Importance of Identifying Lower-Cost Alternatives in the Market

David Henka, president and CEO of ActiveRADAR, an analytics organization that focuses in on drug pricing, discusses why reference pricing for therapeutic medication alternatives is important.  

Transcript:

Can you explain how employers, payers, and other purchasers can curb annual pharma spend by 20% by taking advantage of the lower cost alternatives in the marketplace without having to wait on any policy changes?

Great question. I think the most effective and most impactful way of doing this is by looking at a solution that has been adopted by many other countries, particularly in the European communities that looks at reference pricing for therapeutic equivalent medications.

Drugs that treat the same medical condition, and have the same therapeutic benefit, may be different chemical entities but have the same ability to provide a therapeutic benefit. Maybe the easiest example of this is that there are multiple drugs to treat high cholesterol.

The category is considered statins, using the same type of a drug that could lower your LDL cholesterol to the same degree. But there may be a variability in price, looking at that as the therapeutic equivalent, and setting the lowest cost drug as the reference price drug. The reference price drug would be the one that the plan sponsor, the payer, or the insurer would reimburse for, for payment.

In this case, the individual member has an option of asking their prescriber, "Hey, is it OK if I use this reference price drug, or is there a medical reason why I need to be on a different drug?" In this case, we're able to create a marketplace that creates not only transparency, but also the ability to control costs at a much better level.

Our (ActiveRADAR’s) reference pricing solution actually does lower pharmacy spend by between 20 and 25% for plan sponsors and employers. Health care costs are going to continue to increase well beyond the rate of inflation in the United States. I think that a careful student of health care spend, or somebody who is involved in purchasing or procuring benefits, needs to be proactive in their approach to help control costs.

There are several levers that can be pulled to help do this. One of which, and probably in my opinion the most important one, is looking at the different microclimates that exist within the health care space. If you have a diverse employee population that is spread across a large geography, the one consistent that you have is your pharmaceutical benefits.

Different economic climates exist within the health care space, whether it be hospital systems or medical groups in different geographies, but your pharmacy spend is consistent. The benefits are consistent, generally. The network is consistent, and the costs are consistent as well. It's an area of focus that can be easily addressed by looking at programs and systems to help control your health care spend.

Reference pricing is a solution that is gaining traction, and that is being adopted widely by not only health plans and large purchasers, but it's also been vetted both academically in peer-reviewed articles that look at reference pricing as an opportunity to address high cost health care spends and an opportunity to address your overall trend in health care spending.