Eli5 How are drug prices settled in the US?
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Healthcare is inelastic demand. This means regardless of the supply, the price can be whatever the companies want. Why? Because if you had cancer and the pill to extend your life costed 5 million, you’ll still buy it
What this means is technically the pharmaceuticals can set any price they want, the insurance companies just have to be okay with it. Since insurance companies compete with each other, this means they don’t want to miss out on a cool new drug that another insurance company might get instead. So they compete upwards in price, so essentially
Pharma can charge whatever they want on price, whatever the insurance companies are willing to pay at least (which is still a lot)
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