When anyone proposes reducing prescription drug prices — as Hillary Rodham Clinton and Bernie Sanders recently have — the most commonly heard criticism is that it would squelch innovation. But not all pharmaceutical innovation is valuable. Though some drugs are breakthroughs, some offer only marginal benefits at exorbitant cost.
There is a way to keep prices low while encouraging drug companies to innovate: Look to Europe and elsewhere, where drug prices are a fraction of those in the United States. Germany, Spain, Italy and a half dozen other countries have pushed drug prices lower with a system called reference pricing. It has led to drug price decreases and significant savings in the Canadian province of British Columbia as well as in Germany, Italy, Norway, Spain and Sweden. A study published in the American Journal of Managed Care found that price reductions ranged from 7 percent to 24 percent.
Here's how it works: Drugs are grouped into classes in which all drugs have identical or similar therapeutic effects. For example, all brands of ibuprofen would be in the same class because they contain the same active agent. The class could include other nonsteroidal anti-inflammatory agents like aspirin and naproxen because they are therapeutically similar. The insurer pays only one amount, called the reference price, for any drug in a class. A drug company can set the price of its drug higher, and if a consumer wants that one, he or she pays the difference.