Americans pay higher prices for drugs than people living in nearly all developed countries. Prices have become so high for name-brand drugs that many people simply cannot afford to buy their medications. A recent study conducted by researchers at UC Berkeley shows that reference pricing helps patients save on prescription drugs.
What Is Reference Pricing?
Reference pricing policies encourage people to spend less money on prescription drugs by setting an amount that their insurers or employers will contribute. Insurers and employers choose the cheapest generic option, called the reference drug, that has the same therapeutic benefits as its name-brand equivalent.
As long as patients choose the reference drug, they don’t pay any out-of-pocket costs. If they choose another option, though, they must cover the difference.
Since most generic drugs cost 80 percent to 85 percent less than brand-name versions, patients and insurers stand to save a lot of money by choosing them.
Does Reference Pricing Work?
The UC Berkeley study shows promising results for reference pricing. According to the paper, reference pricing contributed to:
- A 14 percent decrease in money spent on prescription drugs.
- A 7 percent increase in patients choosing low-price reference drugs.
- A 5 percent increase in consumer cost sharing.
When consumers have the opportunity to compare the prices of generic and name-brand drugs, most of them logically choose the cheaper option.
How Does Reference Pricing Lower Costs?
To some extent, reference pricing lowers costs because patients don’t want to spend money on prescription drugs. Since the insurance company or employer covers the entire cost of the generic drug, consumers don’t feel tempted to choose medications with higher prices.
Reference pricing also gives consumers more opportunities to think about what they’re buying. Drug prices can vary significantly from pharmacy to pharmacy, making it difficult for some people to comparison shop.
When insurance companies provide information about generic drug prices, it sets a standard for what consumers should expect to pay. A person who knows that a generic pill that costs $4 does the same job as a name-brand drug that costs $40 will typically choose the cheaper option. Once consumers have access to pricing information, they can make better decisions that lower costs for everyone.
Reference pricing may not eliminate high drug prices in the United States, but it gives insurers, employers and patients a useful tool that can help make medications more affordable.
