Reference Pricing for Drugs

By September 19, 2018 Commentary

Everybody is driving to figure out how to lower drug spending, except of course the drug manufacturers, PBMs, wholesalers, etc., who benefit from higher prices, and then the politicians who get contributions for fighting measures that would prices.  So really, it is only relatively powerless patients who would like to see lower prices.  Even the health plans don’t really care; they just pass it on to someone else.  But if you did want to lower prices, would use of reference pricing help?  That is a tactic used with some medical procedures and a Commonwealth Fund Brief examines whether it might be useful in containing drug spending.   (Comm. Fund Brief)   The theory of reference pricing is that a payor will agree to pay a set amount (usually related to the cost of the cheapest treatment or provider) for a service or product and anything over that gets picked up by the patient.  The objective is to steer people to the least expensive option, whether a treatment or provider.  In regard to drugs, one drug in a therapeutic category is set as the reference product.  The price for that product becomes the reference price and the price might be the lowest price that can be found for that particular drug or it might be set along the scale of prices.  For example, in Germany it is set at the 30% point of the price range.  Patients would pay whatever the usual copayment would be plus the difference, if any, with the reference price.  Supposedly this creates more patient price sensitivity and awareness, and potentially less out-of-pocket spending, than the typical multi-tier formulary approach used today.

One test of drug reference pricing in the US was performed by the RETA Trust, which purchased health insurance for 55 Catholic organizations.  Within common drug categories, median prescription prices varied by $222, and often a small percent of prescriptions were for the cheapest drugs.  When the reference pricing model was implemented the average price declined 14%, although employee cost-sharing increased by over 5%.  The authors note that for reference pricing to work, other than having competing appropriate therapies, patients and plans need to have timely and accurate information on what they cost, including the specific out-of-pocket cost to the employee, and on the outcomes to be expected.   The problem with this is making the information available at the time of decision and even then generally research shows little use or impact on decision-making.  And there may be times when the reference drug isn’t the best option for the patient, so easy to administer exception policies are needed.  Finally, the widespread use of more complex and expensive biologics in the specialty drug category will require special attention in a reference-pricing scheme.

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