The effect of pricing policies for pharmaceuticals

Researchers in The Cochrane Collaboration conducted a review of the effect of reference pricing and other pricing policies for pharmaceuticals. In 2012, they searched for all relevant studies and finally included 18 studies. Their findings are summarised below.

What are reference pricing and other pricing policies for pharmaceuticals?

Large amounts of healthcare funds are spent on medicines and these amounts are increasing. Spending more on medicines could mean less money for other healthcare or non-health care services. Health insurers are therefore looking for ways of controlling the costs of medicines while still ensuring that patients get the medicines they need.

One approach that health insurers can use is reference pricing. Here insurers group together medicines that have the same active ingredients or that are used for the same purpose and are just as effective and safe. They then set a 'reference price' that they are willing to pay. If the patient chooses the 'reference medicine', his expenses will be paid. If he chooses a more expensive medicine he will have to pay the difference.

Another approach is index pricing. Again, insurers group together similar medicines. They then set an 'index price' that they refund to pharmacies each time they dispense a medicine from this group. As the pharmacy is refunded the same amount for any of the medicines in this group it is in their interest to dispense a medicine that costs less than the index price.

A number of other pricing policies also exist that aim to control medicine costs. It is assumed that these types of policies can lead patients to switch to cheaper medicines and can encourage medicine producers to lower their prices.

What happens when new payment policies are introduced?

Most of the studies focused on the effect of reference pricing. These studies looked at the impact of reference pricing one year after it was introduced. They showed that this policy may lead to:

- an increase in 'reference medicine' prescriptions and a decrease in prescriptions for more expensive medicines (low certainty of evidence);

- a decrease in the amount of money insurers spend on medicines overall (low certainty of evidence).

None of these studies looked at the effect of reference pricing on people’s health, their use of healthcare services, or adverse effects.

A summary of this review for policy-makers is available here

Authors' conclusions: 

The majority of the studies of pricing and purchasing policies that met our inclusion criteria evaluated reference pricing. We found that internal reference pricing may reduce expenditures in the short term by shifting drug use from cost share drugs to reference drugs. Reference pricing may reduce related expenditures with effects on reference drugs but the effect on expenditures of cost share drugs is uncertain. Reference pricing may increase the use of reference drugs and may reduce the use of cost share drugs. The analysis and reporting of the effects on patients' drug expenditures were limited in the included studies and administration costs were not reported. Reference pricing effects on health are uncertain due to lack of evidence. The effects of other purchasing and pricing policies are until now uncertain due to sparse evidence. However, index pricing may reduce the use of brand drugs, increase the use of generic drugs, and may also slightly reduce the price of the generic drug when compared with no intervention.

Read the full abstract...

Pharmaceuticals are important interventions that could improve people's health. Pharmaceutical pricing and purchasing policies are used as cost-containment measures to determine or affect the prices that are paid for drugs. Internal reference pricing establishes a benchmark or reference price within a country which is the maximum level of reimbursement for a group of drugs. Other policies include price controls, maximum prices, index pricing, price negotiations and volume-based pricing.


To determine the effects of pharmaceutical pricing and purchasing policies on health outcomes, healthcare utilisation, drug expenditures and drug use.

Search strategy: 

We searched the Cochrane Central Register of Controlled Trials (CENTRAL), part of The Cochrane Library (including the Effective Practice and Organisation of Care Group Register) (searched 22/10/2012); MEDLINE In-Process & Other Non-Indexed Citations and MEDLINE, Ovid (searched 22/10/2012); EconLit, ProQuest (searched 22/10/2012); PAIS International, ProQuest (searched 22/10/2012); World Wide Political Science Abstracts, ProQuest (searched 22/10/2012); INRUD Bibliography (searched 22/10/2012); Embase, Ovid (searched 14/12/2010); NHSEED, part of The Cochrane Library (searched 08/12/2010); LILACS, VHL (searched 14/12/2010); International Political Science Abstracts (IPSA), Ebsco (searched (17/12/2010); OpenSIGLE (searched 21/12/10); WHOLIS, WHO (searched 17/12/2010); World Bank (Documents and Reports) (searched 21/12/2010); Jolis (searched 09/10/2011); Global Jolis (searched 09/10/2011) ; OECD (searched 30/08/2005); OECD iLibrary (searched 30/08/2005); World Bank eLibrary (searched 21/12/2010); WHO - The Essential Drugs and Medicines web site (browsed 21/12/2010).

Selection criteria: 

Policies in this review were defined as laws; rules; financial and administrative orders made by governments, non-government organisations or private insurers. To be included a study had to include an objective measure of at least one of the following outcomes: drug use, healthcare utilisation and health outcomes or costs (expenditures); the study had to be a randomised trial, non-randomised trial, interrupted time series (ITS), repeated measures (RM) study or a controlled before-after study of a pharmaceutical pricing or purchasing policy for a large jurisdiction or system of care.

Data collection and analysis: 

Two review authors independently extracted data and assessed the risk of bias. Results were summarised in tables. There were too few comparisons with similar outcomes across studies to allow for meta-analysis or meaningful exploration of heterogeneity.

Main results: 

We included 18 studies (seven identified in the update): 17 of reference pricing, one of which also assessed maximum prices, and one of index pricing. None of the studies were trials. All included studies used ITS or RM analyses. The quality of the evidence was low or very low for all outcomes. Three reference pricing studies reported cumulative drug expenditures at one year after the transition period. Two studies reported the median relative insurer's cumulative expenditures, on both reference drugs and cost share drugs, of -18%, ranging from -36% to 3%. The third study reported relative insurer's cumulative expenditures on total market of -1.5%. Four reference pricing studies reported median relative insurer's expenditures on both reference drugs and cost share drugs of -10%, ranging from -53% to 4% at one year after the transition period. Four reference pricing studies reported a median relative change of 15% in reference drugs prescriptions at one year (range -14% to 166%). Three reference pricing studies reported a median relative change of -39% in cost share drugs prescriptions at one year (range -87% to -17%). One study of index pricing reported a relative change of 55% (95% CI 11% to 98%) in the use of generic drugs and -43% relative change (95% CI -67% to -18%) in brand drugs at six months after the transition period. The same study reported a price change of -5.3% and -1.1% for generic and brand drugs respectively six months after the start of the policy. One study of maximum prices reported a relative change in monthly sales volume of all statins of 21% (95% CI 19% to 24%) after one year of the introduction of this policy. Four studies reported effects on mortality and healthcare utilisation, however they were excluded because of study design limitations.