Estimated Savings From Using Added Therapeutic Benefit and Therapeutic Reference Pricing in United States Medicare Drug Price Negotiations.

OBJECTIVES: US Medicare will begin negotiating prices for top-selling drugs in 2023. This study describes and estimates potential savings from a therapeutic reference pricing approach, linking comparative effectiveness with the costs of existing therapeutic alternatives, that Medicare could use to adjust the starting point for price negotiations. METHODS: First, we identified target drugs likely to be selected for Medicare negotiation. Second, we identified comparative effectiveness ratings for target drugs based on French Haute Autorité de Santé reports. For target drugs with minor or no added benefit, we identified therapeutic alternatives based on the French reports and US clinical guidelines. For each target drug with minor or no added benefit, we computed the difference between spending based on the drug's estimated statutory ceiling price and spending based on the weighted average cost of therapeutic alternatives or the lowest cost therapeutic alternative. Finally, we calculated potential annual savings from using a starting point in negotiations based on costs of therapeutic alternatives. RESULTS: Potential drug-level savings to Medicare from using a starting point in negotiations based on average spending across therapeutic alternatives, compared with using the statutory ceiling price alone, ranged from $186 541 340 to $2 173 441 197. Potential savings from using a starting point based on the lowest cost alternative ranged from $199 872 163 to $3 605 904 765. CONCLUSIONS: Although we do not expect Medicare to rely on French comparative effectiveness assessments, this study demonstrates the potential for additional savings when using comparative effectiveness and costs of therapeutic alternatives to inform the starting price for negotiations.

More cost-sharing, less cost? Evidence on reference price drugs.

This paper evaluates the causal effects of changes in reference prices (RP) on prices, copayments, and overall expenditures for off-patent pharmaceuticals. With reference pricing, firms set prices freely and the health plan covers the expenses only up to a certain threshold. We use quarterly data of the German market for anti-epileptics at the package level and at the active substance level and exploit that the RP has been adjusted in some of the active substances but not in others in a difference-in-differences framework. At the product level, we find that a lower RP reduces prices for both brand-name drugs and generics, but leads to higher copayments, especially for brand-name drugs. At the aggregate level, we find that a lower RP leads to savings for the public health insurer since revenues decrease substantially for brand-name firms and, to a lesser extent, also for generic firms. Overall expenditures (payments by the health insurer and the patients) for brand-name drugs decrease in proportion to the decrease in the RP, while the adjustment does not significantly influence overall expenditures for generics.

International Reference Pricing for Prescription Drugs in the United States: Administrative Limitations and Collateral Effects.

OBJECTIVES: Many countries use international (or external) reference pricing-benchmarking prices against those in other countries-to manage spending on prescription drugs. By contrast, the United States (US) allows manufacturers to set drug prices freely. In December 2019, a major bill passed the House of Representatives that would introduce international reference pricing to reduce US drug spending. In September 2020, President Trump issued an executive order to apply international reference pricing for drugs purchased under Medicare. As US policymakers consider adopting reference pricing, it is important to recognize four key administrative issues that have complicated other countries' experiences. METHODS: We analyzed the US policy proposals and literature on international experience with international reference pricing to identify implementation challenges and potential effects of US adoption of international reference pricing. RESULTS: Four key administrative issues were identified: lack of price transparency, delays in market approvals, the frequency of price revisions, and the prevalence of cross-referencing. CONCLUSIONS: Failure to account for the key issues in the emerging US approach will lead to overspending from overestimation of prices. Policymakers also need to recognize the collateral effects that the US adoption of international reference pricing may have on other countries' prices. Given the size of the pharmaceutical market in the US and other market issues, US reference pricing will likely increase drug list and net prices in other countries. Because of limitations in implementation and collateral effects, US policymakers should consider international reference pricing as a supportive tool alongside other cost containment policies, such as value-based pricing or volume agreements. International reference pricing could limit drug spending in the US but faces implementation challenges and will negatively affect other countries.

Development of a core evaluation framework of value-added medicines: report 2 on pharmaceutical policy perspectives.

