Consider reference pricing to counter copay discount programs

In case you don't know the specifics about the problems with co-payment discount programs here's an example of how manufacturers can bypass the limits of your non-preferred formulary tier.


Coupons for Patients, but Higher Bills for Insurers

• Solodyn (once-daily minocycline) cost per month:  $700
• Non-preferred co-payment:  $50
• Patient pay after manufacturer discount:  $20
• Plan pays:  $650

Twice a day minocycline costs less than $40.  The patient pays the $10 generic co-payment and the plan pays $30.



Consider using reference pricing.  How does this work?  You could set the reference price for all forms of minocycline at $40.  Patients that receive generic minocycline only pay their $10 co-payment and the plan pays the $30.

If the patient gets Solodyn they would pay the $10 generic co-payment PLUS the difference in cost between the drugs.  That would create a co-payment of $10 plus ($700-$40) which equals $670.  The plan pays the $30 regardless of whether they get generic minocycline or Solodyn.  The manufacturer would be unlikely to pick up the difference.

Manufacturers typically offer these programs only for high-cost brand-name medications that have equally or more effective competing medications at much lower prices.

Click this link for an idea of the scope of this problem.

Update:  11/20/12
New AJMC article:  A Systematic Review of Reference Pricing: Implications for US Prescription Drug Spending

Key extract:
"Alternatively, reference pricing could be embedded in tiered formularies. For example, in contrast to placing all generic products in the lowest tier of incentive formularies as is currently practiced, 1 generic product in each therapeutic class could be set as the referent drug and the prices of other generics set according to this. For brand name products, reference pricing could be used to set the same price for multiple products in the same therapeutic class. Currently, preferred prices are set through negotiations between pharmacy benefit management and manufacturers and only 1 brand name product in each class has preferred status. By setting a fixed level of reimbursement, more than 1 product may effectively obtain preferred status, making the prices more competitive and increasing the transparency of the price negotiation and setting process. On the other hand, this process may eliminate incentives for manufacturers to provide pharmacy benefit managers with discounts in exchange for preferred formulary status, and thus the application of reference pricing to brand-name products may have unclear implications for pricing."