Author: Katharina Schmidt

Co-President of HBN/Ph.D. Candidate in Cellular & Molecular Physiology

Johns Hopkins School of Medicine

Pharmaceutical drug pricing is a very sensible topic in the United States especially due to the recent increases in drug prices which do not seem to be justified to the patient. For instance, comparing drug prices in the United States and Canada has many examples.  One example is Zetia which is to treat high cholesterol which is priced at $840 in the United States as compared to $183 in Canada. There are several reasons for the high drug prices in the United States including the fact that drug makers are self-serving, and the flow of pharmaceutical funds, products and services is not obviously apparent to the patient.

 A big influential player is represented by pharmaceutical benefit managers (PBMs). There are three big PBMs in the United States, and their role is to negotiate with the pharmaceutical companies on the best drug to market. PBMs receive payments from insurance companies based on the drug rebate as well as from pharmaceutical companies, and influence which drugs will reach the market. This decision on preferable drugs is mainly made based on PBM’s maximized benefits which is achieved based on high-price high-rebate drugs. The higher premiums on these higher prices drugs is then passed on to higher premiums paid by the patients and to the insurance companies.

The patient, who is at the end of this value chain, is unable to evaluate the quality of goods due to the complex structure of the drug decision making process and reimbursement system. At the same time, some physicians may have no personal monetary gain advocate for cheaper clinically equivalent therapies. Thus, the drug pricing system in the United States may often provide a suboptimal supply of public goods based on market failure. There is a current trend of M&A (merger and acquisition) events which may result in market monopoly of big players in the United States. One example of this occurrence is the currently made deal of a big player in the insurance field Aetna to acquire CVS, which is both healthcare provider and previously acquired PBM.

This complete vertical integration would increase the power of the Aetna – CVS merger by providing healthcare in clinics to the patients by reimbursing and negotiating on the sold drugs in the same house. Positive opinions say that this vertical integration process will increase the pressure to lower costs of healthcare services due to the interest of the integrated insurance company to keep expenses low. On the other hand, negative opinions state the merger will limit the network of providers and further decrease the competition in the pharmaceutical space empowering further market monopoly.


Pharmaceutical Enterprise Course (ME:200.708) taught by Prof. Takashi Tsukamoto from the Drug Discovery Institute at Johns Hopkins University. For more info visit


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