[Ip-health] WSJ: 5 Things to Know About How Drug Prices Are Set

Jamie Love james.love at keionline.org
Wed Dec 9 06:55:44 PST 2015


5 Things to Know About How Drug Prices Are Set


Pharmaceutical companies have come in for criticism over high drug prices.
Companies don’t just pick these out of a hat. Here are five things about
the process based on how one company, Pfizer Inc., went about setting a
$9,850-a-month list price for a new breast-cancer drug called Ibrance.

1 What factors mattered?

Over several years as the drug was being developed, Pfizer surveyed cancer
doctors and health-plan officials and researched the projected budgetary
impact on insurers. An important consideration, it says, was the cost of
treatment using drugs that doctors suggested as comparisons for pricing
purposes. Treatment involving those drugs cost between $9,000 and $12,000 a

2 How did Pfizer come up with the $9,850 figure?

After finding a range, Pfizer researched how much doctors would be likely
to prescribe Ibrance at various prices and what kinds of restrictions
health insurers would impose that could limit prescriptions. The research
found that Ibrance’s use–and sales–would fall if the price exceeded $10,000
a month.

3 What about R&D costs?

The drug industry has cited the heavy costs of R&D to justify drug prices.
But R&D expenses didn’t factor into Ibrance’s pricing, except in the sense
that Pfizer says it wouldn’t have pursued Ibrance’s development if it
didn’t think the drug would generate enough returns to cover anticipated
development costs.

4 Did manufacturing expense play a role?

Some companies have cited manufacturing costs when making the case for high
drug prices, while critics have argued that drug companies could charge
less, given their high profit margins. Certain biotech drugs can be
especially expensive to make. Ibrance is a pill, which doesn’t usually cost
a great deal to produce. Pfizer says that it costs a typical sum to make
and that manufacturing costs didn’t factor into its pricing.

5 How firm is the list price?

After a drug’s approval by the FDA, its manufacturer typically negotiates
discounts or rebates with health plans. To secure these, plans can offer
companies the chance to get their drugs to more patients with the least
out-of-pocket cost for patients and minimal paperwork for doctors, and
perhaps with fewer restrictions than rival treatments, says Chronis
Manolis, vice president of pharmacy at UPMC Health Plan. Drug discounts
average about 34%, and prices of cancer drugs about 20%, according to
analysts at SSR LLC.

More information about the Ip-health mailing list