Developing a reference-based pricing strategy for your formulary - excerpt from 'PBM Formulary Strategies' by Tim Watson - Excerpt

Drug Cost Management Report, March, 2003 by Tim Watson

Figure 10. Timeline for Adoption of
Reference Pricing

Country                 Reference Pricing Introduced

Germany                             1989
The Netherlands                     1991
Sweden                              1993
Denmark                             1993
New Zealand                         1993
British Columbia                    1995
Australia                           1996
Italy                               1996
Spain                               2000

Source: Danzon PM. Reference Pricing: Theory and Evidence. May 22,
2001, page 1.

Figure 11. Example of Price Ranges
Within the PPI Category

Philosec                $143.96
Prevacid                $134.14
Aciphex                 $124.75
Nexium                  $123.29
Protonix                 $94.93
Generic Philosec         $86.38

Note: Table made from bar graph.

Figure 12. Baseline Data for PPI Category

             Market Share   Total Rxs   Avg Price/Rx   Total Cost

Aciphex                5%       1,500        $124.75     $187,125
Protonix               1%         300         $94.93      $28,479
Prevacid              36%      10,800        $134.14   $1,448,712
Nexium                 5%       1,500        $123.29     $184,935
Philosec              53%      15,900        $143.96   $2,288,964
                     100%      30,000                  $4,138,215

Figure 13. Scenario 1-Half of Prilosec Rx
Convert To Generic Omeprazole

              Market Share   Total Rxs   Avg Price / Rx   Total Cost

Aciphex                 5%       1,500          $124.75     $187,125
Protonix                1%         300           $94.93      $28,479
Prevacid               36%      10,800          $134.14   $1,448,712
Nexium                  5%       1,500          $123.29     $184,935
Prilosec               27%       7,950          $143.96   $1,144,482
Omeprazole             27%       7,950           $86.38     $686,721
Total                 100%                                $3,680,454

Figure 14. Scenario 2-Overall PPI
Utilization Shifts to Prilosec

                Market               Avg Price /
                 Share   Total Rxs            Rx     Total Cost

Aciphex             5%       1,500       $124.75        $187,125
Protonix           10%       3,000        $94.93        $284,790
Prevacid            5%       1,500       $134.14        $201,210
Nexium              0%        -             -            -
Prilosec           40%      12,000       $143.96      $1,727,520
Omeprazole         40%      12,000        $86.38      $1,036,560
Total             100%      30,000                 $3,437,205.00

Figure 15. Scenario 3-Impact of
Reference Price Set at Least Expensive
Branded Product

                Market               Avg Price /
                 Share   Total Rxs            Rx   Total Cost

Aciphex             5%       1,500        $94.93     $142,395
Protonix            1%         300        $94.93      $28,479
Prevacid           36%      10,800        $94.93   $1,025,244
Nexium              5%       1,500        $94.93     $142,395
Prilosec           27%       7,950        $94.93     $754,693
Omeprazole         27%       7,950        $94.93     $754,693
Total             100%      30,000                 $2,847,900

Figure 16. Scenario 4-Impact of
Reference Price Set at Least Expensive
Product (Generic)

               Market               Avg Price /
                Share   Total Rxs            Rx   Total Cost

Aciphex            5%       1,500        $86.38     $129,570
Protonix           1%         300        $86.38      $25,914
Prevacid          36%      10,800        $86.38     $932,904
Nexium             5%       1,500        $86.38     $129,570
Prilosec          27%       7,950        $86.38     $686,721
Omeprazole        27%       7,950        $86.38     $686,721
Total            100%      30,000                 $2,591,400

Figure 17. Impact of Reference Pricing
Strategies on Costs in PPI Class

Baseline           $4,138
Scenario 1         $3,680
Scenario 2         $3,437
Scenario 3         $2,847
Scenario 4         $2,591

Note: Table made from bar graph.