“Reference Pricing” to Improve Costs in Medication Selection

A recent study (JC Robinson et al. NEJM 2017; 377: 658-65) examined the topic of “reference pricing” and how this could be used to lower costs of medication usage.

“Under reference pricing, the insurer or employer establishes a maximum contribution it will make toward the price of a drug or procedure, and the patient pays the remainder.”

In this study, the authors examined 1302 drugs and more than 1.1 million prescriptions (2010-2014). Specifically, the authors compared RETA Trust, a national association of 55 Catholic organizations, which implemented reference pricing and compared costs with  a labor union that maintained a drug formulary with copayments similar to RETA Trust but did not implement reference pricing. Key findings:

  • “Implementation of reference pricing was associated with a higher percentage of prescriptions that were filled for the lowest-priced reference drug within its therapeutic class” (increase in 7%) along with a lower average price paid per prescription (-13.9%) than the comparison group.
  • Reference pricing was associated with increase in copayment by patients (5.2%)
  • Reference pricing was associated with reduced spending for employers by $1.34 million and increase in copays for employees by $0.12 million than in the comparison group.

Reference pricing has been associated with decreases of 10-12% in medication costs in European nations, as well.

The authors conclude: “Reference pricing may be one instrument for influencing drug choices by patients…pharmaceutical manufacturers who wish to charge premium prices may need to supply evidence of commensurately premium performance.”

My take: Although in concept reference pricing makes sense, I do worry that patients may be pushed towards less effective medications as not all medications in the same class are equally-effective.

Related blog posts:


This graph shows the percentages of prescriptions for the lowest-priced drugs before and after implementation of reference pricing for RETA Trust. Union Trust is the comparison control.


Understanding the Health Care Fight

From Axios: This is what Washington has been fighting about

An excerpt:

Every time you hear the Trump administration or Congress fight about rising Affordable Care Act premiums, or what will happen to people with pre-existing conditions, just remember — we’re talking about issues that affect 7 percent of the population. That’s how many people are in the individual health insurance market, or the “non-group” market…

But when you hear about those sky-high rate hikes because of “Obamacare,” chances are, they’re not your sky-high rate hikes — unless you happen to be in that market…

The spending limits that have been proposed for Medicaid really do matter, and they affect a larger group — 20 percent of the population. 

Why Cost-Saving Strategies Do Not Start with Children

On a daily basis, it is clear that there should be a more thoughtful way to spend health care dollars so that what is purchased has more value.  The graph below illustrates that older and disabled adults utilize more health care dollars (in Medicaid) and as a result are likely to be the initial focus of cost-saving strategies.

Related blog posts:

Another Shady Pharmaceutical Business Practice: Citizen’s Pathway to Delay Competition

First, a comment regarding yesterday’s post: The Truth About Probiotics: Constipation Version

Some readers took issue with my pessimism with probiotics in terms of their effectiveness for several conditions, their safety and the number needed to treat (NNT). It is noted that the number needed to treat (NNT) with probiotics is better than with many other conditions.  For example, the NNT for benefit with the influenza vaccine, Tamiflu for influenza, and mammography for preventing breast cancer are much worse than the NNT for benefit with probiotics for conditions like NEC, antibiotic-associated diarrhea, Clostridium difficile infection, and ulcerative colitis (with VSL#3). If one looks at multiple posts from this blog, there are plenty of posts supporting the use of probiotics (see some of the links yesterday or search “probiotics” on this blog.  Thus, it is important to not overlook the benefits of probiotics for many conditions and to not take a single study and extrapolate too much.

Now for today’s post -perhaps it will stir as much interest:

I must admit I’m fascinated with the way pharmaceutical companies operate and the creative ways they find to magnify their profits.  In previous posts, I’ve detailed how pharmaceutical companies will try to corner the generic market, increase the cost of liquid medicines, and package drugs in a way to force the purchase of additional vials of medicine among other tactics.  Now, a commentary (R Feldman, C Wang. NEJM 2017; 376: 1499-1501) details how pharmaceutical companies have increasingly used “the citizen-petition process that the Food and Drug Administration (FDA) implemented in the 1970s.”  This process was designed as “a way to voice concerns” by individual citizens.

Yet, this pathway is now being used to delay competition/entrance of generic drugs, mainly with frivolous claims.  In most cases, companies file these claims at the end of the approval process, almost always as a delaying tactic.  Approximately 80% of these actions by competitor drug companies are denied by the FDA.

Ultimately, these actions could be countered with antitrust actions; this, in fact, has occurred with Shire ViroPharma.  On February 7, 2017, the Federal Trade Commission filed an antitrust action “alleging that the company abused regulatory processes by filing 43 submissions with the FDA (including 24 meritless citizen-petition filings within one docket) in an effort to hold off generic competition for its gastrointestinal drug Vancocin (vancomycin).”  However, antitrust actions are typically difficult to pursue and expensive.

My take: I think these tactics (and others) will undermine the relationship of pharmaceutical companies with consumers. While their stock holders may see benefits in the short term, I expect that other stake holders will fight back.  There are several targets in that endeavor, including ending limits on Medicare negotiating for better prices.

Related blog posts:

What’s at Stake with “Repeal and Replace”

Full Link from NEJM: The Mirage of Reform — Republicans’ Struggle to Dismantle Obamacare

Here’s an excerpt:

The [AHCA] bill distinguishes itself from the ACA largely by its commitment to regressive redistribution: it would give wealthier Americans more money (mainly through sizable tax cuts) while reducing government support to help low-income Americans afford insurance. Relative to the ACA, premium subsidies for the uninsured would decrease substantially, on average by 40% in 2020 and reaching 50% by 2026.1 Those cuts would fall heavily on lower-income people, with middle- and upper-income Americans receiving higher subsidies.1,3 The ACA’s subsidies to assist low-income persons with deductibles and copayments would be eliminated altogether. By 2026, for a person earning $26,500 a year and buying individual coverage, insurance plans’ actuarial value — which measures the share of costs that plans pay for covered services — would fall from 87% under the ACA to 65% under the GOP plan…

In addition to unified Democratic and significant Republican opposition in Congress and among governors, key stakeholders — including the American Medical Association, the American Hospital Association, and the seniors advocacy group AARP — oppose the bill. Furthermore, as its potential demise draws nearer, the popularity of the ACA, now part of the status quo, is growing. In the Republican imagination, Obamacare has been a disaster. The GOP’s problem is that in reality Obamacare has substantially expanded health coverage, with 20 million Americans gaining insurance. Rolling back the ACA means making insurance less affordable for low-income Americans, increasing the uninsured population, and taking vast funds away from states and medical providers. The GOP health plan neither fully repeals the ACA nor provides a compelling replacement. Instead, in my opinion, it offers only a mirage of reform.

Another analysis indicates significantly higher deductibles are likely under the GOP plan:

Link: Why dedcuctibles would increase under the GOP health plan