Study led by UC Berkeley professor shows impact of reference pricing on prescriptions

Josh Kahen/Staff

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A study led by a UC Berkeley professor found that under the economic incentives provided by reference pricing, patients switch to lower-priced prescriptions and save money for themselves and their employers.

According to the study’s lead author and School of Public Health professor James Robinson, reference pricing is used by insurance companies and employers, where employers pay up to the price of one of the more inexpensive drugs available. Patients may either opt for lower-priced prescriptions and minimize their co-payment or choose a more expensive medication and pay the difference between the drug’s price and their employer’s contribution.

“Our algorithms are able to identify lower-cost therapeutically equivalent drugs,” said ActiveRADAR CEO David Henka. “It’s a great way to get a hold of out of control health care costs.”

The data for the study was provided by ActiveRADAR, Henka said.

The study focused on working-age people in the United States who are insured through the Reta Trust as employees of Catholic organizations, and researchers examined the prices paid for prescriptions after implementing reference pricing, according to Robinson.

This study continues a previous study that examined the impact of reference pricing and follows the same population over a longer period of time, according to Robinson. He added that the second study’s major findings showed more patients switching to a lower-priced prescription than the shorter-term study did.

“When given the chance to share in the picking of the cheaper drug, who’s the loser? The drug companies that had higher-priced drugs,” Robinson said. “It’s a win-win for the employer and the employee.”

Reference pricing gives employees an incentive to pick a cheaper drug, according to Robinson, who added that it is commonly used in other countries. Robinson said that in the U.S., many patients do not have the choice to pay for lower-priced prescriptions.

Reference pricing also makes consumers aware of their options and provides transparency to drug pricing, according to Henka. He added that most patients and prescribers know the cost of their co-payment but not the cost of their medication.

“Most employers delegate the managing of their drug benefits to insurance company intermediaries, and the intermediary insurers don’t like this for various reasons,” Robinson said.

The medications used under ActiveRADAR’s reference pricing model are “non-specialty drugs” that are prescribed for common illnesses, such as high cholesterol and diabetes, according to Henka. He added that all of ActiveRADAR’s therapeutically interchangeable medications are clinically reviewed by both pharmacists and medical professionals annually.

According to Robinson, at least 75 different classes of drugs were used in the study, with about 1,300 individual drugs being compared.

“It brings to the forefront trying to keep healthcare affordable and acceptable to people who are currently uninsured or uncovered,” Henka said.

Contact Maya Akkaraju at [email protected] and follow her on Twitter at @maya_akkaraju.