BACKGROUND: A core evaluation framework that captures the health care and societal benefits of value added medicines (VAMs, also often called repurposed medicines) was proposed in Report 1, aiming to reduce the heterogeneity in value assessment processes across countries and to create incentives for manufacturers to invest into incremental innovation. However, this can be impactful only if the framework can be adapted to heterogeneous health care financing systems in different jurisdictions, and the cost of evidence generation necessitated by the framework takes into account the anticipated benefits for the health care system and rewards for the developers. AREAS COVERED: The framework could potentially improve the pricing and reimbursement decisions of VAMs by adapting it to different country specific decision-contexts such as deliberative processes, augmented cost-effectiveness frameworks or formal multi-criteria decision analysis (MCDA); alternatively, some of its domains may be added to current general evaluation frameworks of medicines. The proposed evaluation framework may provide a starting point for practices based on which VAMs can be exempted from generic pricing mechanisms or can be integrated into the reimbursement and procurement system, allowing for price differentiation according to their added value. Besides evidence from RCTs, pricing and reimbursement decision processes of VAMs should allow for ex-ante non-RCT evidence for certain domains. Alternatively, relying on ex-post evidence agreements-such as outcome guarantee or coverage with evidence development-can also reduce decision uncertainty. CONCLUSIONS: The core evaluation framework for VAMs could trigger changes in the existing pricing, reimbursement and procurement practices by improving the appraisal of the added value created by incremental innovation.

Reference Pricing Reduces Total Knee Implant Costs.

BACKGROUND: Reference pricing establishes a set price a hospital is willing to pay for total knee arthroplasty (TKA) components regardless of vendor. The hospital contracts with vendors that sell implants to the hospital at the hospital-dictated prices. Orthopedic surgeons are free to utilize any implant system that has met the reference price using their best clinical judgment. Our hypothesis is that vendors will meet the set price and selection of different vendors and technologies will not change. METHODS: We retrospectively analyzed the 12 months prior (May 2017-2018) and the most recent 12 months after (March 2019-2020) implementing reference pricing at our institution. We investigated differences in average prices for total implant and component costs. We evaluated cost of implants with respect to surgeon volume, assessed the rate of cementless TKAs used, and number of companies purchased from before and after reference pricing. RESULTS: In total, 7148 TKAs were included in the study with 3790 arthroplasties before and 3358 after implementation of reference pricing. Overall implant costs decreased by 16.7% (P < .0001). All individual knee component costs decreased by at least 11% (P = .0003). No difference in prices were found among surgeons (P = .9758). Cementless knee use increased by 9% (P < .0001; odds ratio 1.94, 95% confidence interval = 1.69-2.24). No vendor business was lost. CONCLUSION: The strategy of reference pricing significantly reduced costs for TKA implants at our institution. The reduction in implant costs was regardless of surgeon volume. Newer technologies were utilized more often after reference pricing. This strategy represents a significant cost-savings approach for other hospitals.

How robust are reference pricing studies on outpatient medical procedures? Three different preprocessing techniques applied to difference-in differences.

The evaluation of policies that are not randomly assigned on outcomes generated by nonlinear data generating processes often requires modeling assumptions for which there is little theoretical guidance. This paper revisits previously published difference-in-differences results of an important example, the introduction of reference pricing to common outpatient procedures, to assess the robustness of the estimated impacts by using different matching, and reweighting techniques to preprocess the data. These techniques improve covariate balance and reduce model dependence. Specifically, we examine the robustness of the effect of reference pricing on patient site-of-care choice, total expenditures, and complication rates. We apply three preprocessing methods: propensity score reweighting, exact matching, and genetic matching. Propensity score reweighting is a technique for achieving covariate balance but does not balance higher-order moments and may lead to bias and inefficiency in estimating treatment effects in the context of nonlinear data generating processes. In contrast, exact matching and genetic matching are designed to balance higher-order moments. We find that although the use of the preprocessing techniques is a valuable robustness check showing that some results are sensitive to the method used, the three approaches generally yield results that do not statistically differ from the published results.

Reference Pricing with Endogenous or Exogenous Payment Limits: Impacts on Insurer and Consumer Spending.

