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Letters

Pricing Drugs

With valuable insight, Panos Kanavos and Uwe Reinhardt (May/June 03) use behavioral economics to hypothesize that reference pricing might signal relative value to patients and prescribers, whatever the accuracy of a formulary committee’s judgment. Neoclassical economics also tells us that reference pricing will lead to underuse of a restricted drug. Because reference pricing charges zero for the reference drug and a 100 percent copayment for the difference in price between a restricted drug and the reference drug, it distorts relative marginal prices against the restricted drug, whereas coinsurance or tiered copayments do not.

John R. Graham

Fraser Institute Vancouver, British Columbia

NOTE

1. J.R.Graham, "The Fantasy of Reference Pricing and the Promise of Choice in BC’s Pharmacare," Public Policy Sources no. 66 (Vancouver: Fraser Institute, 2002).

Claims that British Columbia’s reference drug program was not successful are spurious and misleading. The program is perhaps the most thoroughly studied drug reimbursement policy in Canada, and independent evaluations show that it produced considerable savings without undue harm to patients or the health care system.¹ Although the reference drug program cannot take all of the credit, only two of nine other provinces have experienced slower drug cost growth since it was implemented in British Columbia. Per capita prescription drug spending in the province grew $155 (78.7 percent) from 1995 to 2002, well below the $212 (84 percent) national increase.²

The jury is in on referencing: It works. By charging patients the marginal cost between products with, at best, marginal differences, referencing controls the impact of "me-too" drugs that have long been a source of unnecessary cost escalation.³ Of course, because drug cost escalation represents revenue growth for manufacturers, firms vigorously oppose referencing or any other policy that does more than shift ever-escalating costs to patients.

The influence of drugmakers is considerable. Although some direct pressure is placed on civil servants, Graham’s concern about formulary committee judgments portends a more common form of capture—that of clinical and economic experts by the pharmaceutical industry.⁴ Well-intentioned policymakers, like prescribers and patients, are greatly influenced by experts’ claims. Owing to the often enigmatic nature of clinical and policy "evidence," expert opinion is influential even when spurious or misleading. Manufacturers are well aware of this, which is why so many experts find themselves beholden to firms that "sponsor" their work.⁵ The relationship between funding source and clinical trial conclusions is but one example of the effects of such capture.⁶ Thus, in addition to political will, Graham reminds us to add that prospects for pharmacare policies that promote affordable access to appropriate drug therapy hinge on the availability of truly independent experts who can critically evaluate products and policies. Alas, they are an endangered species.

Steven G. Morgan

University of British Columbia Vancouver, British Columbia

NOTES

1. P.V.Grootendorst et al., "Impact of Reference-Based Pricing of Nitrates on the Use and Costs of Anti-Anginal Drugs," Canadian Medical Association Journal 165, no. 8 (2001): 1011–1019; S.Schneeweiss et al., "Impact of Reference-Based Pricing for Angiotensin-Converting Enzyme Inhibitors on Drug Utilization," Canadian Medical Association Journal 166, no. 6 (2002): 737–745; [Abstract/Free Full Text]S.Schneeweiss et al., "Outcomes of Reference Pricing for Angiotensin-Converting-Enzyme Inhibitors," New England Journal of Medicine 346, no. 11 (2002): 822–829; [Abstract/Free Full Text]T.K.Hazlet and D.K. Blough, "Health Services Utilization with Reference Drug Pricing of Histamine(2) Receptor Antagonists in British Columbia Elderly," Medical Care 40, no. 8 (2002): 640–649[CrossRef][ISI][Medline]; and J.Esdaile et al., Report of the Reference Drug Program Consultation Panel to the Honourable Sindi Hawkins, Minister of Health Planning, British Columbia (Victoria, B.C.: Ministry of Health Planning, 2002).
2. Canadian Institute for Health Information, Drug Expenditures in Canada 1985–2002 (Ottawa: CIHI, 2003).
3. Canada Commission on Restrictive Trade Practices, ed., Report Concerning the Manufacture, Distribution, and Sale of Drugs (Ottawa: Department of Justice, 1963); Provision,Distribution,andCostofDrugsin Canada: Royal Commission on Health Services (Ottawa: Queen’s Printer, 1965); P.Temin, Taking Your Medicine: Drug Regulation in the United States (Cambridge, Mass.: Harvard University Press, 1980); and Report of the Commission of Inquiry on the Pharmaceutical Industry (Ottawa: Supply and Services Canada, 1985).
4. N.Brill-Edwards, "Canada’s Health Protection Branch: Whose Health, What Protection?" in Tales from the Other Drug Wars, ed. M. L. Barer et al. (Vancouver: Centre for Health Services and Policy Research, 1999), 39–54.
5. S.G.Morgan, M. Barer, and R. Evans, "Health Economists Meet the Fourth Tempter: Drug Dependency and Scientific Discourse," Health Economics 9, no. 8 (2000): 659–667.[CrossRef][ISI][Medline]
6. B.Als-Nielsen et al., "Association of Funding and Conclusions in Randomized Drug Trials," Journal of the American Medical Association 290, no. 7 (2003): 921–928.[Abstract/Free Full Text]

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