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Introduction: In recent years, prescription drug prices in the United States have continued to
rise astronomically -- around 75% since since 2011 (Leopold et al 15) . Legislators have been
scrambling to find a solution to this problem, and many possible policies have been explored.
One of these policies is reference pricing, a system primarily used in European countries. This
paper describes the concept of reference pricing and looks at the potential benefits and
drawbacks of institutionalizing a reference pricing policy in the United States.
I. Background
A. Consequences of high prescription drug costs
1. People take less drugs, are less healthy w/high costs. (Cohen and
Villaroel)
“Furthermore, Danzon et al. (2005) using a regression model, also estimated that
countries with strict price regulation experience lower prices than less regulated markets
(Danzon et al. 2005).” (Kanavos, Fontrier etc. 19)
Raj Ashar
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1. “insurers can require patients to pay the full difference between the retail
price charged at the pharmacy and a so-called reference price reimbursed
by the insurer, the latter being the price of a low-cost drug in a therapeutic
cluster of drugs thought to be clinically equivalent—or at least similar—in
the treatment of the illness in question.” (Kanavos, Reinhardt 16)
C. Current context of prescription drug pricing in the United States
1. Factors that increase prices of drugs in U.S.
a) Exclusivity period
“ In total, most brand-name drug manufacturers have a 12-to-16-
year window during which their products are free from
competition from lower-cost generics.” (Kesselheim, Sinha,
Avorn)
b) High share of generics in the US
(1) 90% of U.S. markets are full of generics (Kesselheim,
Avorn, Sarpatwari 860)
(2) “The proportion of prescriptions filled with generics ranges
from 17% in Switzerland to 83% in the U.K. By
comparison, the U.S. has historically had low generic drug
prices and high rates of generic drug use (84% in 2013), but
has in recent years experienced sharp price increases for
some off-patent products.” (Wouters, Kanavos, McKee 3)
(3) The main driver of prescription drug prices are brand-name
drugs
Even though many different countries have reference pricing system, they
all have different prices due to how reference prices are calculated.
c) “Frequent price revisions, iterative price cuts, large reference
country baskets, price calculation methods, genericisation impact
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Chart compiling studies where reference pricing has been shown to lower prices.
(Vogler et al 18)
Reference pricing can be used for single payer government systems or among
individual private insurers.
a) Public
(1) Most of the current reference pricing countries have single
payer government run healthcare systems.
(2) In the U.S., Medicaid and Medicare are publicly run
programs, and could be a good place to try a reference
pricing policy.
(3) While unlikely, some politicians have been calling for
universal government run healthcare.
(a) If this happens reference pricing can be
implemented on a national scale.
b) Private
(1) The U.S. being one of the few countries with a
decentralized healthcare system
(a) Could have individual insurers set reference prices
(b) Other option for government to set reference pricing
policies for the individual insurers to follow
c) Benefits and Drawbacks of Each
(1) Public
(a) “A highly centralized RP system is likely to reduce
the system’s administrative costs and to be less
confusing to patients and physicians than a more
decentralized system would be. It would shift
relatively more market power from the supply side
of the market for prescription drugs to the demand
side.” (Kanavos, Reindhart 18)
(b) “a highly centralized RP system therefore would
likely add to the uncertainty surrounding the future
cash flow expected from new drug launches, which
in turn would make investments in R&D less
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2.
a)
(1)
(2)
b)
(1)
IV. Conclusion
Reference pricing is just one of many possible methods to combat rising drug prices in the
United States, although it would have to be implemented in a different way than it has in the
past. Overall, reference pricing is a system that the U.S. may want to consider on a small scale in
order to combat rising drug prices.
Raj Ashar
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Citations
Amin, T., & Kesselheim, A. S. (2012). Secondary patenting of branded pharmaceuticals: a case study
of how patents on two HIV drugs could be extended for decades. Health Affairs (Project Hope),
31(10), 2286–2294. https://doi.org/10.1377/hlthaff.2012.0107
Cohen, R. A., & Villarroel, M. A. (2015). Strategies used by adults to reduce their prescription
drug costs: United States, 2013. NCHS Data Brief, (184), 1–8.
Kanavos, P., Fontrier, A.-M., Gill, J., Efthymiadou, O., & Boekstein, N. (n.d.). The Impact of
External Reference Pricing within and across Countries. London School of Economics and
http://eprints.lse.ac.uk/84222/1/ERP%20Impact%20vF.pdf
Kanavos, P., & Reinhardt, U. (2003). Reference Pricing For Drugs: Is It Compatible With U.S.
Kesselheim, A. S., Avorn, J., & Sarpatwari, A. (2016). The High Cost of Prescription Drugs in
the United States: Origins and Prospects for Reform. JAMA, 316(8), 858.
https://doi.org/10.1001/jama.2016.11237
Kesselheim, A. S., Sinha, M. S., & Avorn, J. (2017, September 13). Determinants of Market
Exclusivity for Prescription Drugs in the United States. Retrieved February 14, 2018, from
Leopold, C., Chambers, J. D., & Wagner, A. K. (2016). Thirty Years of Media
Coverage on High Drug Prices in the United States—A Never-Ending Story or a
Time for Change? Value in Health, 19(1), 14–16.
https://doi.org/10.1016/j.jval.2015.10.008
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Robinson, J. C., Whaley, C. M., & Brown, T. T. (2017). Association of Reference Pricing with
Drug Selection and Spending. New England Journal of Medicine, 377(7), 658–665.
https://doi.org/10.1056/NEJMsa1700087
Ruggeri, K., & Nolte, E. (2013). Pharmaceutical pricing The use of external reference pricing.
RAND Europe. Retrieved from
https://www.rand.org/content/dam/rand/pubs/research_reports/RR200/RR240/RAND_RR240.pd
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Zhang, S. (2017, March 8). How Pharma Companies Use “Citizen Petitions” to Keep Drug Prices
High. The Atlantic. Retrieved from https://www.theatlantic.com/health/archive/2017/03/pharma-
citizen-petitions-drug-prices/518544/