External Reference Drug Pricing Could Save Medicare Tens of Billions

Authored by jhsph.edu and submitted by mvea

External Reference Drug Pricing Could Save Medicare Tens of Billions

Setting U.S. drug prices based on prices paid in other countries could also improve affordability for Medicare beneficiaries

A new study by researchers at the Johns Hopkins Bloomberg School of Public Health found that prices for brand-name prescription drugs averaged 3.2 to 4.1 times higher in the U.S. when compared with prices in the United Kingdom, Japan and the Canadian province of Ontario. The study also found that the longer the brand-name prescription drug was on the market, the greater the price differential.

If the Medicare program used the same prices as these other countries, the estimated savings to Medicare Part D would have been almost $73 billion in 2018 alone, the study found. Medicare Part D is an optional prescription drug benefit, available to Medicare beneficiaries for a premium and administered by private insurance companies.

The findings were published in the May issue of Health Affairs.

U.S. prescription drug prices for brand-name drugs are the highest in the world. One approach to lower U.S. prescription drug prices is to benchmark drug prices to those paid in other countries using a pricing model known as external reference pricing. An estimated 29 European countries as well as Australia, New Zealand, Brazil and South Africa use this approach for the purposes of setting and negotiating the price of a drug.

“Every year we pay more for brand-name drugs and other countries pay less for the same drugs,” says Gerard Anderson, PhD, professor in the Bloomberg School’s Department of Health Policy and Management and the paper’s senior author. “Medicare beneficiaries pay much higher prices for the same drugs that seniors in other countries pay. If they paid the same prices as other countries, their drug bills would drop considerably.”

The study examined drug prices of 79 single-source, brand-name prescription drugs that are under patent—meaning no generic versions are available—with the greatest spending on Medicare Part D in the United States. The study compares the prices to what is paid in Japan, the United Kingdom and the Canadian province of Ontario. The drugs covered by the study treat a range of illnesses including blood clotting, diabetes, with antivirals and immunosuppressants as well as other brand-name blockbuster drugs that had been on the market for at least three years. Researchers examined drug prices before and after rebates from drug manufacturers and calculated savings based on different assumptions. Pharmaceutical rebates are a type of refund of a purchase price from the drug manufacturer to a wholesaler or pharmacy benefits manager intended to increase sales and are often confidential.

Researchers selected the countries of comparison based on their similar per capita incomes, large pharmaceutical markets and their unique price-setting approaches. The U.K. sets drug prices by looking at the value of the drug, while Japan uses external reference pricing and has a formula that continually lowers the price and Canada uses a combination of benchmarking models.

They obtained foreign drug price information from public sources used by external reference pricing authorities. Domestic drug pricing and rebate information were obtained from published wholesaler acquisition costs and other public sources. Drug utilization information was obtained from Medicare Part D data to estimate the potential savings with various external reference pricing situations.

The study found that these 79 single-source, brand-name prescription drugs accounted for over half of total Medicare Part D spending in 2018. Before rebates, the findings show average drug prices in the U.S. were 4.3 times higher than prices in the U.K., and 3.8 and 3.4 times higher in Japan and Ontario, respectively. After rebates, the U.S. had average drug prices 3.6 times higher than the U.K., and 3.2 and 4.1 times higher than Japan and Ontario respectively.

The study also found large variations of drug prices for the same drug between the U.S. and the foreign counterparts. For some drugs the price was only 30 percent higher in the U.S., while other drugs were 7,000 percent more expensive in the U.S. Diabetes medications had the largest average price differential, 9 times more expensive in the U.S. than the same drug in the U.K. Injectable drugs were 11.5 times more expensive in the U.S. as compared to the U.K. and around 8 times higher than Japan and Ontario.

If these prices were adopted the Medicare program, Medicare beneficiaries would pay considerably less than they do today. In one scenario using external reference pricing, the researchers found that if the U.S. purchased the same drugs at the U.K. pre-rebate price, Medicare spending would have been reduced by more than 70 percent in 2018. In another scenario, researchers used the average price for drugs sold in two or more countries and found more than a 67 percent reduction.

“Ideally, the U.S. should be paying similar prices to other countries,” says Anderson. “In fact, Medicare beneficiaries and taxpayers are paying much more for the same drugs as other countries. Given that many Medicare beneficiaries cannot afford their drugs, this is a serious problem that does have a solution.”

This research was supported by Arnold Ventures.

“Using External Reference Pricing In Medicare Part D to Reduce Drug Price Differentials With Other Countries” was written by So-Yeon Kang, Michael J. DiStefano, Mariana P. Socal and Gerard F. Anderson.

Media contacts for the Johns Hopkins Bloomberg School of Public Health: Caitlin Hoffman at 410-955-7624 or [email protected] and Barbara Benham at 410-614-6029 or [email protected].

anser_one on May 9th, 2019 at 13:42 UTC »

Suddenly, Ontario was a country. I guess Quebec still has a chance after all...Maybe we could join Ontario?

bsnyc on May 9th, 2019 at 13:32 UTC »

Keep in mind that when Congress passed Part D in 2003, the law explicitly prohibited the Federal Government from using the monopsony power of the program to negotiate lower drug prices. So, reducing the prices for Medicare Part D would require Congressional action.

mvea on May 9th, 2019 at 10:56 UTC »

The title of the post is a copy and paste from the first two paragraphs of the linked academic press release here:

A new study by researchers at the Johns Hopkins Bloomberg School of Public Health found that prices for brand-name prescription drugs averaged 3.2 to 4.1 times higher in the U.S. when compared with prices in the United Kingdom, Japan and the Canadian province of Ontario.

If the Medicare program used the same prices as these other countries, the estimated savings to Medicare Part D would have been almost $73 billion in 2018 alone, the study found.

Journal Reference:

So-Yeon Kang, Michael J. DiStefano, Mariana P. Socal and Gerard F. Anderson.

Using External Reference Pricing In Medicare Part D to Reduce Drug Price Differentials With Other Countries.

Health Affairs, 2019

DOI: 10.1377/hlthaff.2018.05207

Link: https://www.healthaffairs.org/doi/10.1377/hlthaff.2018.05207

ABSTRACT

Many countries use external reference pricing to help determine drug prices. However, external reference pricing has received little attention in the US—perhaps because the US is often the first adopter of drugs. External reference pricing could be used to set prices for drugs that were already established in the market. We compared the price differentials between the US and the UK, Japan, and Ontario (Canada) for single-source brand-name drugs that had been on the market for at least three years. We found that the prices averaged 3.2–4.1 times higher in the US after rebates were considered. The price differential for individual drugs varied from 1.3 to 70.1. The longer a drug remained on the market, the greater the differential. The estimated savings to Medicare Part D of adopting the average price of drugs in the reference countries was $72.9 billion in 2018. Medicare could use external reference pricing in Part D to improve affordability for patients.