The Emerging Role of the Consumer in Pharmaceutical Pricing Decisions

Abstract

The absence of government regulation in the US has left pharmaceutical companies free to set their own prices based on a number of market considerations. Historically, these have included not only ingredient, research and development costs, but also advertising, the drug’s marginal effectiveness, competition, and market size. However, within the last two decades, two parallel trends have combined to bring a new consideration into the pricing decision: consumer price tolerance, or willingness to pay. The costs of prescriptions have increased markedly and patients have been increasingly organized into large groups based on insurance companies or defining characteristics such as the American Association of Retired Persons and AIDS groups. Consumers have found a voice for their concern over the high price of pharmaceuticals in these organizations, and together they have forged several avenues to effect price reductions. Consumer groups may apply indirect pressure by lobbying insurance companies to expand coverage or by invoking the threat of government regulation. Furthermore, direct pressure may be applied through letter-writing campaigns and public protests. Pharmaceutical companies are not only responding but also attempting to pre-empt these measures by eliciting consumer input in the early stages. This is being achieved through the creation of consumer advisory board positions and the conduct of willingness-to-pay analyses prior to bringing a drug to market.