Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Sources and Uses of Price Data for This Chapter

04/01/2000

As described in the previous section, both the processes by which prices are determined and the ultimate price paid for drugs by various purchasers varies considerably. Other factors also lead to wide differences, such as different pricing strategies between generic and brand name drugs and between single-source and multiple-source drugs. In the remainder of the chapter, the focus is primarily on one facet of pricing - the variation in prices faced by different types of consumers at the retail pharmacy. For reasons of data availability, rebates cannot be incorporated into the prices discussed below.

Price data reported in this chapter are derived from the Agency for Healthcare Research and Quality's Medical Expenditure Panel Survey (MEPS) pharmacy component for 1996 and from IMS Health pharmacy audits for 1996 through 1999. The MEPS data include prices for all drugs furnished to participants on an outpatient basis, including prescriptions filled by retail pharmacies, mail-order pharmacies, and pharmacies within outpatient facilities (such as hospitals, some HMOs, and VA facilities). The IMS data used for this report include prices only for prescriptions filled by retail pharmacies. The two data sets complement each other because MEPS allows for comparisons by more precise definitions of coverage status and collects prescription price information across a broader array of pharmacy outlets, while the IMS Health sample size allows more direct drug by drug comparisons of prices paid by cash versus third-party payers. In addition, the 1996 MEPS data are newly released (December, 1999) and have not yet been widely used. The IMS data are a commonly accepted data source on prices, are widely used by industry, and are the most recent data available.

For the purpose of the discussion below, the price of a prescription drug is the total amount paid by all payers to the pharmacy that filled the prescription. For example, if the pharmacy received a $15.00 payment from a third-party payer and a $5.00 copayment from the consumer, the price of the drug is $20.00. Because rebates from manufacturers to PBMs, insurers, or Medicaid programs do not directly affect the amount paid by the third party to the retail pharmacy, the price measured at the retail pharmacy level is often not the true "price" paid by third-party payers. In most cases, the true price is less than the amount paid in the pharmacy transaction. Finally, for the purposes of price comparisons in this chapter, variants of the same drug sold by different manufacturers are each considered as distinct drugs.

Because this analysis focuses on retail price differences and is unable to incorporate rebates, our approach is different from that of the studies by the Minority Staff of the House Committee on Government Reform (Prescription Drug Pricing in the United States: Drug Companies Profit at the Expense of Older Americans, November 9, 1999). The Committee study focused on the difference between best prices obtained in the market by third-party payers and the higher retail prices paid by cash customers. By contrast, our analysis of MEPS and IMS Health data focuses on differences in retail prices at the retail pharmacy level faced by customers with and without access to the discounts negotiated by third-party payers. Data on manufacturer rebates, if available to this study, would have allowed a more complete analysis of price variation within the market.22 Without access to that information, our analysis tends to understate the ultimate price differences for insured and uninsured customers. Rebates paid by manufacturers to insurers or PBMs increase the difference between the total net price ultimately paid for drugs on behalf of those with some type of third-party drug coverage and the price paid by those who pay totally out of pocket at the retail point of sale.

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