Comments on: AARP Responds To Critics Of Pricing Study http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/ News, Comment and Conversation Fri, 10 Feb 2012 21:17:37 +0000 http://wordpress.org/?v=2.6.2 By: Atlex http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-203750 Atlex Tue, 11 Mar 2008 13:01:01 +0000 http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-203750 Undoubtedly, Mr Rother and his colleagues as the AARP missed out on their economics and statistics classes or they intentionally ignore data for their own purposes. In addition, with their vested interest in AARP health insurance and Part D plans, they also talk out of both sides of their mouth. Undoubtedly, Mr Rother and his colleagues as the AARP missed out on their economics and statistics classes or they intentionally ignore data for their own purposes. In addition, with their vested interest in AARP health insurance and Part D plans, they also talk out of both sides of their mouth.

]]> By: Dan http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-202681 Dan Tue, 11 Mar 2008 00:23:24 +0000 http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-202681 With AARP, they seem to be either really objective or unclear on thier stance with the pharma industry, as members of this Association have historically taken both sides. With AARP, they seem to be either really objective or unclear on thier stance with the pharma industry, as members of this Association have historically taken both sides.

]]> By: Bob Freeman http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-202521 Bob Freeman Mon, 10 Mar 2008 22:00:10 +0000 http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-202521 John, I failed to state the obvious: two pricing decisions are made: one is the manufactuer's and the other the retailer's. While the cost of goods in a prescription may account for 75% or higher of the final charge, it is possible, through the use of generics, for the retailer to hold it's usual and customary retail price and increase margin. Again, contracts with managed care will determine the professional (or dispensing fee), so there's not a lot a retailer can do other than to lower ingredient costs. John, I failed to state the obvious: two pricing decisions are made: one is the manufactuer’s and the other the retailer’s. While the cost of goods in a prescription may account for 75% or higher of the final charge, it is possible, through the use of generics, for the retailer to hold it’s usual and customary retail price and increase margin. Again, contracts with managed care will determine the professional (or dispensing fee), so there’s not a lot a retailer can do other than to lower ingredient costs.

]]> By: Bob Freeman http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-202484 Bob Freeman Mon, 10 Mar 2008 21:25:46 +0000 http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-202484 John, the answer is relatively straightforward although exceptions will occur. In the months leading up to patent expiry price will be raised consistently, although wholesalers expect this and may stock up at "old" prices. The patent-holder knows market share will plummet so what it does manage to sell, the profit/unit will be high, approaching that of monopoly prices where the firm operates in the price-inelastic portion of the demand curve. (Assuming, of course, that the company knows price elasticities, which is a fairly big assumption) When the first generic enters the market (the 180-day exclusivity window), its price will be about 15% or so lower than the brand's. Pharmacies, however, will make huge per Rx profits. Consider this as an example: When Zocor became generic I asked my pharmacist in a large chain what the cash price would be for a 30-day supply of the leading statins. For generic simvastatin it was $122.00; for Crestor, 102.00; for Lipitor, $97.00. Of course, managed care will pay less through negotiated rebates. This kind of price structure will hold until additional generics enter the market after the 180-period and market share of the branded product (a branded generic, if you will) will fall by 90%. The manufacturer will continue to increase prices because (again), it has very little share so it might as well hold unit profits high. If the innovator wants to buy market share (say in mail order pharmacies) you'll see intense price competition with generics. Mail order companies may stay with the branded generic just to insure a stable supply of the product. And yes, Jack2 is absolutely correct: state mandated generic subsitution will drive utilization toward the lowest priced, commonly available generic, the source of which can change frequently. John, the answer is relatively straightforward although exceptions will occur.

In the months leading up to patent expiry price will be raised consistently, although wholesalers expect this and may stock up at “old” prices. The patent-holder knows market share will plummet so what it does manage to sell, the profit/unit will be high, approaching that of monopoly prices where the firm operates in the price-inelastic portion of the demand curve. (Assuming, of course, that the company knows price elasticities, which is a fairly big assumption)

When the first generic enters the market (the 180-day exclusivity window), its price will be about 15% or so lower than the brand’s. Pharmacies, however, will make huge per Rx profits. Consider this as an example: When Zocor became generic I asked my pharmacist in a large chain what the cash price would be for a 30-day supply of the leading statins. For generic simvastatin it was $122.00; for Crestor, 102.00; for Lipitor, $97.00. Of course, managed care will pay less through negotiated rebates. This kind of price structure will hold until additional generics enter the market after the 180-period and market share of the branded product (a branded generic, if you will) will fall by 90%. The manufacturer will continue to increase prices because (again), it has very little share so it might as well hold unit profits high.

If the innovator wants to buy market share (say in mail order pharmacies) you’ll see intense price competition with generics. Mail order companies may stay with the branded generic just to insure a stable supply of the product.

And yes, Jack2 is absolutely correct: state mandated generic subsitution will drive utilization toward the lowest priced, commonly available generic, the source of which can change frequently.

]]> By: Jack2 http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-202364 Jack2 Mon, 10 Mar 2008 19:55:48 +0000 http://www.pharmalot.com/2008/03/aarp-responds-to-critics-of-pricing-study/#comment-202364 I personally don't think Rother addressed his anonymous critic's comments. He either doesn't understand automatic subsitution laws, or he does and still chose to author a one-sided perspective to appeal to his readers. I think it's the latter. I personally don’t think Rother addressed his anonymous critic’s comments. He either doesn’t understand automatic subsitution laws, or he does and still chose to author a one-sided perspective to appeal to his readers. I think it’s the latter.

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