Reference pricing (RP) theories predict different outcomes when reference prices are fixed (exogenous) versus being a function of market prices (MPs) (endogenous). Exogenous RP results in MPs at both high-price and low-price firms converging towards the reference price from above and below, respectively. Endogenous RP results in MPs at both high-price and low-price firms decreasing, with low-price firms acting strategically to decrease the reference price in order to gain market share. We extend these models to a hospital context focusing on insurer and consumer payments. Under exogenous RP, insurer and consumer payments to low-price hospitals increase, and insurer payments to high-price hospitals decrease, but predictions regarding consumer payments are ambiguous for high-price hospitals. Under endogenous RP, insurer payments to high-price and low-price hospitals decrease, and consumer payments to low-price hospitals decrease, but predictions regarding consumer payments are ambiguous for high-price hospitals. We test these predictions with difference-in-differences specifications using 2008-2013 data on patients undergoing joint replacement. For 2 years following RP implementation, insurer payments to high-price and low-price hospitals moved downward, consistent with endogenous RP. However, when the reference price was not reset to account for changes in MPs, insurer payments to low-price hospitals reverted to pre-implementation levels, consistent with exogenous RP. Copyright © 2015 John Wiley & Sons, Ltd.

Time Series Analysis on the Impact of Generic Substitution and Reference Pricing on Antipsychotic Costs in Finland.

OBJECTIVES: To analyze the medium- to long-term impact of generic substitution and the reference price system on the daily cost of antipsychotics in Finland. The additional impact of reference pricing over and above previously implemented generic substitution was also assessed. METHODS: An interrupted time series design with a control group and segmented regression analysis was used to estimate the effect of the implementation of generic substitution and the reference price system on the daily cost of antipsychotics. The data have 69 monthly values of the average daily cost for each of the studied antipsychotics: 39 months before and 30 months after the introduction of reference pricing. For one of the studied antipsychotic, the time before the introduction of reference pricing could be further divided into time before and after the introduction of generic substitution. RESULTS: According to the model, 2.5 years after the implementation of reference pricing, the daily cost of the studied antipsychotics was 24.6% to 50.6% lower than it would have been if reference pricing had not been implemented. Two and a half years after the implementation of the reference price system, however, the additional impact of reference pricing over and above previously implemented generic substitution was modest, less than 1 percentage point. CONCLUSIONS: Although the price competition induced by reference pricing decreased the prices of antipsychotics in Finland in the short-term, the prices had a tendency to stagnate or even to turn in an upward direction in the medium- to long-term. Furthermore, the additional impact of reference pricing over and above previously implemented generic substitution remained quite modest.

Drug Launch Timing and International Reference Pricing.

This paper analyzes the timing decisions of pharmaceutical firms to launch a new drug in countries involved in international reference pricing. We show three important features of launch timing when all countries refer to the prices in all other countries and in all previous periods of time. First, there is no withdrawal of drugs in any country and in any period. Second, whenever the drug is sold in a country, it is also sold in all countries with larger willingness to pay. Third, there is no strict incentive to delay the launch of a drug in any country. We then show that the first and third results continue to hold when the countries only refer to the prices of a subset of all countries in a transitive way and in any period. We also show that the second result continues to hold when the reference is on the last period prices only. Last, we show that the seller's profits increase as the sets of reference countries decrease with respect to inclusion.

Do users of risperidone who switch brands because of generic reference pricing fare better or worse than non-switchers? A New Zealand natural experiment.

This study evaluated patient health outcomes and any impact on healthcare costs consequent to the implementation of generic reference-pricing of risperidone in New Zealand using national datasets. Reference pricing risperidone reduced the price of the originator brand by 50 % as well as overall expenditure on risperidone tablets. Half of all patients made a single switch to generic risperidone, with the remainder making multiple switches between brands. 1.5 % made a switch-back to the originator brand. No difference was found in use of healthcare services between switchers and non-switchers of the originator brand or versus the comparator group. This refutes the available literature on brand-to-generic and generic-to-generic switching.

Examining confidential wholesale margin estimates in European countries for the price negotiation of patented drugs in Germany: a statistical model.

