When given the chance, will patients choose cheaper prescription drugs?

Significant cost savings and changes in drug selection has been linked to reference pricing, which leverages insurer/employer contributions to encourage patients to select cheaper drugs that are as effective as their name-brand counterparts, according to a new study.

A UC Berkeley-led study, published in the New England Journal of Medicine, found that when given the choice between easy access to cheap drugs within each therapeutic class, and the responsibility to pay for more expensive drugs, patients switched to cheaper drugs, leading to extensive reductions in the average price paid and in total spending.

Robinson“Reference pricing is a benefit design that moves patients to select low-priced drugs, rather than the conventional tiered formulary administered by a PBM, which moves them to drugs that charge high prices but offer high rebates-of which the PBM takes a share,” says James Robinson, professor of health economics, director, Berkeley Center for Health Technology, UC Berkeley School of Public Health. “It thus promotes price transparency and un-links the patient’s cost sharing from the drug’s list price.”

With prescription drug reference pricing, the insurer or employer establishes a maximum contribution it will make toward the price of a drug, a benchmark. If the drug is above the benchmark, the patient pays the difference, according to David Henka, president and COO, RxTE Health.

  Reference pricing is an insurance benefit design that has been employed extensively for drugs in European nations and in the U.S. for non-pharmaceutical services (such as surgical procedures), but only recently has been applied to drugs in the U.S., according to Robinson.

Previous studies of reference pricing by the Berkeley center examined the strategy’s impact on consumer choices and on employer spending on surgical procedures, hospital procedures and tests. The current study was funded by the U.S. Agency for Healthcare Research and Quality and the Genentech Foundation.

Researchers analyzed changes in prescriptions and pricing for 1,302 drugs in 78 therapeutic classes in the United States, before and after an alliance of private employers began using reference pricing. The trends were compared to a cohort without reference pricing. The study used multivariable differences-in-differences regression analysis on more than 1 million drug claims over the 2011 to 2014 period.

Implementation of reference pricing was associated with a 7% increase in prescriptions filled for the low-price reference drug within its therapeutic class, a 14% decrease in average price paid, and a 5% increase in consumer cost sharing, the study found.

“Reference pricing influences patient choices and reduces spending for surgical and diagnostic procedures,” Robinson says. “This study indicates that it influences choices and spending for drugs as well.”

Next: Reference pricing results

Reference pricing results

Reference pricing is a response to the wide and unjustified variability in prices charged for similar drugs (and other medical services), according to Robinson. 

“Under reference pricing, the employer or insurer sets a maximum payment it will contribute towards the price of drugs within each therapeutic class, pegging that level to the lowest or one of the lowest charged within the class,” he explains. “Patients who select the low-priced ‘reference’ drug pay only a modest $10 copay per prescription-rather than high copayments or coinsurance often found in tiered drug formularies.”

However, if the patient continues to prefer a more expensive drug, he or she must pay the full difference, according to Robinson. “If the patient’s doctor believes the patient needs to expensive drug for a clinical reason, the extra cost sharing is waived-the patient is exempted from reference pricing,” he says.

“For self-funded plan sponsors or purchasers, prescription drug reference pricing is a strategy that can measurably lower the non-specialty drug spend and stabilize the overall rating trend,” says Henka. RxTE identifies drugs within a specific medication group that are therapeutic equivalents and clinically interchangeable.

“RxTE’s model is built upon a choice architecture,” Henka says. “Empowering choice is a philosophical orientation toward shared decision making in healthcare-allowing patients and physicians to achieve the best possible outcomes   by selecting the right drug therapy at the right price.”

Therapeutic substitutions are based on therapeutic equivalence and can only be made when the doctor (and patient) agrees to make the switch. RxTE’s prescription reference pricing leverages the importance of doctor/ patient relationship to facilitate an informed and medically directed choice. Reference pricing isn’t new, many European nations use reference pricing as a method to mitigate increases in pharmaceutical spending.

Based on this study, Robinson has three takeaways:

• Consider reference pricing as a supplement or alternative to the traditional tiered formulary approach to managing drug choice and cost.

• Unlink the consumer’s cost sharing (e.g. deductible) from the list price of the drug, when the PBM and insurer (but not the patient) receive negotiated price rebates. “A consumer and regulatory backlash is coming,” Robinson says.

• Don’t just expose patients to ‘naked’ high-deductible designs. “Offer them easy to identify low-priced options-help them save money-while making them responsible for the extra costs if they continue to select the more expensive options,” Robinson says.