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International Reference Pricing, US Style


President Trump's International Pricing Index proposals amount to international reference pricing (IRP), something that countries in Europe have been doing for years. Leela Barham asks, What lessons can be learned from there?

President Trump has had big pharma in his sights for some time. As his presidency continues, more has emerged about the administrations plans to tackle an industry that Trump has suggested has gotten away with murder. The latest proposals - an International Pricing Index - amount to international reference pricing (IRP). IRP is something that countries in Europe have been doing for years, so what lessons are there?

US international reference pricing proposals

Trump announced in October 2018 that Medicare could pay for some prescription drugs based on prices paid in other industrialized countries. Trump is credited with pointing out that basing prices to be paid via a state funded purchaser would be "revolutionary". That’s not the case, with European countries using the prices paid by their peers for years, although the moniker used to describe it can vary, popular is using the moniker External Reference Pricing (ERP).

For US IRP, a demonstration project will be run through the Center for Medicare and Medicaid Innovation, created under the Affordable Care Act. The Trump proposals are not going to take effect until late 2019, or early 2020.

While the full details aren’t yet agreed – there is a window of time allowing people to comment on the proposals – there is already discussion of which countries could be in the basket for price comparisons. They could be the full set of countries that were looked at in a comparison of US and international prices for top Medicare Part B drugs, a government funded report that illustrated just how different prices can be in other countries for a selection of drugs. That list included Austria, Belgium, Canada, Czech Republic, Finland, Grance, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden and the UK.

DRG, a market access consultancy, speculate based on their experience, that the reference countries could be Germany, the UK, Canada, France and Japan. There are some circularities that could be introduced with some of these countries; for example, Japan already references US prices in it’s own IRP. There are also some issues with the price taken into account for IRP; secret discounts are common in the UK for example. Plus no small matter of the timing of the comparison; companies can set their price freely for the first year in Germany, but the price may change following a review and price negotiation after that first year; that’s if there is still a German price. Some companies have chosen to withdraw their product rather than take a far lower price implied by comparisons to generics.

International reference pricing in Europe

29 countries in Europe have IRP in place. That’s where the similarities ends  though; the countries in the reference basket differ, and the price used to inform their own countries price may be the lowest in the basket or an average. It amounts to a pick-and-mix approach and it can change as and when policymakers and payers decide to tweak the system.

There is a wealth of research that looks at what the impact has been of IRP in Europe, some has specifically looked at what IRP could mean for the US based on experience in other countries, concluding it could be a useful policy. There is also research that illustrates perversity in the policy: countries with lower GDP seem to pay more than those countries with higher GDP in a study that looked at IRP and orphan drugs, adjusting for a number of affordability factors.

All the research inevitably has to look back to explore the impact of IRP. Things move on though. In today’s European market place for drugs, there is no small matter of the difficulty of using real prices in an IRP system. List prices are just that; on a list. Transaction prices aren’t on a public list. Transaction prices are influenced by a host of complexities in a specific market, not least of which is the option to strike deals – called patient access schemes, managed entry agreements plus other labels – where a confidential discount is agreed. So much so, that some had predicted the demise of IRP in Europe. Instead, value-based pricing (VBP) would take over.

Getting the least-worst version of IRP

Experience in Europe has led to the development of principles in using IRP. They include applying to on-patent medicines, not those with generic alternatives as well as seen in the broader, international context to avoid logic inconsistencies as well as different abilities to pay. Predictably industry has been quick to criticize the proposals; engaging and applying lessons from Europe could achieve the least-worst of the IRP options open to the US.

Leela Barham is a freelance health economist and policy expert. You can reach her on leels@btinternet.com. She is providing input as a subject matter expert into medicines pricing policy development with a UK government client and for the duration of her involvement in that project, she is restricted on what she can write about.


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