When given the chance to pay less, patients choose cheaper prescription drugs

August 22, 2017

As prescription drug spending continues to rise in the United States, along with prices for new and well-established drugs, insurers, employers and patients are searching for ways to cut costs. A new study by UC Berkeley School of Public Health researchers found that a policy called reference pricing is effective at encouraging patients to spend significantly less on prescription drugs by choosing cheaper drugs over name brand options.

Under the reference pricing strategy, the insurer or employer establishes its maximum contribution towards the price of therapeutically similar drugs and then the patient must pay the remainder out of pocket. The insurer/employer contribution is based on the price of the lowest-priced drug in the therapeutic class, called the reference drug. In theory, this policy would encourage patients to save money by selecting cheaper drugs that work just as well as their name-brand counterparts.

James Robinson

Reference pricing has been implemented across the United States by self-insured employers such as CalPERS, the agency which manages the pension and health benefits accounts for California public employees. Yet little has been known about how the policy has influenced patient spending on drugs. The new study found that reference pricing was associated with significant changes in drug selection and spending for patients covered by employment-based insurance in the United States. In the first 18 months after implementation, employers’ spending dropped $1.34 million and employees’ cost sharing increased $120,000.

“With reference pricing, the employer or insurer will make a contribution towards paying for the prescription drug chosen by the patient, and the patient will pay the remainder,” said lead author James C. Robinson, director of the Berkeley Center for Health Technology at the School of Public Health. “If the patient chooses a cheap or moderately priced option, the employer’s contribution will cover most of the cost. However, if the patient insists on a particularly high-priced option, he or she will need to make a meaningful payment from personal resources.”

The study was published in the August 17 edition of the New England Journal of Medicine. 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.

Read the entire story at Berkeley News.