Pharmaceutical Industry Pricing Models Essay

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INTRODUCTION
The pharmaceutical industry is praised as one of the leading industrial sectors. The fruits of its extensive research and development are traded worldwide and have improved the length and quality of life of countless individuals. At the same time, however, the industry is criticized for its marketing and pricing practices—and even for its research and development priorities. Industry's consistently high profits and large expenditures on research and development as well as on marketing that foster scrutiny and criticism.
The pharmaceutical industry is unique in the sense that that it is fundamentally based in research and development (R&D) but is also a manufacturing industry. Like other industries within the health sector,
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Marketing prescription pharmaceuticals is unlike marketing most other products because of the peculiar consumer-agent relationship characterizing health care demand. Traditionally, prescribed drugs have been selected by physicians on behalf of their patients, whose role in product selection is passive. By definition, purchase of prescription drugs by patients must be authorized by a physician.
The Demand for Pharmaceuticals
The demand for pharmaceuticals derives from the demand for health. While most markets have two participants, the producer and the consumer, demand for health care is also determined by so-called third-party intermediaries, the insurers or other payers who stand behind the patient ready to pay for whatever he or she decides to purchase. But the picture for health care is even more complicated because the physician frequently has two roles as decision maker: as a provider of care and as the consumer's agent.
But the picture for health care is even more complicated because the physician frequently has two roles as decision maker: as a provider of care and as the consumer's agent. This "agency relationship," in which the professional acts in the consumer's best interest, has been the subject of intense debate for decades, primarily because of the incentives built into fee-for-service medical care. Fee-for-service payment rewards the practitioner for performing each specific service. The inherent conflict of interest facing a
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