The effects of reference price systems

Since the first reference price system was implemented ten years ago, some studies have been per-formed to evaluate the effects of such a system. However, the assessment is still incomplete. Despite several years of implementation, there are still very few health outcome data related to drug utilization [10] nor is there as yet much research providing scientific evidence to evaluate the impact of such a system on various health outcomes [5]. A major initiative in this field has been undertaken by British Columbia province, in response to strong opposition to the system from the pharmaceutical industry,

British Columbia physicians and some other health care providers. An independent project for the Scien-tific Evaluation of the Reference Drug program has mandated studies from some leading US and Cana-dian research academic centers (Harvard University, MacMaster University, University of Washington).

One can however distill some conclusions from readily available facts, since the evolution of drug prices over given periods of time is well-documented. As a rule, pharmaceutical prices in the drug classes affected have adjusted to reference reimbursement price levels in European systems. Very rarely, com-panies have tried to maintain higher prices, but where they have done so, it has usually only been for a limited period. The scope of reference pricing is however generally limited to particular market segments (notably those with multiple similar products) and it is usually possible to observe that prices have gone up on other market segments. In Germany for example, drug prices in prescribing areas covered by the reference price system were over a given period reduced by 1.5%, while drug prices not covered by the system increased by 4.1% [9].

Some recent contributions to the field have assessed the impact of reference price systems on patient drug use and the use of other services. One series of epidemiological studies based on quasi-experimental designs, performed by the teams previously referred to, has begun to provide scientific evidence on the health outcomes of reference pricing. For instance, the Schneeweiss, Mclure and Soumerai study on ACE inhibitors [12] shows a 29% decline in the use of high-priced cost-sharing ACE inhibitors immediately after the policy implementation. After a transition period, the overall post-policy utilization rate of all ACE inhibitors was 11% lower than the projected pre-policy. Some discontinuation of such therapy was observed among low-income groups; however, according to the authors this did not appear to lead to a discontinuation of anti-hypertensive therapy as such. Switching patients to other anti-hypertensive drugs, under the influence of the reference price system, also led to a slight increase in use of physician services.

One of the reasons why no study of the impact of the system on drug exposure or health care utilization by patients has so far been carried out lies, especially in Europe, in legal constraints concerning privacy and the protection of individuals. There are for instance no cross-institutional links of administrative databases on drug utilization at the individual level [10]. In the British Columbia program, privacy is secured by encryption of data.

Even if the Canadian initiative and its collaborative work with US centres provide scientific evidence on health outcomes, there will still be little research and few assessments of the actual or potential impact of reference pricing (and consequent drug switching) on the appropriateness of the drug treatment which patients receive. The Thomas and Mann study [13] on the prescribing of statins in New Zealand may provide some evidence on the adverse effects of certain uses of products within this drug class.

In terms of the impact on health care expenditures, budgetary savings on drugs are generally attained within the classes covered by a reference pricing system (Germany, The Netherlands). As the impact on other services is not usually measured provided, it is not simple to estimate the effect on global health care budgets. In the case of ACE inhibitors in British Columbia, the saving on the drug budget far outweighed the increase in the cost of physician services. Drug budget savings amounted to Can$ 6.7 million and the policy led to a net saving of Can $6 million over 12 months. However, the budget savings achieved with reference pricing are considered to be relatively [4,6].

Reference pricing approaches have become increasingly popular among European countries, but the principle remains controversial. The main points of controversy are the objections to the system raised from an industry or clinical perspective, the definition of drug classes, the breadth of application of the system and the reimbursement level which will be sufficient to ensure continued availability of drugs (for instance in CCEE countries). In the first drug benefit programs that aimed to use generic competition in order to provide drug coverage at the best available price (e.g., Medicaid MAC program in the USA), the

concept of interchangeability between original brands and generic drugs having similar bioequivalence was applied. Reference pricing, however, may use concepts of interchangeability that go beyond generic substitution and may be more questionable from the point of view of industry, the physician or the patient. Issues of heterogeneity within drug classes and limitations on interchangeability have already been extensively discussed in the literature (see [14]). When applying reference pricing, decision makers have usually addressed such issues by increasing the number of drug classes (smaller groups) or by considering “safeguard mechanisms” or providing for exceptions. However, incremental approaches or experiments pursued by countries such as Spain or Canada aim to search for solutions in particular to the dilemma of balancing the need for innovation with the need to contain health care budgets.

