Reducing the High Cost of Drugs

A Bipartisan Policy Center (BPC) report released October 22, 2019 makes the case for U.S policymakers to consider two ways to reduce the high cost of medications by using external and internal reference pricing.

External reference pricing would use international prices as a benchmark to set or negotiate the price of drugs in the U.S., would focus largely on single-source band name drugs or biological products without therapeutic or generic competition.

Internal reference pricing which could be used in various scenarios to ensure that therapeutically equivalent drugs are priced similarly, would encourage the use of the least costly alternative therapy.

“Both tools are commonly used abroad to address the high cost of drugs,” reports BPC Chief Medical Advisor Anand Parekh, MD, the lead author of the report. “Conversely, experts and officials in the U.S have only recently proposed external reference pricing here while internal reference pricing has only been used in a limited manner.”

BPC’s report titled Examining Two Approaches to U.S. Drug Pricing, says that the studies generally demonstrate that external and internal reference pricing may lead to lower drug prices and expenditures. The report suggests that HHS should apply lessons learned and best practices from other countries and consider implementing a pilot program using external reference pricing for a subset of Medicare Part B or D single-source brand name drugs or biologics that are relatively expensive and face limited or no competition.

The report also proposes a number of ways to implement internal reference pricing for pharmaceuticals more systematically in the U.S by encouraging policymakers to consider several specific efforts to catalyze assessments of therapeutic equivalency.

“To be sure, reference pricing alone is not a panacea and will not address all the affordability and accessibility challenges in the pharmaceutical sector, says Parekh, “However, in the right setting focused on the most appropriate drugs, and in combination with additional pricing and reimbursement approaches, it could make a significant impact”

Go to to view the report.

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