BACKGROUND: Based on the legal framework laid down in section 130b (9) of Book V of the German Social Code, various criteria are relevant for the negotiated price for new patented drugs in Germany. European reference prices (ERPs) are one criterion. The ERP is based on the ex-factory prices (EFPs) of the countries included in the European country basket. However, in some of these countries, the EFP is not published due to confidential wholesale margins. Wholesale margins must therefore be estimated and deducted from purchase prices. In this context literature-based estimates to date do not assume regressive margins with higher pharmaceutical prices. This assumption is questionable and can lead to systematically underestimated country prices, especially for high-priced drugs. Percentage wholesale margins in the majority of European countries develop to a comparable extent regressively with increasing prices. It should therefore be examined (1) whether statistical models can predict the margins of individual countries, in principle and especially for countries where margins are unknown and regressive trends are likely, and (2) to what extent the estimation of margins improves when regressive statistical models are used to estimate margins instead of cross-price averages published in the literature. METHODS: Qualitative preliminary research explores the basic wholesale pricing mechanisms in countries with confidential wholesale margins. Wholesale margins for reimbursable drugs were then modeled for regulated European countries. Estimation quality and impact of the model was compared to estimations based on average margins. RESULTS: In both regulated countries and in countries with confidential wholesale margins, percentage margins of wholesalers develop regressively as drug prices rise. Regressive courses of margins can be resiliently modeled for the regulated countries using a power distribution with significantly lower mean squared errors in a linear mixed model in comparison to literature-based estimations with country-specific cross-price averages. CONCLUSION: If there is reason to believe that margins are regressive, confidential wholesale margins are expected to be better estimated by the power function based on margins of regulated countries than by the published country-specific average margins, reducing significantly inaccurate effects on margin estimations of high-price drugs.

How does external reference pricing work in developing countries: evidence from Iran.

Introduction: Governments apply different pricing policies to ensure public accessibility, availability, and affordability of medicines. In this way, external reference pricing (ERP) because of its easy implementation is used widely across countries. However, ERP is completely path dependent, and it would both bring pros and cons, related to its implementing strategy which makes understanding of its impact in different countries challenging. In this study, we examine the performance of the ERP approach in Iran as a pricing tool. Method: We conducted a cross-sectional descriptive study. Although Iran officially uses a reference country basket for ERP, in this study, we use different reference countries based on socioeconomic comparability, access to their price data, medicine pricing approaches, and pharmaceutical expenditure to examine the effect of reference countries as well as the method performance. Then, an empirical study was applied to a list of selected samples of medicines in the Iranian market to compare their price with our new reference countries. Then, we discuss the performance of ERP process based on the real prices in the Iranian pharmaceutical market. Result: The prices of 57 medicines, which contain about 69.2% of the imported Iran pharma market in value, were compared with their prices in selected reference countries. It was found that 49.1% of prices were more expensive in at least one of the reference countries, and in 21% of products, the average price in Iran was higher than the average price in reference countries. Conclusion: Achieving efficient and fair pricing of pharmaceuticals between and within countries is still a complex conceptual and policy problem that ERP in short term can handle. ERP cannot be considered a perfect tool for pricing alone, although its effectiveness is acceptable. It is expected that using other pricing methods alongside the ERP will improve patients' access to medicines. In Iran, we use value base pricing as the main pricing method for every new molecule. Then, we use other methods such as ERP as a complementary method.

The impact of external reference pricing on pharmaceutical costs and market dynamics.

Growth in the cost of prescription drugs in the US has generated significant interest in the use of external reference pricing (ERP) to tie prices paid for drugs to those in other countries. We used data from the Pricentric ONE™ database, an international drug pricing database, to examine product launch timing, launch price, and price changes from January 2010 - October 2021 in both ERP and non-ERP settings, with a focus on 100 high-priced drugs of interest to Medicare and Medicaid. We found that ERP policies were associated with a 73% reduction in the likelihood of drug launch within 9 months of regulatory approval relative to non-ERP settings. In addition, while ERP was associated with statistically significant reductions in annual drug price changes, such policies did not impact launch price. In addition, no single ERP feature (e.g., number of countries referenced, ERP calculation) was materially associated with the outcomes of interest. We conclude that ERP policies do not appear to impact drug launch price and may delay access to new therapies, raising questions about the utility of such policies in the US and potential consequences abroad.

Tackling reimbursement challenges to fair access to medicines - introduction to the topic.

