Patients Likely to Choose Less Costly Drugs Over Brands

Reference pricing may cause patients to be more aware of prescription drug costs.

As prescription drug costs continue to rise, patients and healthcare stakeholders are searching for novel ways to reduce costs. A new study published by the New England Journal of Medicine suggests that reference pricing may encourage patients to choose less costly drugs over branded products.

Under the reference pricing policy, insurers or employers set a maximum price they will pay towards a certain drug, leaving the patient to pay the rest. The contribution made by insurers or employers is based on the lowest cost drug in the class, the reference drug. This approach encourages patients to select cheaper drugs to save money.

“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, PhD, MPH. “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.”

While reference pricing has been implemented by many self-insured employers, understanding is limited about how it impacts patient spending.

The new study suggests that reference pricing significantly changed drug selection and spending. In the first 18 months after implementation, employers’ spending on prescription drugs plummeted $1.34 million, while employee cost-sharing increased $120,000.

In the study, the authors examined changes in prescription drugs and the pricing for 1302 products in 78 drug classes before and after the implementation of reference pricing by private employers. Overall, 1.1 million prescriptions that were reimbursed between 2010 and 2014 were included.

Implementing reference pricing was linked to a 7% increase in prescriptions filled for low-cost reference drugs, with a 14% decrease in price paid, according to the study. The authors also found that the approach increased cost-sharing 5%.

“Reference pricing changes are what we refer to as the ‘choice architecture’ of healthcare,” Dr Robinson said. “Patients will have access to healthcare, but will need to pay attention to the price. Consumer choices in health care will come to resemble consumer choices in other areas, where people will make decisions based on value, which includes both good quality and affordable price.​”

Future studies of reference pricing should focus on the health outcomes of patients, especially if the practice reaches specialty drugs, according to the study.

These findings suggest that reference pricing may be a successful strategy to influence drug choices by patients.

In the future, the authors suggest that manufacturers charging high costs for their drugs may be required to supply evidence that justifies the higher costs, according to the study.

“There is huge and unjustified variation within and across geographic areas in the prices charged for almost every test and treatment, drug and device, office visit and hospitalization,” Dr Robinson said. “It’s not a surprise when one considers that most patients are covered by health insurance and hence do not shop among competing providers on the basis of price. Some providers look at price-unconscious consumer demand and ask themselves, ‘Why don’t we raise our prices?’”