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New Flare-Up in Europe's External Reference Pricing Debate

Pharmaceutical ExecutivePharmaceutical Executive-05-01-2019
Volume 39
Issue 5

European industry fights over every inch on comparative drug pricing initiative.

The battles over drug pricing are getting ever more acute, with threats of renewed pressures on the pharmaceutical industry from the World Health Organization’s upcoming annual meeting in late May adding to the anxieties raised by the prospect of a pincer movement by President Trump and the Democratic majority in the House in the United States.

Europe has its own specific concerns. The Italian health minister is pushing a tough amendment to the WHO’s  already hostile draft resolution on pricing and transparency, and numerous European civil society groups orchestrated powerful denunciations of industry practice at a WHO meeting on the subject in Johannesburg last month. 

The agenda of the April meeting of European health ministers in Bucharest was virtually hijacked by discussions of the cost of innovative medicines, and as the statement after the meeting confirmed, “EU health ministers were invited to exchange views on actions taken at national level, with the possibility that some of these actions could be implemented at EU level.”

Meanwhile, the longstanding controversy over external reference pricing (ERP) was reignited by an unprecedented meeting in Brussels in mid-April that brought together national pricing authorities with drug companies, patients, payers, physicians, and civil society. A decade ago, national authorities conceived a scheme known as Euripid to boost their negotiating powers with pharmaceutical manufacturers by exchanging pricing information among themselves, so they could make clearer comparisons between what is being paid in each of the countries of Europe. 

ERP guidance

The latest stage in this controversial process is the creation of a platform involving all the relevant players, to oversee the implementation of guidelines on how to make ERP work, and to explore how to get even closer to tackle high drug prices. Industry has reluctantly agreed to be involved-mainly on the principle that it is better to be at the table than on the table.

The guidelines, drawn up over the last three years, and published only last July, offer advice to national authorities on how to make the best use of ERP so as to get the best value for money from their drug budgets.

ERP has been widely used in Europe for decades as a way of controlling prices-essentially by fixing a national price only after seeing how much other countries are paying for the product and aiming for something a bit cheaper. It has also been widely criticized by  pharmaceutical companies as risking an arbitrary downward spiral of prices. And it has fallen into some disrepute for hindering drug access-since organizations tend to delay launch of products in countries with the lowest prices, to counteract the downward pressure in price-comparison baskets. 

It has also been seen as obsolescent, since the official list prices of therapeutics in its database are no longer the reliable reference they were years ago before pricing practice became complicated by discounts and managed entry agreements-in which the real price remains confidential.

Industry input

The industry has not been successful in preventing the creation of the Euripid guidelines to ERP, but it has been moderately successful in nuancing them, by energetic input during the drafting phase. Just how successful can be seen from comparing some of that input with the final version now published.

Industry underlined the need for greater realism in the Euripid text-and for a recognition that ERP has shortcomings. It urged acceptance that ERP should be used only as a supportive policy for price setting and not as the sole or main pricing criterion, warning that ERP has “unintended consequences…that the guidance document prefers to simply ignore.”

Similarly, it criticized Euripid for offering “no recognition in the document of the role of price differentiation across countries in supporting patient access,” invoking concepts of “Europe-wide solidarity” for differentiated pricing to help solve health inequalities, through wealthier nations agreeing to pay “a price reflecting the value of innovative medicines and resist the short-term static gains to be had from arbitrage or referencing low price markets.”

And the guidance defended the confidentiality agreements on discounted prices as providing medicines for patient groups who would not otherwise be able to afford them, but at the same time ensuring that “medicines specifically provided at lower prices for these markets are not be diverted to more affluent populations for which they were not intended.”

Industry also urged formal limitations to ERP so that it “should not apply to in-patient or hospital medicines,” nor to off-patent medicines, and insisted that “the core principle of ERP should only be applied to official listed public prices.”

The value argument

At the heart of the industry argument was a resumé of the industry’s case for its value-based pricing policy-a policy invariably depicted by critics as merely “charging whatever the market will bear.” The industry position is more complicated, and emphasizes that the price of a medicine is based on the value it brings to patients, healthcare systems, and society, while providing appropriate incentives for companies to invest in new therapy development. 

It states: “Pharmaceutical companies take a look at a number of factors when pricing drugs including the level of innovation, the availability of other medicines to treat the same condition, the level of added benefit over existing treatments, and induced changes to the care pathway like reductions in hospitalization or the need for surgery or other procedures. All these factors are taken into account by companies in setting a price, that is then subject to rigorous value-assessments and negotiations with healthcare systems.”

Transparency ‘net’

These industry efforts have attenuated the likely impact of the guidelines by winning some modifications to the final text. Now the industry faces an even more challenging task: pushing back against Euripid’s ambitions to shift its focus from list prices to net prices. Industry-and many national authorities who benefit from confidential discounts-are resistant to the untrammeled transparency that more radical players are seeking. 

If they are forced to disclose net prices, drug manufacturers say they will stop granting discounts and provide their products only at list prices. And pricing authorities who currently obtain discounts in return for confidentiality agreements say they will not be able to afford the acquisition of expensive treatments if they are

available only at list prices. 

This will be the principal battleground of the next year in Europe. Transparency advocates will be reinforced by the emergent regional cooperations on drug pricing-such as the Beneluxa Initiative or the Valletta Group-as they mature into functioning alliances determined to weaken the negotiating power of drug companies. And the slogans of transparency are likely to win new converts in the more radical European Parliament expected to emerge from the elections this month.

Clamor just building

Some health activists are already claiming it’s “game over” for the European pharma industry’s secrecy on pricing. But international strains on pricing in the US and at WHO are likely to make Europe’s drug industry determined more than ever to preserve Europe’s relatively benign pricing system. 

That case for the value-based approach to pricing is going to be heard a lot more in the coming months.  


Reflector is Pharmaceutical Executive’s correspondent in Brussels