INTRODUCTION: Ensuring both financial and physical access to medicines is a challenge for the reimbursement system. How countries are currently tackling this challenge is an issue worth exploring in this review paper. AREAS COVERED: The review covered three areas of studies such as pricing, reimbursement, and patient access measures. We compared the use and shortcomings of all measures influencing patients' access to medicines. EXPERT OPINION: In this work, we tried attempted to outline fair access policies toward reimbursed medicines in a historical manner by researching the measures accepted during different time periods by governments that affect patient access. From the review, it is evident that the countries are following similar models with a focus on pricing measures, reimbursement measures, and measures directly affecting the patients. It is our opinion that most of the measures are focused on ensuring the sustainability of the payer's funds and less are those that stimulate faster access. Even worse, we found that studies that are measuring the real patients access, and affordability are scarce.

Does the Implementation of Reference Pricing Result in Reduced Utilization? Evidence From Inpatient and Outpatient Procedures.

Reference pricing (RP) is an insurance design that can be used to incentivize patients to use low-price settings. While RP is not intended to affect overall utilization, it could unintentionally reduce utilization. We examined whether utilization was reduced when a large employer adopted RP for selected elective surgeries, including inpatient joint replacement surgery and outpatient cataract surgery, colonoscopy, and arthroscopic surgery. Data included a treatment group subject to RP implementation and a comparison group that was not. We applied autoregressive integrated moving average analysis as comparison-population interrupted time-series analysis to determine whether there were procedure reductions following RP implementation. We find no evidence of short-term decreases (within 3 months of RP implementation). However, we find very modest declines of approximately 14 (20%) fewer arthroscopic knee surgeries 6 months after RP implementation and 129 (17.2%) fewer colonoscopies 8 months after RP implementation. There were no declines in the other procedures examined.

Dynamics of price competition in Italian pharmaceutical off-patent market.

Introduction: The aim of the study was to evaluate, in a regulated generics market, the effect of the number of manufacturers of generic drugs on the amplitude of off-patent products price reduction and the price evolution of originators and generics after the patent expiry of pharmaceuticals dispensed by community pharmacies and reimbursed by the Italian National Health Service (INHS). Methods: The AIFA "transparency list" was utilized to select unbranded and branded off-patent drug dispensed by community pharmacies and reimbursed by the Italian National Health Service between 2012 and 2018. The unbranded drug entry in the transparency list database was considered as a proxy of its patent expiry. Results: A total of 42 different active ingredients were included in the analysis. The relative price per dose at time t of unbranded and branded drugs, considering as common denominator the price per dose a year before the patent expiry, (t-1) decreased with the increase of unbranded manufacturers. At the time of the patent expiry, the price of unbranded drugs was almost 50% less than that of branded drugs at t-1 and the price of branded drugs started to decrease before the first unbranded entry. Conclusion: An inverse relation between the number of generic drug entrants and the price of generics and originators was detected. The patent expiry determines a price decline, more concentrated in the first year of patent expiry.

Pharmaceutical net price transparency across european markets: Insights from a multi-agent simulation model.

With pharmaceutical health policy striving for fair and sustainable pricing under increasing budgetary pressures, public stakeholders are more and more willing to be involved in transparent access decision-making related to novel medicines, considered by them to be a societal good. Full net price transparency (NPT) is believed by many to promote price competition and to increase equity by making pharmaceutical products accessible to all. Using agent-based simulations, we find that a full NPT system implemented across EU countries would not be viable. This while, acting as rational economic agents, a group of middle- and lower-income countries would not be willing to give up their confidential agreements with the pharmaceutical industry. Even partial NPT would delay access predominantly in middle- to lower-income countries. Hence, we conclude that implementing net price transparency across Europe would be challenging to reach from a political perspective. Especially in lower-income countries there would remain a plea to be left free to negotiate confidential discounts with drug manufacturers. This while, counterintuitively, in those countries NPT will be seen to be unjust while violating Ramsey pricing and distributive justice principles.

The impact of the reference pricing policy in China on drug procurement and cost.

