Assessing the Consequences of External Reference Pricing for Global Access to Medicines and Innovation: Economic Analysis and Policy Implications

Background: External reference pricing (ERP) is used to set pharmaceutical prices to improve affordability, but its application may have negative consequences on patient access—thus, equity—across countries and on global innovation. With the United States contemplating ERP, negative effects could be magnified. Our aim: identify and quantify some major consequences of ERP. Research design, methods: Besides relying on databases and ERP modelling, we developed a heart failure case study. 4-step approach: 1) review ERP policies; 2) establish worldwide “price corridor”; 3) quantify patient access and health outcomes impact by ERP; 4) estimate ERP impact on innovation.

Results: Our ERP referencing analysis highlights its perverse effects especially in lower-income countries. As counterstrategies to protect their revenues, manufacturers often implement tight list price corridors or launch avoidance/delays. Consequences include suboptimal patient access—hence, worse outcomes—illustrated by our case study: 500,000 + QALYs health loss. Additionally, the ensuing revenue reduction would likely cause innovation loss by one additional medicine that would have benefitted future patients.

Conclusion: This research provides key insights on potential unintentional consequences of medicine price setting by ERP worldwide and under a new proposal for the United States. Our results can inform stakeholder discussions to improve patient access to innovative medicines globally.

Pricing of in-patent pharmaceuticals in the Middle East and North Africa: Is external reference pricing implemented optimally?

In this paper we outline and compare pharmaceutical pricing policies for in-patent prescription pharmaceuticals with emphasis on external reference pricing (ERP) in eleven countries across the Middle East and North Africa (MENA) region and explore possible improvements in their pricing systems. Primary and secondary evidence was used to inform our analysis. Comparative analysis of ERP systems across countries followed an analytical framework distilling ERP into twelve salient features, while ERP system performance was benchmarked against a framework of best practice principles across (a) objectives and scope, (b) administration and operations, (c) methods used, and (d) implementation. Results suggest that ERP is the dominant pricing method for in-patent pharmaceuticals. Although several good practice cases were identified, none of the eleven countries satisfy all best practice principles. ERP basket sizes vary significantly and are commonly composed using geographical proximity and low-price countries as criteria. Nine countries do not use the mean or median prices, but resort to using the lowest. Exchange rate fluctuations are routinely used to arrive at price reductions in local currency. Significant opportunities exist for MENA countries to develop their ERP regimes to achieve greater compliance with best practice principles. Over the short-term, incremental changes could be implemented to several ERP salient features and can be achieved relatively easily, thereby enhancing the functionality and performance of national ERP systems. Countries in the region can also focus on the development of explicit value assessment systems, and minimize their dependence on ERP over the longer-term.

Using External Reference Pricing In Medicare Part D To Reduce Drug Price Differentials With Other Countries

Many countries use external reference pricing to help determine drug prices. However, external reference pricing has received little attention in the US-perhaps because the US is often the first adopter of drugs. External reference pricing could be used to set prices for drugs that were already established in the market. We compared the price differentials between the US and the UK, Japan, and Ontario (Canada) for single-source brand-name drugs that had been on the market for at least three years. We found that the prices averaged 3.2-4.1 times higher in the US after rebates were considered. The price differential for individual drugs varied from 1.3 to 70.1. The longer a drug remained on the market, the greater the differential. The estimated savings to Medicare Part D of adopting the average price of drugs in the reference countries was $72.9 billion in 2018. Medicare could use external reference pricing in Part D to improve affordability for patients.