Reference Pricing Could Cut Drug Prices, Report Finds

It's not a panacea but 'could make a significant impact.'

This article was first published on Tuesday, October 22, 2019 in MedPage Today.

By Joyce Frieden, News Editor, MedPage Today   

WASHINGTON -- Pegging U.S. drug prices to those paid in other countries is not a cure-all but could help to lower costs for Americans, according to a report released Tuesday by the Bipartisan Policy Center (BPC) here.

"Today's report concludes that while reference pricing alone is not a panacea ... in the right setting, focused on the most appropriate drugs, and in combination with additional approaches, it could make a significant impact," said Anand Parekh, MD, MPH, chief medical advisor to the BPC, at a briefing to release the report.

The BPC compiled this report through information and insights derived from extensive literature review; interviews with subject matter experts, Capitol Hill staff, and drug pricing stakeholders; and information shared at a BPC roundtable held in July 2019. It delineated two types of reference pricing: external pricing, which uses international prices as a benchmark to set or negotiate the price of drugs; and internal reference pricing, which could be used in various scenarios to ensure that therapeutically equivalent drugs are priced similarly, and encourages the use of the least costly alternative therapy.

The report noted that internal reference pricing is used in 22 countries in the European Union and recommended that the Department of Health and Human Services (HHS) should consider forming an advisory group -- or task an existing office -- to compare new drugs and biologics to either existing therapeutically equivalent drugs or the standard of care as a way to help with internal reference pricing. The office or advisory group could review study data and publish an expert assessment, Parekh said. "This information would help inform private-sector price negotiations and public-sector internal reference pricing policies," he said.

"The report makes it clear that implementation of any internal reference pricing scheme [should] utilize a transparent process involving multi-sector stakeholders to identify therapeutic classes and equivalency," he added.

As for external reference pricing, which is used in 36 countries across Europe, "existing research demonstrates that external reference pricing can lead to lower medicine prices immediately, but this effect may diminish over time," Parekh said. Some studies did point to possible unintended consequences, such as higher prices in low-income countries and short-term discouragement of investment in research and development.

The report recommended that HHS consider implementing a pilot program using external reference pricing for a subset of Medicare Part B or Part D single-source brand name drugs or biologics that are relatively expensive with limited or no competition, said Parekh. One resource officials could use is the 12 guiding principles of the European Union Health Program, meant to be a reference for countries implementing an external reference pricing scheme.

Panelists at the briefing outlined some of the challenges with getting reference pricing accepted in the U.S. "The secret here is that most patients and doctors don't know how much their drugs cost" because they have a set copay for them, said David Henka, president and CEO of ActiveRADAR, a company in Gold River, California, that helps payers get doctors and patients to consider prices when deciding on treatments.

The company's program helps payers to set reimbursement rates based on the lower-cost drug of similar effectiveness in a particular category. "The member has the opportunity to have a conversation with their doctor, saying, 'Is it OK if I switch to a lower-cost drug or is there a medical reason why I need to be on the higher-cost drug?'" said Henka. "This way the transparency within the cost of the drug becomes much more apparent."

The increasing use of percentage-based coinsurance and of high-deductible health plans, in which patients have to pay full price for their prescriptions until they exhaust their deductible, may have brought the issue closer to home, aid Peter Bach, MD, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York City. He also disagreed with the idea that current methods for determining a drug's value don't take patients' quality of life into account.

"It's well-established that quality of life is a shared objective," he said. The idea of getting rid of quality-adjusted life years (QALYs) as a way to measure value -- as is suggested in the drug pricing bill championed by House Speaker Nancy Pelosi (D-Calif.) -- "is actually undercutting the patient-specific voice in measurement," he said.

But Mark Boutin, CEO of the National Health Council, a group of patient advocacy organizations here, countered that "QALY is one measurement of quality of life -- but it's not the only measurement; there are alternatives out there ... We think the Patient-Centered Outcomes Research Institute is a really good place to create alternative measurements."

Another problem with assessing a drug's value is that because patients want drugs on the market as fast as possible, "we have ended up with a portfolio of very high-cost drugs where we as clinicians don't have any data," said Bach. He gave the example of a gene therapy for spinal muscular atrophy; there are four types of SMA, and a drug was recently developed to treat SMA in children (age <2 years) based on data from patients with only one specific type -- but was FDA approved to treat all four types.

"I don't know how you counsel a family member about this therapy when there's not a single patient with any of the other three types; when you have a patient with one of the other three types in front of you," Bach said.