Economic Analysis of Supply and Market Structure of Healthcare Industry Term Paper

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Product or Service Supplied

The product supplied to patients is generic pharmaceuticals. “A generic drug is a pharmaceutical drug which is equivalent to a brand-name product in dosage, route of administration, strength, quality, Kinetics, and its intended use. It may also refer to any drug which is marketed under its chemical name without advertising” (Moin, 2016). The importance to the customer is an issue of affordability: the patient has to incur fewer out of pocket expenses in order to pay for crucial prescriptions in order to fulfill the needs of their chronic diseases or conditions. Generic drugs are essentially the ones that are comparable to their brand-name twins. “They are comparable in terms of the dosage, effectiveness, and intended use. Generics are important because they are essentially a less-expensive alternative to their brand-name counterparts. This, of course, is expected to be important to those who are ultimately picking up the tab, governments, who are the biggest purchasers of health care, insurance companies, and individuals”(VanEck, 2016). It’s thus important for consumers and for leaders within the government to have options when it comes to prescription drugs and these options need to be viable ones. They need to work as good as their full-priced counterparts. Otherwise, it just trifles with consumers.

Market Structure

The market structure of generic pharmaceuticals at once revolves name brand pharmaceuticals and being able to offer inexpensive alternatives to their pricier predecessors. One example of this trend is with the drug Lipitor, intended to be used for the fight against cholesterol. Initially this drug sold for around $3.50 though when the generic versions emerged a year later, the price difference was dramatic: these doses were priced at around .50 cents. “A report by the IMS Institute for Healthcare Informatics for the Generic Pharmaceutical Association estimated that consumer savings from generic drug uptake were nearly $240 billion in 2013” (VanEck, 2016). These savings demonstrate how important generic drugs are to the entire pharmaceutical business and the healthcare industry as a whole. While it would be nice of there was a generic version of every drug on the market, the reality is that when new drugs are approved and given a spot on the marketplace, this is usually with a timeframe of patent protection and overall exclusivity (VanEck, 2016). Hence, it is only when these periods expire that the prevailing market conditions will kick in and assert whether or not a generic variant is created (VanEck, 2016).

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Generic alternatives of prescription drugs remain the majority of prescriptions filled all over the country, but unexpectedly, the brand name drugs still hold the bulk of the market share in terms of revenue.

Many name brand drugs still possess patents that haven’t expired yet, and big pharma continues to expand more and more drugs to patent (VanEck, 2016). When these expiration periods finally end, they act as sizeable growth drivers for the generic pharma arena. “Visiongain estimates that between 2014 and 2018, $190 billion in branded drug sales could face competition from generic manufacturers as patents expire. In 2016 alone, drugs due to come off patent include AstraZeneca’s (AZN) Crestor, with ~$6 billion in sales in 2015, and Merck’s (MRK) Zetia, with $2.5 billion in sales in 2015” (VanEck, 2016). This demonstrates that the generic pharmaceutical marketplace is expanding and is only going to continue to expand. Consumers don’t want to pay a lot to simply take their medicine. Giving them options and cost-effective alternatives is a winning strategy for market growth. This is particularly true when certain expensive prescription name brand drugs have a price tag that is so high, it means that some patients can’t afford to take them

Price Determination

America spends a tremendous amount of money on healthcare—more than any other first world nation. Prescription drug costs make up just under 20 percent of all expenditures on health care: this amounts to $370 billion dollars per year (Wapner, 2017). These numbers are a reflection not just of the high number of drugs prescribed each year, but also the high cost of making these drugs. Defensive pharmaceutical companies have long justified the high price tags. Research and development is expensive, they say, and R&D is precisely what drives the costs up, but which is a necessary aspect of all prescription drug creation. “If we want cures for devastating diseases, they say, we have to pay for them” (Wapner, 2017). However, many critics argue that such excuses are merely that—excuses for reasons that simply overcharge the consumer. “Research by the….....

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References

Dabora, M. C., Turaga, N., & Schulman, K. A. (2017, July 4). Financing and Distribution of Pharmaceuticals in the United States. Retrieved from https://jamanetwork.com/journals/jama/fullarticle/2627994

Laff, M. (2017, August 2). Regulation, Competition Needed to Lower Drug Prices, Says Panel. Retrieved from https://www.aafp.org/news/practice-professional-issues/20170802prescriptioncosts.html

VanEck, V. (2016, March 9). Market Realist. Retrieved from https://marketrealist.com/2016/03/what-are-generic-drugs-and-why-are-they-important

Wapner, J. (2017, March). How prescription drugs get their prices, explained. Retrieved from http://www.newsweek.com/prescription-drug-pricing-569444

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