The Market For Generic Drugs

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Introduction The market for generic drugs has been increasing recently, with a large share of total prescriptions being dispensed in the United States. At the wholesale level, the generic drug market has typically been viewed as very competitive, such that prices approach marginal costs1. Therefore the availability of generic drugs is perceived as beneficial to consumers who have to pay for these drugs. However, at the retail level, generic drug prices seem to exceed marginal cost even by a wide margin1. In the last few decades, “the fraction of drug spending paid for by public and private payers has grown from 34% in 1980 to nearly 80% in 2000, and 92% in 2010. Thus cash-paying consumers currently account for only 8% of payments”1.…show more content…
However, because the AWP is somewhat ambiguous and does not really provide a true drug-by-drug average price across major wholesalers, there is a lack of trust from the government and private payers regarding its validity3. The federal government, in an effort to establish a more equitable and uniform pricing platform for Medicare Part B drugs, elected to utilize pricing based on ASP3,5. Background Before the introduction of the AWP-based reimbursement by California 's Medicaid program in 1969, its predecessor, the cost-based reimbursement was first used. This reimbursed pharmacies the exact amount they were charged by manufacturers to purchase the drug plus a fixed dispensing fee to cover labor and capital costs1. This resulted to multiple reimbursements amounts for identical products. More importantly, since pharmacies would receive the same profit margin from reimbursement regardless of their acquisition costs, drug manufacturers could in turn set high prices without reducing pharmacies ' demand for their product. This led to the introduction of the AWP-based reimbursement at a time when public and private insurers were just beginning to pay for prescription1. The AWP is a publicly available list price used as the basis for setting payment rates to pharmacies. The AWP is reported by generic producers themselves, and until recently has not been subject to any independent verification. Consequently, the AWP “is neither an average nor a price
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