# Why does the price for a prescription drug fluctuate?

"In drug price hearing, Congress tries to answer some basic questions" - dateline June 2017 CNBC.

I order a brand name prescription that has no generic, that is still under patent protection, that is not an orphan drug from a large mail order pharmacy. I have been getting this same prescription for six years. The mail order firm buys direct from the manufaturer, adding their overhead and profit to the price and then is paid by (1) my direct payment and (2) payment from my drug prescription insurer.

Over the past two years (in particular) the sum of payments (from 1 and 2 above) to the mail order pharmacy has varied substantially, and inconsistently (eg. increases and decreases) from a low of \$1400 to a high of \$2600 for the same 90 day order.

To be more specific in my question, why would a manufacturer price for a drug fluctuate as I describe.

One area That I've not been able to research is if Insurances companies negotiate pricing with the manufacturer -- but if that is the significant factor -- it suggests that the negotiated pricing only holds for 90 days or so.

If their is a better place to ask this question, please suggest.

## migrated from politics.stackexchange.comSep 20 '17 at 2:54

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• Short answer: because in the US, it's purely market based. In many single-payer countries, the single payer says what the price is. – blip Sep 19 '17 at 20:42
• I won't try to defend asking this question in politics, except to say that pricing of drugs is very much a element in the total healthcare reform debate in US Congress. Understanding how and why drug pricing occurs is pertinent to formulation of prescription drug pricing reforms. I will post to health SE – BobE Sep 20 '17 at 0:19
• @ Drunk Cynic see: cnbc.com/2017/06/13/…. "throwaway line"?? actually being discussed in Congressional hearings -- sounds like government issues – BobE Sep 20 '17 at 2:09
• The drug manufacturer, the insurance company, and the pharmacy benefit manager huddle (secretly) to negotiate the actual price the insurance company will pay. This amount will generally be much lower than the "list price" that the insurance company bases your copay on, and it can change at random times as new deals are struck or old ones expire. – Hot Licks Sep 21 '17 at 22:33

The reasons for this are manifold. Different consumers have different abilities or willingness to store and buy large chunks when it is cheap and stochastic prices allows for price discrimination (see Sobel 84 for an early reference). The idea is simple. Myopic consumers arrive in each period and buy if $p<V$, then leave the market. Otherwise, they die. Strategic consumers have a valuation of $v<V$ but can wait if the price is above $v$. Firms compete in prices. In equilibrium, firms charge often $p=V$ to extract rents from myopic consumers but every now and then they offer $p<v$ to attract all strategic consumers looking for prices.