6 global drug pricing policies and how they would affect US drug spending

The Pew Charitable Trusts recently assessed the policies other high-income countries use to manage prescription drug spending.

The report highlights six types of policies — used in European nations, Australia, Canada and Japan — and assesses how these policies may affect U.S. drug spending, if implemented.

1. External benchmarking uses a formula, which takes into account what other countries pay for a medication, to determine how much to pay for a drug. Researchers believe the strategy, which is commonly used in European health systems, could lead to short-term cost savings for Medicare. However, the efficacy of the policy could diminish overtime as drugmakers increase list prices globally and dole out more discounts and rebates under the table to disclose the true price of medications, according to the report.

2. Internal benchmarking entails setting the price of a drug based on the cost of clinically similar products, according to the report. Researchers believe this strategy could greatly reduce Medicare costs for drugs with comparable treatment alternatives.

3. Value-based benchmarking sets prices based on drugs' efficacy. Researchers think this system could lower the use of expensive drugs that offer few added benefits compared to similar treatments on the market.

4. Restriction of off-label use is a policy that prevents clinicians from prescribing drugs for purposes not approved by a regulatory agency. The restriction, which is used by health systems in Australia, Germany, and Japan, could achieve savings by limiting the use of drugs that have low-cost, safe alternatives already on the market. Researchers note it's unclear how the policy would affect health outcomes.

5. Payer-seller agreements, whichrequire payers to negotiate with drug companies for discounts and rebates, have proven beneficial at lowering drug spending in other countries. However, researchers believe the large amount of payers in the U.S. could limit negotiating power and prevent payers from earning significant discounts. Removing restrictions — like formulary requirements for Medicare, that limit payers' ability to negotiate, could increase savings, according to the report.

6. Declining coverage for medicines deemed unaffordable may lower drug costs, but the strategy would be met with significant sociocultural and legal barriers in the U.S., researchers said. While reimbursement decisions take into account drug costs when cheaper alternatives are on the market, there are not many ways to deny payment for a medication based solely on the cost of the drug, according to the report.

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