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How insurers, policymakers could drive value-based drug pricing

JAMA perspective piece says Medicare mandates not needed

In healthcare, prescription drugs are the only major product for which the producer is able to exercise relatively unrestrained pricing power, and the result is that drug prices in the U.S. are usually two to six times higher than prices for the same drugs in other major industrialized nations, according to a perspective piece published in the Journal of American Medical Association.

Several efforts in the U.S. are focused on determining prices for drugs that correspond with their value, write Peter B. Bach, M.D., and Steven D. Pearson, M.D. Currently, drug prices don't always reflect how effective they are at treating disease, while others do, and now that value-based prices can be determined for drugs, insurers and policymakers can consider steps toward a value-driven pricing system that does not require Medicare negotiation, price setting or mandates, they write. In fact, insurers and manufactures have recently been open to finding a mutual agreement about drug prices and their value.

For private payers, some of these steps include guaranteeing formulary exclusion in the first tier for drugs with value-driven prices as well as attaching a zero or nominal copayment. For Medicare, the authors suggest it could include value-priced drugs in all Part D formularies in the first tier and set Part B coinsurance at a low level for those types of drugs. 

Recently, both payers and providers in the U.S. have been trying to push drug manufactures toward a value-based system, which would link drug prices to results. And these efforts have precedent in other countries: Norway currently has a system that gives a drug its cost based on the patient's quality-adjusted life year, and it is working quite well, according to an article in the Wall Street Journal.

In today's industry, value-based drug pricing makes the most sense, Bach and Pearson write. "Until the 1950s, 1980s and late 1990s, hospitals, physicians, and nursing homes, respectively, were paid based on what they chose to charge," they note. "Since that time, they have all transitioned to payment models anchored to the attributes or components of the services they provide."

To learn more:
- here's the JAMA piece
- read the Wall Street Journal article

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