Cost Perspectives

Costs are complex because they may be difficult to measure and depend on the perspective of the beholder. For example, consumers will characterize the cost of a prescription in terms of their out-of-pocket spending and ancil- lary costs, such as the value of time spent filling a prescription. Pharmacists will focus on the spending required to obtain, store, and dispense the drug. Insurers will focus on their payments to the pharmacist for the prescription and their spending on claim management. Each of these perspectives on costs is valid.

A pharmacist acquires a drug for $10 and incurs $5 in processing, storing, and billing costs. The pharmacist should recognize that reasonable returns on her time and on her investment in the pharmacy rep- resent opportunity costs because both could be used in other ways. The con- sumer is uninterested in the pharmacist’s costs. What matters to him are his out-of-pocket costs and the $4 in travel expense he incurs when he drives to the pharmacy. When the consumer does not have insurance, as shown in exhibit 5.1, the consumer’s perspective on costs mirrors society’s perspective. Both will say that the drug costs $20, although the two calculations are different. The consumer will focus on the price he pays and his travel costs.