08-13-2026
Why do prescription drugs carry dramatically different prices depending on who is paying? Why can a medication's list price rise while patients pay less — or more? And why do programs designed to improve affordability sometimes increase costs elsewhere in the healthcare system?
A forthcoming book chapter in Handbook of Pricing Research in Marketing by the Daniels School’s Qiang Liu and Siyi Yu, with coauthors Siqi Wen and Yong Cai, synthesizes research on pharmaceutical pricing and shows that drug pricing is far more than a manufacturer's pricing decision. It is a complex business ecosystem shaped by research and development, insurance, distribution channels, competition, regulation and the incentives of multiple stakeholders.
For business leaders, the chapter offers lessons that extend well beyond healthcare. It demonstrates how pricing in any complex market depends not only on costs, but also on incentives, intermediaries and institutional design.
A common misconception is that pharmaceutical companies simply set a price and patients pay it. In reality, a drug may have several prices: a manufacturer's list price, negotiated net price, reimbursement price, pharmacy cash price and the patient's out-of-pocket cost. Each reflects negotiations among manufacturers, insurers, pharmacy benefit managers, wholesalers, pharmacies, physicians and government programs.
Because so many participants influence the final price, changes at one point in the system rarely flow directly through the rest of the market. Leaders should measure how value and prices move through an entire business ecosystem, not simply focus on a headline price. As Liu notes, organizations should evaluate how prices are transmitted through the system rather than assuming a change at one point will benefit the end customer.
Developing a new medicine requires years of research, clinical testing and regulatory review, yet the researchers find that development costs alone do not explain market prices. Instead, prices reflect patent protection, insurance design, payer negotiations, competition and government policy.
When evaluating pricing strategies or new business models, executives should look beyond cost reduction alone. Value-based contracts, subscription pricing, outcome-based payments and other innovative pricing approaches should be judged by whether they improve customer access while maintaining incentives for continued innovation.
Patient assistance programs, copay coupons and pharmacy discount cards can improve affordability by lowering patients' immediate costs. However, they may also reduce incentives to choose lower-cost generic or biosimilar alternatives, allowing higher-priced products to retain market share.
Organizations should evaluate affordability initiatives over both the short and long term. Programs that help customers today may also influence competitive dynamics, pricing behavior and overall market costs tomorrow.
The chapter highlights an important distinction between traditional small-molecule drugs and biologics. Generic versions of conventional drugs often trigger rapid price declines after patent expiration. Biologics, however, are significantly more complex to manufacture, making biosimilar competition slower and less dramatic.
Leaders should avoid applying one competitive strategy across fundamentally different markets. Improving adoption of new products often requires attention to customer trust, channel incentives, purchasing rules and stakeholder education — not simply lower prices.
Although the chapter focuses on pharmaceuticals, its implications apply across industries characterized by complex supply chains and multiple decision-makers.
Business leaders should:
Ultimately, the researchers argue that successful pricing is not simply about setting the right price. It is about designing a system that balances innovation, affordability, competition and sustainable value creation. That perspective offers valuable guidance for leaders in any industry navigating increasingly interconnected markets.
