Prescription Drug Pricing in the Private Sector

As prescription drugs move from manufacturers to consumers, a complex set of market transactions involving prices, discounts, and rebates occurs along the supply chain. Although the drugs themselves move in a relatively straightforward way, the flow of payments and the process by which they are determined are much more complex. This Congressional Budget Office (CBO) paper, prepared at the request of Senate Majority Leader Frist, explains the supply chain, the flow of payments, and the process by which payments are determined and provides estimates of the relative prices that retail pharmacies and nonretail providers pay for prescription drugs. In keeping with CBO's mandate to provide objective, nonpartisan analysis, this paper makes no recommendations. Julie Somers and Anna Cook prepared the paper under the supervision of Joseph Kile, David Moore, Bruce Vavrichek, and James Baumgardner. Alshadye Yemane and Susan Labovich assisted with the data analysis, and Peter Richmond assisted with the figures. Allison Percy served as CBO's internal reviewer. Information and data were provided by the Centers for Medicare & Medicaid Services as well as by IMS Health. Tom Bradley, Philip Ellis, Arlene Holen, Amy Petz, Shinobu Suzuki, and Tom Woodward provided useful comments on drafts. Outside of CBO, Terry Latanich and Judy Wagner, both private consultants, did the same. Includes a discussion of the supply chain, price measures, single-source brand-name drugs, and multiple-source drugs.