High drug costs are putting pressures on health care budgets and posing an obstacle for China to achieve universal coverage. Policies such as the direct price ceiling, and the Essential Medicines Program-with the Zero Markup Drug Policy (ZMDP) one key component-were implemented, coming out with limited evidence for a success. As a benchmark of China's recent health reform, Sanming city initiated the ZMDP in January 2013; and further piloted the first reference pricing (RP) policy in China in September 2014, with the intention to dis-incentivize the use of costly original drugs. In this study, we used hospital-based drug procurement data of 14 drug substances that were subjected to the RP, from four hospitals in Sanming and a neighbouring city Longyan, between 2012 and 2016. Adopting the difference-in-difference (DID) approach, we evaluated the impacts of the RP together with the ZMDP. On the one hand, we found that the ZMDP had no impact on drugs' procurement prices, volumes and costs. While on the other hand, we found that the introduction of RP was not associated with changes in unit prices for the 14 drugs in Sanming. However, the RP pilot was associated with a 25.9% [95% confidence interval (CI), 12.9-37.0%] decrease in monthly drug procurement volumes and a 47.7% (95% CI, 33.7-58.7%) decrease in the total drug costs. In particular, it reduced the procurement volumes of original drugs by 56.8% (95% CI, 47.0-64.7%). Subgroup analyses by hospital level and therapeutic class found similar results. We draw lessons for the Chinese government to experiment RP on a larger scale, considering the development and effective regulation of the generic market. This is a first report on the effects of RP in China, Asia and middle-income countries.

Pharmaceutical pricing dynamics in an internal reference pricing system: evidence from changing drugs' reimbursements.

Reference pricing systems for prescription drugs are usually implemented with the aim of curbing public expenditure with pharmaceuticals, induce drug substitution from branded to generic drugs, and enhance competition. In these systems, patients co-pay the difference between the drug's pharmacy retail price and the health system reimbursement level. Relying on a detailed product-level panel dataset of prescription drugs sold in Portuguese retail pharmacies, from 2016 to 2019, we evaluate pharmaceutical firms' pricing decisions for branded and generic drugs, as well as consumers' reaction to price changes. In particular, we exploit the variation induced by a policy change, which decreased reference prices for 36% of the drug groups in our sample. Results from difference-in-differences analyses show that, despite the reference price decrease, affected firms increased their prices-particularly for off-patent branded products. Such reaction from firms resulted in an increase in the co-payment paid by patients. Such price effects caused a 17% decline on branded drugs' consumption, with significant heterogeneity across therapeutics. Estimates suggest that NHS reimbursement savings were mainly achieved through higher co-payments paid by patients. Additionally, pharmaceutical firms' reaction to the reference price decrease was contrary to what was expected, suggesting underlying competitive dynamics which should be considered prior to policy changes.

Indication-wide drug pricing: Insights from the pharma market.

BACKGROUND: Pharmaceutical spending has been increasing rapidly for years and is higher than ever before. To control the rising costs, countries are implementing regulatory frameworks such as (internal) reference pricing, price cuts or generics substitution. Internal reference pricing establishes a reference price within a country which serves as the maximum level of reimbursement for a group of pharmaceuticals. Price setting in the German market is especially relevant for many European countries, which use Germany as a reference country for their own price setting. METHODS: We evaluate pharmaceutical price dynamics for not reference priced pharmaceuticals (NRPs) as well as for reference priced pharmaceuticals (RPs) in Germany-referring to the internal reference price system. 64,862 medication packs have been extracted from the German pharmaceutical pricing register Lauer-Taxe. For each pack, we extracted detailed data on the company, manufacturer rebates, pharmacy retail prices, reference prices, co-payments, import quotas, and discount agreements. We then investigated price setting and dynamics of NRPs vs. RPs for all 14 indication areas by ATC code level 1. RESULTS: The average manufacturer price per pack was 604.84€ for NRPs and 112.11€ for RPs. Similar differences were found for the wholesale price and the pharmacy retail price. The reference price was-as expected-0.00€ for NRPs, and 154.40€ for RPs. NRP packs were imported in 42.38%, while RP packs were imported only in 24.62%. Highest average pharmacy retail prices could be found in the therapeutic areas 'antineoplastic and immunomodulating agents' (1711.47€), 'systemic hormonal preparations' (1331.95€), and 'blood and blood forming organs' (1260.58€). We detected high fluctuations in pharmacy retail prices per indication, as well as for reference prices per indication. The indications with the highest number of reference price regulated medical packs are 'cardiovascular system', 'musculo-skeletal system', and 'nervous system'. Highest co-payments were found in the indications 'antineoplastic and immunomodulating agents', 'blood and blood forming organs', and 'antiinfectives for systemic use'. CONCLUSION: Price setting and price dynamics vary substantially between NRP and RP medication packs. Further, we saw major differences across all indication areas as well as when comparing medication packs launched by top 20 pharma companies vs. the rest.