Adjustment to Drug Reference Pricing

By February 11, 2020 Commentary

Drug pricing bedevils patients and payers.  The tide of high introductory prices and ongoing annual, or even more frequent price increases, shows no sign of ebbing.  A number of methods have been tried to control drug prices, without a lot of success.  A study in the Journal of the American Medical Association Open Network explores use of reference pricing.   (JAMA Article)   The researchers used over 3.3 million drug claims from 2010 to 2017 for two groups of employees.  One group implemented reference pricing in 2013 and the other did not throughout the entire study period.  The reference based pricing method was for the patient’s cost sharing to be limited if the lowest cost drug was prescribed, but the employee bore the full cost difference between the price of the lowest priced drug and any other drug in the class that was prescribed.  The primary outcomes were frequency of use of the lowest cost drug in a category, price paid per prescription and patient cost-sharing per prescription.  In the first two and a half years after implementation of reference pricing the prescribing of the lowest cost drug was up by 5.1 percentage points, average price paid declined by 19% and patient cost-sharing increased by 10.3%, which was not statistically significant.  After an additional two more years, the share of lowest cost drugs prescribed rose another 6.2 percentage points, while patient cost-sharing dropped 21% and prices paid rose 7.2%, which was also not statistically significant.  For the entire study period, compared to the employee population for which reference pricing was not implemented, there was a 6.3 percentage point increase in use of the lowest cost drug, mean drug price paid decreased by $9.50 and mean patient cost sharing dropped by $1.80.

The results would suggest that reference pricing can work and seems to get better results the longer it is in effect.  For those patients who took advantage of the program, reference pricing would have saved them and their plan much more than the average amounts given here, since those averages include all the patients who didn’t use the lowest cost drug.  A few observations.  The study is consistent with other research that reference-based pricing can shift medical use to lower cost alternatives.  For those patients who aren’t prescribed the lowest cost drug, the now much higher cost-sharing could deter them from filling a prescription or taking a drug.  Systems should be put in place to ensure that physicians understand the reference based pricing system in advance and in real time if possible, to ensure that they can help the patient make an informed decision.   And if there are, and this would be rare, legitimate reasons to prescribe a drug other than the lowest price one, the plan should permit this without the higher cost-sharing.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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