Subscription Models for Prescription Drugs

The Motivation, Potential, and Limitations of a New Payment Model

by Harry H. Liu, Andrew W. Mulcahy, Adam J. Rose

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Some new prescription drugs—for example, the new generation of hepatitis C drugs initiated by introduction of Sovaldi and Harvoni—offer substantial improvements in health outcomes and reductions in future health care spending. However, new drugs offering significant benefits may have a large demand and thus the potential to strain the budgets of state Medicaid programs and other public payers, reserves of private payers, and resources of patients who pay out of pocket. Medicaid programs in Louisiana and Washington and federal programs in Australia have turned to a subscription model—instead of the more traditional negotiation of a per-unit price—as a way to pay for hepatitis C drugs.

It remains unclear whether the potential benefits of subscription models are specific to hepatitis C drugs for public payers or have broader potential. In this Perspective, the authors argue that, conceptually, the main advantage of subscription models over traditional prescription drug payment arrangements is that they could reduce some sources of uncertainty in spending for payers and in revenue for manufacturers. But compared with traditional prescription drug payment arrangements, the ability of subscription models to lower prescription drug spending is limited. Reducing uncertainty does not seem to have been the main driver of Louisiana's and Washington's use of a subscription model to purchase hepatitis C drugs. Instead, these states appear to have turned to subscription models to circumvent barriers to price negotiation imposed by the Medicaid Drug Rebate Program.

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This research was funded by Amgen Inc. and carried out within the Payment, Cost, and Coverage Program in RAND Health Care.

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