Book Chapter: Pharmaceutical Pricing

This chapter examines pharmaceutical pricing through a five-part framework: Cost, Customers, Channels, Competitors, and Compatibility. We synthesize how research and development (R&D) risk, patent and exclusivity rules, insurer design, healthcare providers, patients, and intermediaries including pharmacy benefit managers (PBMs), wholesalers, pharmacies, and group purchasing organizations (GPOs), jointly shape list and net prices. The chapter distinguishes small-molecule and biologic cost structures; explains how patents, generics, and biosimilars alter competitive conduct; and shows how formularies, cost-sharing, copay programs, and patient-assistance mechanisms reallocate spending. We also integrate recent policy interventions, including Medicare Part D reforms, transparency mandates, drug-importation rules, and the Inflation Reduction Act (IRA) negotiation authority, and discuss their implications for innovation incentives and patient access. The chapter concludes with a forward-looking research agenda focused on developing innovative pricing models for high-cost therapies; examining global benchmarking and trade policies that influence R&D investment and affordability; assessing the effects of patient-assistance programs, copay coupons, and digital discount platforms; analyzing intermediary behavior and biosimilar competition within evolving market structures; and evaluating the impact of new U.S. pricing regulations through causal policy analysis.