Prescription drugs is the only major category of health care services for which the producer is able to exercise relatively unrestrained pricing power. By law, drug manufacturers can set the price that Medicare and Medicaid programs pay for new drugs, and they also benefit from significant negotiating advantages over private insurers, who are required to cover most new drugs and are unable to obtain significant price concessions from manufacturers, particularly for drugs that offer some clinical advantage or use alternative mechanisms of action compared with available treatment options. As a result, drug prices in the United States are generally 2 to 6 times higher than prices for the same drugs in other major industrialized nations.1
Bach PB, Pearson SD. Payer and Policy Maker Steps to Support Value-Based Pricing for Drugs. JAMA. 2015;314(23):2503–2504. doi:10.1001/jama.2015.16843
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