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New BPC Report: Two Promising Ways to Curb High Cost of Drugs

Washington, DC — A new Bipartisan Policy Center (BPC) report released today makes the case for U.S. policymakers to consider two ways to reduce the high cost of medications: external and internal reference pricing. External reference pricing, which would use international prices as a benchmark to set or negotiate the price of drugs in the U.S., focuses largely on single-source brand-name drugs or biological products without therapeutic or generic competition. Internal reference pricing, which could be used in various scenarios to ensure that therapeutically equivalent drugs are priced similarly, encourages the use of the least costly alternative therapy.

“Both tools are commonly used abroad to address the high cost of drugs,” says BPC Chief Medical Advisor Anand Parekh, MD, the lead author of the report. “Conversely, experts and officials in the United States have only recently proposed external reference pricing here while internal reference pricing has only been used in a limited manner.”

BPC’s report, entitled Examining Two Approaches to U.S. Drug Pricing, says studies generally demonstrate that external and internal reference pricing may lead to lower drug prices and expenditures. It suggests the U.S. Department of Health and Human Services (HHS) apply lessons learned and best practices from other countries and consider implementing a pilot program using external reference pricing for a subset of Medicare Part B or D single-source brand-name drugs or biologics that are relatively expensive and face limited to no competition.

It also proposes a number of ways to implement internal reference pricing for pharmaceuticals more systematically in the U.S. by encouraging policymakers to consider several specific efforts which would catalyze assessments of therapeutic equivalency.

“To be sure, reference pricing alone is not a panacea and will not address all the affordability and accessibility challenges in the pharmaceutical sector,” says Parekh. “However, in the right setting, focused on the most appropriate drugs, and in combination with additional pricing and reimbursement approaches, it could make a significant impact.”