Generic Drug Pricing Strategies

 Research on the pricing strategies of generic drug manufacturers and analyze pricing strategies. Discuss the following:

  • Discuss the pricing decisions of generic drug manufacturers.
  • Evaluate the impact competitors and additional economic factors have on the results of the generic drug pricing strategies.What factors contribute to the advantages and disadvantages of various pricing strategies?
  • Discuss the social and financial implications of generic drug pricing decisions for various groups of stakeholders.
  • What would be the socially optimum pricing strategy for the United States? What would be the socially optimum pricing strategy globally?

Read “Generic Drugs Under Medicare: Part D Generic Drug Prices Declined Overall, but Some Had Extraordinary Price Increases,” by the U.S. Government Accountability Office (GAO) (2016) and “Defiant, Generic Drug Maker Continues to Raise Prices,” by Morgenson, from the New York Times (2017). Also use the New York Times article, “Defiant, Generic Drug Maker Continues to Raise Prices,”

Pricing Decisions of Generic Drug Manufacturers – Sample Paper

Generic drug pricing by leading pharmaceutical manufacturers is based on several imitable factors. The preponderances often base decisions on patient requirements and a drug’s projected demand. Furthermore, generic drug manufacturers also apply an exceptionality policy which gives certain players the exclusive right to produce a particular drug (The New York Times, 2017). The result of this scheme is the production of drugs that are on high demand, but in limited quantities which then allows manufacturers to tweak prices, sometimes even above the 1000% threshold. Medical pundits such as Dr. Tim Hunt now blame pharmaceutical companies for a steady rise in drug price across the United States. Pricing decisions are also designed to target specific demographics benefitting from government-led initiatives to cover their health insurance. In essence, the pricing decisions are specifically designed to target populations that are in dire need of essential but rare medications which are priced exorbitantly.

Competitors and a myriad of other economic factors also affect generic drug pricing. A system involving a clear monopoly of power inexplicably dominates the pharmaceutical industry. The market dynamics in generic drug pricing focus on supply and, therefore, use this dynamic to raise prices. Although domination in the industry seems incidental, prices are modulated periodically amongst competitors for maximum gain. Iterative interactions between consumers and sellers also results in relative differentiation which prompts shifts in generic drug pricing. Shifts in market equilibrium also enhance competition and affect the distortion potential often blamed by major players for chief differences in price as discussed earlier.

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Competitors also review the tendering process in most middle-income countries, which then allows them to gain a better understanding of the prices individuals are willing to pay. From this premise, pharmaceutical companies proceed to determine differential pricing which is then applied when determining the final cost for a dynamic and competitive market. Additionally, prevailing regulations also influence generic drug pricing since major pharmaceutical companies are required to adhere to major tenets of the law. External referencing is also applied by firms seeking to launch generic drugs in countries where their products are bound to fetch high prices.

Several factors contribute to the advantages and disadvantages of pricing strategies in the generic drug market. A primary advantage of these pricing strategies is the provision of consumers with immediate access to essential drugs. A bioequivalent of the original is accessible to nearly all individuals which then allow them to fulfill prescriptions for debilitating conditions. Additionally, the pricing strategies are cost effective for most healthcare providers grappling with inadequate resources. The affordability of generic drugs enables individuals and healthcare facilities to respond to economic pressures by benefitting from the low-cost advantage.  However, a major disadvantage that has emerged recently is the unpredictability of pricing trends.  Their fluidity often means that medications that should be readily available such as Codeine® (used to treat migraines) and Synthroid® (thyroid drug) are often rendered unavailable (Dicken, 2013, p. 34). The scarcity experienced in the market causes a rise in demand for the drug, which prompts manufacturers to adjust their prices thus creating an emerging challenge. A majority of the patients are usually individuals with scarce resources by a large prescription volume that should be filled if their health condition is to improve. This, therefore, creates an acquisition challenge that may very well impact their wellbeing

Generic drug pricing decisions have far-reaching social and financial implications for various groups of stakeholders. The dramatic rise in drug prices is often blamed for a rise in health complications linked to inaccessibility. In addition, the presence of an assortment of pharmaceutical companies in the generic industry causes confusion owing to a string of competing agendas. Individuals requiring drugs for their therapeutic value often end up having to contend with higher prices for the product. In essence, the Hatch-Waxman Act of 1984 created a generic market where market leaders determine the price of bioequivalent drugs which ceded a great deal of power to the aforementioned class of individuals (Kanof, 2019). The industry is controlled by natural monopolies which generate money by increasing the price of select generic drugs purely for financial gain. Pharmaceutical companies also exploit the inadequacies of regulation practices which allow them to the price for generic drugs with a total disregard for the needs of the target population but the resulting revenue from sales. Individuals with a co-pay policy bear the brunt of pricing policies of generic drugs since they do not have a third party such as Medicaid to help offset their hospital bills.            

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The socially optimum pricing strategy for the United States would be one that is sensitive to market prices. It is critical to focus on market factors as a way of ensuring that major players within the United States have been reviewed comprehensively. A socially optimum pricing within the United States is one that introduces aspects of competitive advantage while still providing individuals with specific perks. On the other hand, a socially optimum pricing strategy for the global market is one capable of improving formulary for consumers. It, therefore, allows pharmaceutical companies to gain a better understanding of the global geographic market and optimize their revenues accordingly.

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