Nav: Home

External reference drug pricing could save Medicare tens of billions

May 06, 2019

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 will be 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."
-end-
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.

Johns Hopkins University Bloomberg School of Public Health

Related Prescription Drugs Articles:

Codeine misuse in Australia reduced by prescription-only changes
The move to prescription-only codeine in Australia has seen a 50 percent reduction in the monthly rate of codeine-related poisoning calls and halved codeine sales, finds new research led by the University of Sydney.
Nearly 1 in 3 patients with lupus use prescription opioids for pain
A new study finds nearly one in three adults with lupus use prescription opioids to manage pain, despite a lack of evidence that opioids are effective for reducing pain from rheumatic diseases.
Negotiation: A three-step solution to affordable prescription drugs
Criteria are offered by Harvard University and George Mason University experts for Medicare to negotiate drug prices and prioritize specific drugs for maximum savings.
Prescription drug monitoring program mandates
States that require prescribers to register with and use prescription drug monitoring programs in most clinical circumstances saw notably fewer opioid prescriptions and reduced opioid-related hospital use by Medicaid patients compared to states with weak or no drug monitoring program mandates, according to a new study from investigators at Weill Cornell Medicine.
One-third of pre-approved prescription drugs have not completed the FDA approval process
The Food and Drug Administration's (FDA) Accelerated Approval Program was created in 1992 to significantly accelerate the ability to bring certain new drugs to market.
About 44% of high school seniors who misuse prescription drugs have multiple drug sources
Roughly 11% of high school seniors reported prescription drug misuse during the past year, and of those, 44% used multiple supply sources, according to a pair of University of Michigan studies.
Exercise: Psych patients' new primary prescription
A new study advocates for exercise as the primary method of treatment and intervention, rather than psychotropic medications, within inpatient psychiatric facilities.
UK sales of Xanax and other prescription psychiatric drugs increasing via the darknet
Sales of prescription psychiatric drugs such as Xanax and diazepam via darknet online drug markets have increased in the UK at an alarming rate, according to new research by the University of Kent and King's College London.
Older people are more likely to have an inappropriate prescription after hospitalization
A new study has found that older patients who were hospitalised were 72 percent more likely to be given a potentially inappropriate prescription after their hospital admission, independent of other patient factors.
Poorest Americans most likely to have used prescription opioids
Among older Americans, the poorest are the most likely to have used prescription opioids, according to a University at Buffalo study providing new insights into unexplored contours of the opioid crisis.
More Prescription Drugs News and Prescription Drugs Current Events

Best Science Podcasts 2019

We have hand picked the best science podcasts for 2019. Sit back and enjoy new science podcasts updated daily from your favorite science news services and scientists.
Now Playing: TED Radio Hour

Rethinking Anger
Anger is universal and complex: it can be quiet, festering, justified, vengeful, and destructive. This hour, TED speakers explore the many sides of anger, why we need it, and who's allowed to feel it. Guests include psychologists Ryan Martin and Russell Kolts, writer Soraya Chemaly, former talk radio host Lisa Fritsch, and business professor Dan Moshavi.
Now Playing: Science for the People

#538 Nobels and Astrophysics
This week we start with this year's physics Nobel Prize awarded to Jim Peebles, Michel Mayor, and Didier Queloz and finish with a discussion of the Nobel Prizes as a way to award and highlight important science. Are they still relevant? When science breakthroughs are built on the backs of hundreds -- and sometimes thousands -- of people's hard work, how do you pick just three to highlight? Join host Rachelle Saunders and astrophysicist, author, and science communicator Ethan Siegel for their chat about astrophysics and Nobel Prizes.