An Overview of Approaches to Negotiate Drug Prices Used by Other Countries & U.S. Private Payers & Federal Programs

Governments in other countries use a range of approaches to limit the amount they pay to acquire drugs:

• Ceiling prices establish a maximum price manufacturers may charge for their products. Purchasers may sometimes negotiate more favorable prices directly with drug manufacturers
   
• Reference prices use local or international price comparisons of drugs classified in a group as therapeutically similar to determine a single or maximum price for all drugs in that group
   
• Profit limits control how much profit a drug manufacturer may earn per product or within a specified period of time
   
• Other factors such as scope of coverage and national formularies, which are generally lists of preferred drugs influence drug price negotiations

In the U.S. private health insurance market, health plans typically contract with pharmacy benefit managers (PBM) to help manage their prescription drug benefits. PBMs negotiate rebates or payments with drug manufacturers, encourage substitution of generic drugs for therapeutically similar brand drugs, and negotiate discounted prices with networks of retail and mail-order pharmacies, passing along at least some of the savings to health plans and enrollees. PBMs influence price negotiations with manufacturers through formulary development and management and through the large market share they often represent.

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