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Table 1 Ten policy options

From: Branded prescription drug spending: a framework to evaluate policy options

Policy Description Assumptions
Use of value-based pricing as a means for setting a fair price of new drugs [28] In this mechanism, the price of new drugs is set after their effectiveness is compared to other existing treatments for the same indication. Drugs that add significant therapeutic benefits (added value) would be entitled to a premium, where drugs that do not add significant value may be priced at the same levels as the similarly effective existing drugs Assumes that the premiums for drugs with added value are not as high as to offset the savings from drugs with no added value, but no assumption was made on the level of value accepted in the US.
Strengthening criteria for issuing and protecting patents [29] Patents are crucial for the drug industry to recoup the R&D investment by providing a drug both market and pricing power. However, the patent system can be manipulated with drug patents “evergreened” with minor reformulations or subtle changes to the technology. A policy that strengthens the criteria for issuing and protecting patents should reduce patent system manipulation by making it harder for company to receive a patent for a minor drug reformulation, thereby preventing a company perpetuating market protection and high drug prices. Assumes that it would make it harder for drugs that do not add significant value (for example me-too drugs or “evergreening” drugs) to enter the market altogether, or that the patents (or market exclusivity) for the non-beneficial drugs would be shorter.
Shift towards earlier approval, separate regulatory bodies (lethal vs. non-lethal diseases), simplified administrative and application details [30] The current regulatory system is designed to require drugs achieve high standards of safety and efficacy; however, these high standards come with a high cost associated with regulatory burden. This policy would take into consideration a drug’s target health condition and early trial attributes when developing a roadmap to regulatory approval. For example, drugs that target a high severity condition with limited treatment options could be granted approval or conditional approval with fewer required clinical trials. By reducing the regulatory burden for some drugs, this policy would lower the cost of drug development. Assumes the gains with expediting processes related to severe, life threatening treatments would be higher than the losses from delaying the approval processes for other non-severe, non-life threatening therapies.
Increasing regulatory thresholds so as to increase value of products upon market entry [31] The current regulatory system does not consider a drug’s comparative effectiveness in the approval process. A policy requiring consideration of a drug’s comparative effectiveness in the approval process increases the regulatory thresholds for drug to achieve approval, but it also limit market entry of drugs that offer no improvements in clinical effects to current drugs on the market. Currently, some drugs enter the market at high prices while offering no improvement in effectiveness. [32] Ineffective drugs do nothing to better patients care and only drive up drug costs. Assumes that it would make it harder for drugs that do not add significant value (for example me-too drugs or evergreening drugs) to enter the market altogether, or that the patents (or market exclusivity) for the non-beneficial drugs would be shorter.
Adopting episode-based payments for physician administered drugs in Medicare [15] Medicare currently reimburses physician-administered drugs using the ASP plus 6%. This reimbursement structure incentivizes physicians to administer drugs with the highest ASP since there profits are linear to the drug’s selling price. Researchers have advocated changing the reimbursement to episode-based payments, which incentive physicians to maximizing the clinical care within a set budget. Assumes that physicians will respond to the modified incentives by reducing the utilization of highly- expensive drugs and favoring other lower cost alternatives. Assumes there will be lower cost alternatives that can be used in order to control the expenditures.
Adopting value based insurance designs that alter coverage based on price, effectiveness, safety and other parameters [3336] Recognizing the potential that a formulary has on influencing prescribing and utilization behavior, a policy many researchers have the forward is to encourage wider adoption of value-based insurance designs. Fundamentally, a value-based insurance design uses formulary structure including co-pay, coinsurance, and deductibles to steer patients into choosing drugs that offer to patients the most value. Assumes that patients and providers will respond to the incentives by increasing the use of value drugs and decreasing the use of non-value drugs. It is possible that manufacturers may reduce prices in order to increase the value of their drugs.
Implementing risk-sharing contracts to ensure upside to pharmaceutical innovators and to protect payers against payments that do not return value to patients [37, 38] A justification for high drug prices is often a drug’s clinical benefit; however, there has to be skepticism on a new drug’s claimed clinical benefit since much of the clinical benefit data is sourced from phase 3 trials which have strict inclusion/exclusion criteria and do not consider a drug’s tolerability or ease of use. To adjust for the risk of a drug’s claimed clinical benefit, a proposed policy for is the use of a risk-sharing contract between a drug manufacturer and a payer that sets specified clinical outcome targets as required for payment. This protect payers against for paying for drugs that do not offer clinical value or whose clinical value is less than promised. Assumes risk-sharing contracts will promote utilization of drugs with hypothesized large clinical benefit in lieu of both lower cost drugs and the counterfactual that drugs with large clinical benefits would be automatically covered.
Empowering federal government to negotiate prices for Medicare, Medicaid, VA, PHS, DOD at one price [3941] Researchers have attributed high drug prices in part due to the inability of some major payors to negotiate drug prices. Researchers have suggested changes, including legislative changes, to allow the government purchasers of drugs, representing millions of patients, the ability to collectively negotiate prices using, for example, collective negotiation across the five big government purchasers and pharmacy benefit management tactics such as formulary exclusivity. Assumes manufacturers will respond to the price negotiations with lowering the prices of their products. It is possible that prices will have different levels of decline across the multiple government programs.
Allow drug coupons only for branded drugs with no generic competitor or require disclosure of costs of drugs or alternative treatments [42] While pharmaceutical companies offering drug coupons to patients appears benign on the face, drug coupons break-down the existing economic incentives that steer patients to potentially lower-priced or higher value drugs. Drug coupons are provided to patients, essentially reimbursing the patient for any cost-sharing. However, cost-sharing is one of the few tools that insurers used to steer patients to lower-priced or higher value drugs. Assumes that physicians and patients will be sensitive to the price information and will choose to reduce utilization of a more expensive drug if there is a cheaper, similarly effective alternative. Assumes that removing drug coupons from drugs with generic alternative will spur competition and reduce prices.
Incorporating price information into clinical workflow to increase clinician and patient cost sensitivity [29, 43] Across all of healthcare, there are calls for increased price transparency. The US healthcare market is notoriously fragmented and the fragmentation allows for market distortions such as wide price variation for products or services even though the price of inputs is the same. Incorporating price information into clinical work flow is a way of improving price transparency, an improved price transparency has been suggested to lead to better healthcare decisions. Assumes that patients and providers will be sensitive to the price information disclosed. Assumes that the disclosed price information will be reflective of the true price for that patient, will be updated with sufficient frequency and will be available across the multiple insurers and government programs.