To reduce utilization of pharmaceutical products, many countries have opted to use reference pricing. Reference pricing is a system where patient coinsurance payments depend not only on the price of the drug but also the price of alternatives therapies. As the name indicates, reference pricing sets patient coinsurance rates as the difference between the drug’s retail or list price and the price of the “reference” product. Often a reference product will be a generic version of a product, or the most cost-effective molecule available in a class. Patients pay some portion of the difference between the drug’s list price and the reference price.
For instance, consider the case where a Drug A $1000 per month, Drug R (the reference drug) costs $200, and patient coinsurance is 10% of any cost above the reference price. In this example, the patient would pay $80/month [i.e., (1000-200)*.1] for the more expensive drug.
Reference pricing is widely used around the world. After reference pricing was introduced in Germany in 1989, it spread quickly. By 2010, 24 out of 32 EU countries used pharmaceutical reference pricing alone or in combination with other pharmaceutical price regulation policies. (see Pharmaceutical Health Information System website)
Although reference pricing is not popular in the U.S., the motivation behind reference pricing does influence commercial insurers copayment rates. Commercial insurers will often place drugs into copayment tiers not only based on their cost and effectiveness but how these parameters vary relative to competitor therapies.
There are two types of reference pricing. External reference pricing sets the reference price as a function of prices of substitute products in other countries; internal reference pricing sets the reference price as a function of prices of domestic substitutes.
A paper by Kaiser et al. (2014) examines how reference pricing is used in Denmark.