Overview

Newly introduced prescription drugs often are much more costly than existing treatments for the same condition. In the United States and elsewhere, a manufacturer must show that a new product is safe and effective before it can be marketed, but there is no requirement that a new drug be more effective than those it might replace. A number of public and private insurance programs have begun to restrict coverage of new drugs unless there is evidence that they improve health outcomes or achieve the same health outcomes as existing treatments at a lower cost. One system that has adopted this approach is the public PharmaCare program in the Canadian province of British Columbia; PharmaCare provides comprehensive drug coverage to elderly and low-income people and catastrophic coverage for all residents. PharmaCare requires manufacturers seeking coverage of a new drug to submit scientific evidence of the drug's benefits. In the absence of this evidence, the program may limit coverage in several ways. First, it may decline coverage altogether. Second, it may require that patients try other, less costly treatments first; use of the drug might be approved only if these other treatments failed. Third, it may cover the drug, but limit reimbursement to a "reference price"—the price of the least costly, equally effective alternative in the same class of drugs. A patient using a higher-cost drug will then pay any difference between its price and the reference price for the class. Studies of PharmaCare's approach have shown that it not only reduces costs for the public program, but may also yield savings for private payers, as physician modify their general prescribing practices in light of the program's policies.

For more information, see the article under Related Resources.