Expert insight:

Commonly misused pricing terms in pharma – (1)


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In an introductory module of his Value Pricing for Market Access course, C.E.L.forpharma’s faculty member Gary Johnson confronts the audience with pricing terms that are often misunderstood in pharma and consequently often incorrectly used interchangeably.

See for yourself whether you know the difference between the following terms:

What is the difference between these commonly misused pricing terms in pharma:

Cross border trade

Parallel trade

Co-insurance

Co-payment

Discount

Rebate

Margin

Mark-up

Price elasticity

Price sensitivity

Flat pricing

Uniform pricing

International reference pricing

National reference pricing

Price

Value

Price taking

Price making


Answers:

 

Cross border trade
Often (but not always) used to mean importing pharmaceuticals for personal use.
Parallel trade
Commercial movement of pharmaceuticals from one country to another by parties other than the manufacturer.

Co-insurance
Often (but not always) taken to mean a fixed percentage of cost of product or service paid by an insured patient. So, patient pays more as price increases.
Co-payment
Fixed contribution to the cost of a product or service paid by an insured patient. So patient pays the same as price increases.

Discount
A price reduction made at the time of invoicing.
Rebate
A (partial) refund after a purchase has been made (usually conditional on something e.g. whether patient responds to treatment).

Margin
A seller’s (often gross) profit expressed as a percentage of their selling price.
Mark-up
A seller’s gross profit expressed as a percentage of their purchasing price (so, usually applies to re-sellers).

Price elasticity
The percentage change in volume caused by a 1% increase in price. This is a mathematically precise term.
Price sensitivity
The importance customers place on price – an imprecise term.

Flat pricing
All strengths (e.g. 100 mg, 50 mg …) for a given pharmaceutical priced the same.
Uniform pricing
Same price in different countries.

International reference pricing (also known as external reference pricing)
Comparing prices of the same pharmaceutical in different countries when setting prices.
National reference pricing (also known as internal reference pricing)
Comparing the prices of different but similar pharmaceuticals in the same country when setting prices.

Price
What a customer pays. Because there are different customers up the distribution chain and because prices can be quoted before or after discounts/rebates, there are many “prices” and “price” always has to be defined precisely.
Value
The worth of what the customer gets.

Price taking
Passively taking the price set by a customer (implying little or no pricing power).
Price making
Actively setting the price for a pharmaceutical (implying some measure of pricing power).

Last update: February 2018

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