Decision-making is necessary in every aspect of life whether it is a daily decision of what to eat for breakfast or if it is a more complex decision of in what direction should a company or organization move in. In organizations, decision-making becomes vital when the organization is in times of financial growth, financial stress, or under scrutiny. In order for organizations to continue to grow financially, recover financially, or regain trust: operation managers need to identify and analyze the situation or problem. After identifying the issue, operation managers need to obtain information to analyze alternatives for deciding an implementation plan for the most appropriate alternative for the organization to continue to be successful or to recover.
Recently, health care and insurance has been a hot topic for debate. Deep within this debate is the price of medication and drugs and who is at fault for the increasing prices of medicine. The price of medicine came under scrutiny by the media reporting the cost of an EpiPen rose drastically. This made Americans more aware of the pharmaceutical industry. Most Americans believe that pharmaceutical companies determine the price of medicine. However, one third of the list price of a drug is given back to middlemen in the supply chain such as insurance companies and pharmacy benefit managers. Pharmacy benefit managers (PBMs) are for-profit companies responsible for negotiating drug price discounts for insurance companies and employers. In the drug supply chain, PBMs sit between the patient and the pharmaceutical company.
In order to address the problem of increasing drug prices, the problem needs to be correctly identified. However, that becomes difficult when pharmaceutical companies blame PBMs for the increasing prices and PMBs state that pharmaceutical companies are responsible for raising the prices. As a result, Americans are attempting to fully understand the supply chain of drugs in order to understand what is happening in the supply chain to cause the prices of drugs to increase. Pharmaceutical companies and PBMs have recognized the public scrutiny of the rising drug prices by implementing changes such as limit the price increase of drugs already on the market and providing information to physicians about the specific costs of the drug they are prescribing. Pharmaceutical companies and PBMs have made the decision to address the public scrutiny over drug prices by looking to make changes in how the cost of drugs is conveyed to physicians and the patients.
The example of the decision-making process in determining drug prices is unique. Drugs can have the ability to drastically change one’s life and some individuals will pay large amounts in order to improve their way of life. Therefore, the value in use of drug can be different depending on the demographics of customers. Pharmaceutical companies need to take into consideration the many different demographics and markets of the United States when determining a price of a drug.
This past summer, I interned at a pharmaceutical company that had a drug approved by the FDA and was in the process of putting the drug on the market over the course of my internship. One of the most challenging aspects of putting this drug to market in the United States is determining a price since the US government does not regulate drug prices. As we learned in class, when making decisions operation managers need to consider the value in use from the customer’s view and the firm’s view. The most important aspect of determining the price of drug is the drug’s clinical value or the value in use from the customer’s view. Will the drug improve people’s quality of life and increase their life expectancy? How does the drug compare to similar drugs on the market? The value in use of drugs from pharmaceutical companies’ view is taken into consideration when a deciding whether or not to develop a drug not when the drug is already developed. The costs of researching and developing drugs are already taken into account when a pharmaceutical company is determining the list price of a drug. In addition, when the pharmaceutical company is determining the list price of the drug, the company needs to consider whether or not insurance companies will pay for the drug at that price. They need to find a price that will maximize the company’s profit but a price that insurance companies will also cover. Here, break-even analysis and a payoff table become necessary. As consumers and employers are beginning to unveil the pricing of drugs, the pharmaceutical and the PBMs are walking on thin ice. As they walk through the process, pharmaceutical companies, PMBs, medical professionals, and patients need to consider the value of the customer’s life. The decision needs to be health versus wealth.
Article link: https://www.washingtonpost.com/business/economy/pharma-under-attack-for-drug-prices-started-an-industry-war/2017/12/29/800a3de8-e5bc-11e7-a65d-1ac0fd7f097e_story.html?utm_term=.e72a7e73f2b4
Information on the pricing of drugs: http://www.newsweek.com/prescription-drug-pricing-569444