Reference-based pricing helps employers rein in drug costs

A new study published in the Journal of the American Medical Association shows that reference-based pricing can help lower the annual cost of drugs for both employers and employees.

Reference pricing finds the most expensive drugs used by employees, points out more cost-effective alternatives and encourages health plan members to switch to the most affordable drug.

Related: Tap into the power of reference-based pricing for recession-ready pharma benefits

The study, from UC Berkeley, relied on a prescription drug reference pricing solution from ActiveRADAR that uses proprietary algorithms and found that reference pricing does encourage patients to switch to lower-priced drugs. The reference pricing model, according to ActiveRADAR, “compares all brand-name and generic medications within a therapeutic category, identifies the clinically appropriate and least expensive therapeutically equal option, and adjusts copays to encourage patients to select the lowest cost alternatives.”

The cost savings the tactic provides are not only significant, but also grow over time for both plan sponsor and employee—a finding that was borne out by previous research published in the New England Journal of Medicine in 2017 that used the same employee population. The addition of the second study added another two and a half years of data and brought the total research period to five years.

While the 2017 study had found that use of reference pricing resulted in drug spending for employers that was nearly 20 percent lower, it also resulted in a 10 percent increase in cost-sharing for patients. However, the new study found that cost-sharing fell by more than 20 percent as both physicians and patients adjusted to the use of reference pricing.

By five years after implementation, according to ActiveRADAR, employers are seeing significant savings, and cost-sharing for employees continues to decrease. In addition, “results also indicate reference pricing may shift the number of dispensed drugs from those with higher rebate amounts for prescription drug benefit managers to those with the lower price point for employers and patients.”

“While our initial research found that reference pricing curbs prescription drug spending for employers, this follow-on study indicates that reference pricing also reduces costs for patients, and that both groups continue to see increased savings over time,” says lead author James C. Robinson, Ph.D., director of the Berkeley Center for Health Technology at the School of Public Health.

Read more: 

• Employers rethinking their dependence on PBMs for addressing drug costs
• Reference-based pricing: 4 factors to consider
• New ‘playbook’ helps employers navigate specialty drug costs