiris Vandoros
    Sotiris Vandoros
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Abstract
The fact that sick elderly people without prescription drug coverage pay far more for drugs than do people with private health insurance has created a call for state and federal governments to take action. Antitrust cases have been launched, state price control legislation has been enacted, and proposals for expansion of Medicare have been offered in response to price and spending levels for prescription drugs. This paper offers an analysis aimed at understanding pricing patterns of brand-name prescription drugs. I focus on the basic economic forces that enable differential pricing of products to exist and show how features of the prescription drug market promote such phenomena. The analysis directs policy attention toward how purchasing practices can be changed to better represent groups that pay the most and are most disadvantaged.

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