Industry usually opposes reference pricing on the basis that it does not take into account the charac-teristics of incremental innovation in the drug discovery process as it relates to a drug class. Companies market their recently developed drugs with claims of unique advantages in order to justify a higher price and reimbursement level than the other products with which the authorities have sought to group them.

A reference price system may cause R&D resources to be diverted to therapeutic areas not covered by reference systems, as price setting in those categories is basically free.

Cliniciansorpatientsmay also question the grouping on drugs: physiological responses from individ-ual patients to “similar” drugs may be different, in term of qindivid-uality, absorption, indications, secondary effects, mode of preparation, application forms, the frequency of undesirable effects and contraindica-tions. Adequate information for health professionals and for patients can deal with this problem. Payers and health care organizations may also reconsider drug classes and the switching of drugs, since the use of one drug may require greater involvement of other health care resources (e.g., more physician visits) than the use of another; it may also affect the duration and extent of treatment, with direct and indirect consequences for the overall health care cost [3].

Views on reference pricing within governmental agencies, industry, the medical profession and patient groups are very diverse. Efforts to refine methods of grouping and product classification so as to render them as realistic as possible will therefore continue. Reference pricing is here to stay, and is extensively in use in many major drug markets; as it continues to evolve, its influence will certainly further expand.

References

[1] G. Brenner, Drug policy and control of drug expenditures in Germany, report prepared for the concerted action, Network for setting an evaluation team of control of drug expenditure in Europe, EIASM, Brussel, 1995.

[2] British Columbia Pharmacy Association, Position Statement, reference based pricing, British Columbia Pharmacy Asso-ciation, Richmond, 1996.

[3] J.R. Bult and Haaijer-Ruskamp, National report on drug policies in The Netherlands, Report prepared for the concerted action Network for setting an evaluation team of control of drug expenditures in Europe, EIASM, Brussel, 1995.

[4] P. Danzon and H. Liu, Reference pricing and physician drug budgets: The German experience in controlling pharmaceu-tical expenditures, working paper, Wharton School, Philadelphia, 1997.

[5] P. Grootendorst and A. Holbrook, Evaluating the impact of reference-based pricing,Canadian Medical Association Jour-nal(August 1999).

[6] G. Guiliani, G. Selke and L. Garattini, The German experience in reference pricing,Health Policy44(1998), 73–85.

[7] GVS (Dutch pharmaceutical products reimbursement system) explanatory notes, Dutch State Gazette, April 16, 1991.

[8] C. Huttin, La régulation des prix du médicament en Allemagne, document interne, Commission Européenne, DGIII, 1992.

[9] G. Lopez-Casanovas and J. Puig-Junoy, Review of the literature on reference pricing,Health Policy54(2) (2000), 87–123.

[10] S. Schneeweiss, O. Schoffski and G. Selke, What is Germany’s experience on reference based drug pricing and the etiology of adverse health outcome or substitution?,Health Policy44(1998), 253–260.

[11] S. Schneeweiss, M. Maclure and S.B. Soumerai, Effect of prescription duration on drug utilization trends after drug benefit changes in elderly: The case of reference pricing,J. Am. Geriatrics Soc.(2001) (forthcoming).

[12] S. Schneeweiss, S.B. Soumerai, R.J. Glynn, M. Maclure, C. Domuth and A.M. Walker, Impacts of reference pricing for ACE inhibitors on antihypertensive therapy,J. Can. Med. Assoc.(2001) (forthcoming).

[13] M. Thomas and J. Mann, Increased thrombotic vascular events after change of statins,Lancet352(1998), 1830–1831.

[14] J. Zammit-Lucia and R. DasGupta, Reference pricing. The European experience, Health Policy Review, paper N.10, St Mary’s Hospital Medical School, London, 1995.

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Chapter 9