NIHCR Policy Analysis No. 10
John F. Hoadley
Outpatient prescription drugs account for about 10 percent—$259 billion in 2010—of total U.S. health spending. Expiring patents on many of the most commonly prescribed drugs have helped slow the rate of spending growth in recent years, but drug spending is likely to accelerate again as new drugs come to market. Other developed countries typically pay much lower prices for brand-name drugs than the United States. However, health systems in other industrialized nations operate much differently than the U.S. system. While some approaches used in those nations may not easily translate here, other tools offer potential lessons in slowing prescription drug spending growth.
Two approaches from other national systems that could achieve savings in the United States are reference pricing, as used in Australia and elsewhere, and the application of comparative-effectiveness and cost-effectiveness research, as done in the United Kingdom. With appropriate modifications to fit the U.S. context, both approaches could increase the use of generic drugs and less-expensive brand-name drugs, helping to constrain spending growth. In particular, reference pricing—an approach where a payer sets payment for a group of similar drugs using a benchmark based on a lower-priced option—could increase consumer incentives to select less-expensive alternatives. Similarly, an approach that bases formulary placement and cost-sharing tiers on scientific assessments of the clinical value of competing drugs offers the potential both to increase acceptance of cost management by patients and physicians and to improve health outcomes.
This article is available at the National Institute for Health Care Reform Web site by clicking here.