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"Reference Pricing" and "GoodRx": making progress on prices

Posted by John McDonough  June 24, 2013 10:45 PM

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So many articles and exposes have appeared over the past year since Stephen Brill's powerful Time Magazine "Bitter Pill" tome on the pricing disparities everywhere in  U.S. medical care. The weakness of Brill's article was its idea deficit on what to do about it. Government price setting is one answer, widely used in most other nations, and politically impossible in the U.S.  Is there anything else other than huge point-of-service cost sharing by consumers in the form of co-payments, coinsurance, and deductibles?

Something else, called "reference pricing," is starting to take off, and it may just be the medicine that our broken medical care pricing system needs. Check out today's New York Times article to learn more about it.

What is "reference pricing?"

Let's say there are 10 cholesterol-lowering drugs on the market, ranging in price from $10 to $100, with a median price of $25 for the same number of pills. Your plan sponsor says to you: "We will pay 100% of the cost up to $25, and only $25 for any drug that costs more than that amount. You can buy any drug you want, though you will pay 100% of the cost for any medication over and above the $25 "reference price."

Widespread use of reference pricing for prescription drugs goes back to the 1990s in Canada and the European Union. In the U.S., drug "tiers" became more popular than reference prices, where consumers paid higher cost-sharing for more expensive classes of drugs.

As the Times article discusses, employer groups across the U.S. are now embracing reference pricing for medical procedures such as outpatient MRIs and CT Scans, giving consumers a strong incentive to shop around.

Depending on how it is structured, reference pricing can be benign and cost effective for consumers, and it can be done in ways that prevent consumers from getting the most effective treatments.

Since I first learned about reference pricing in the late 1990s, I have thought it to be a powerful and effective cost containment tool, and apparently growing numbers of employers are starting to agree. This is one trend I see growing.

And here's something else worth your attention:

GoodRx is a website that allows consumers to compare local prices for just about any prescription drug you can think of. This is not a site for employers or governments -- though they can help by pointing their enrollees in this direction. This is a site for consumers.

Pick a drug. OK, forgive me, I'll for go "propecia," the hair loss drug. Put in my zip code, and I caninstantly see which drug stores sell it and for how much. How does it add up? Take a look:

Walgreens: $36.11
Rite-Aid: $43.69
HealthWarehouse: $56.00
CVS Pharmacy: $71.99
Osco Drug: $76.10

These prices are for 30 tablets, and include information on side effects and a lot more.

I confess to long-standing skepticism about the power of consumers and the internet to meaningfully confront the crazy price disparities that are endemic to U.S. health care and that are non-existent in most other advanced nations.

Maybe there's more here than I appreciated.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »

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