DO MARKET COMPONENTS ACCOUNT FOR HIGHER US PRESCRIPTION PRICES

BACKGROUND: Although only 7-8% of US healthcare expenditures are spent on prescription drug products, the pharmaceutical industry's profitab ility and high cost of prescriptions to consumers make prescription dr ugs a visible target for reform. When compared with other products, it appears as if unfair pricing tactics are used. The pharmaceutical ind ustry cites costs of research and development and a short patent life as justifiable grounds for high prices, but the reason why US drug pri ces appear to be so high has yet to be answered. OBJECTIVE: TO examine identified components of the pharmaceutical industry that allow US pr escription drugs to appear to be highly priced and to review the appar ent factors that affect pricing policies for pharmaceuticals. DATA SOU RCES: The literature was reviewed to identify current research regardi ng the pharmaceutical market. Sources included MEDLINE, Econolit, Busi ness Periodical Index, International Pharmaceutical Abstracts, the Wal l Street Journal, New York Times, and the F-D-C Pink Sheet. SUMMARY: K ey factors account for the fact that US prescription drug prices are h igher and that price discrimination occurs in the pharmaceutical indus try within the US and among other countries. These factors include the unique market structure of the pharmaceutical industry, asymmetry of information, research and development costs, numerous channels of dist ribution and the differences among them, and government laws and regul ations of prescription drugs. Pricing policies of pharmaceutical compa nies are based on manufacturing, promotion, and distribution costs; dr ug characteristics; and economic goals of the parent company.