Recent legislative proposals, including US Senate Bill S.2543, US House of Representatives Bill H.R.3, and various Trump Administration proposals and plans, have advanced some form of international reference pricing (IRP) to lower drug prices.

With the pending infrastructure bill, inclusion of H.R.3 in the infrastructure package is high on the agenda for the house democrats. If implemented, H.R.3 would require the government to negotiate a “maximum fair price” for the most expensive drugs in Medicare Part D and anchor the negotiations with a target price that is the lowest price in Australia, Canada, France, Japan, Germany, or the United Kingdom. It also requires the maximum price not to exceed 120% of average price in those countries.

These IRP proposals have triggered wide-spread criticisms from various stakeholders. One main criticism of IRP is that it piggybacks on the Health Technology Assessment (HTA) processes from referenced countries thus imposing on US citizens the values of patients and health systems in other jurisdictions. For instance, by referencing the UK, the US government is inherently adopting the cost-effectiveness thresholds used by the National Institute of Health and Care Excellence (NICE), the HTA body in England and Wales.

Another main criticism pertaining to the US adoption of IRP, in particular, is as the largest pharmaceutical market in the world the implementation of IRP in the US will have massive implications on launch sequencing and global pricing strategies deployed by pharmaceutical firms, which will likely lead to increase of list and net prices of drugs in countries referenced by the US, and in countries that do not reference the US directly but reference those referenced by the US. Such impact will be more acutely felt by lower income countries in the form of both higher costs of and delayed access to innovative therapies as these countries typically lack robust HTA capabilities, tend to rely on IRP as their main pricing mechanism to piggyback on others’ HTA processes. Yet, lower income countries lack the bargaining power comparing to more advanced economies to influence the net prices of the drugs.

These arguments are theoretically sound, yet they downplayed three realities.

Lack of pricing transparency represents a major implementation hurdle to IRP

Lack of pricing transparency represents a significant hurdle to effectively implement IRP across markets. The prices that are available for countries to reference are most often ex-factory “list” prices, not the actual price paid, net of discounts, or rebates. Discounts or rebates on drug prices are commonly negotiated between governments and manufacturers. NICE listed 207 commercial arrangements on its website in February 2021.

RAND research indicated the prices used [in IRP calculation] from other countries are often not reliable because the lack of transparency on pricing mechanisms related to rebates and insurance payments. Only Germany shares post-discount prices.

H.R.3 attempts to address these challenges by using net prices, which arguably will be a tall order.

High variability of how IRP is implemented across settings significantly limits its real-world impact

In the same RAND research, it revealed high variability among IRP approaches used across different settings. For example, countries differ on the relative importance of IRP in comparison to other pricing strategies, the number and composition of countries considered for referencing, reference timing (market entry vs revision), how reference prices are calculated, data sources used to determine the reference prices, and market share of pharmaceuticals subject to IRP.

This variation makes it difficult to assess with certainty the potential impact of a price change in one country on the price in another country with any impact likely to be minimal or indirect.

In economies referenced by H.R.3., IRP is either one of the many pricing strategies (Canada, France, Japan, Germany) or is not used at all (Australia, UK). H.R.3 includes negotiation based on comparative effectiveness in addition to IRP based on net pricing.

Little evidence that IRP worked well in controlling pharmaceutical pricing or spending

Italy abolished IRP in 2001 because of a perceived lack of effectiveness in controlling costs.

In Canada, pharmaceutical pricing for innovative medicines is managed by the Patented Medicine Prices Review Board (PMPRB). It sets the maximum allowable prices for each individual patented drug marketed in Canada based on therapeutic improvements and internal and external reference pricing. However, public drug plans often negotiate lower prices than the maximum allowable with manufacturers informed by health technology assessments conducted by The Canadian Agency for Drugs and Technologies in Health (CADTH).

In 2014 during Sovaldi launch in Canada, the PMPRB considered Sovaldi a significant therapeutic improvement and priced within guidelines despite at the proposed price the drug will cost the Canadian health system billions that it did not have. However, as pricing negotiation and reimbursement decisions are decentralized at provincial and territorial (P/T) government level in Canada, restricted access to Sovaldi was observed at P/T level. For instance, Ontario limited access to Sovaldi under an exceptional access program. IRP did not work in the case of Sovaldi launch in Canada.

UK has controlled its annual branded pharmaceutical spending growth to less than 2% since 2014. The country does not use IRP at all. Instead, prices of branded pharmaceuticals supplied to the NHS are controlled through a combination of statues and voluntary scheme aimed at not only profit but also budget control for branded pharmaceuticals. In addition, NICE uses a cost-effectiveness threshold range and patient access scheme to effectively tie net launch pricing to product value. NHS England also introduced a Budget Impact Test in 2017 (also learning from Sovaldi launch lesson) aimed at medicines that will incur significant opportunity cost to the health system despite being cost-effective.

Implications for manufacturers

A reality check on IRP implementation clearly reveals IRP’s limitations as a practical policy tool, in part, because manufacturers have in its arsenal such as launch sequencing to effectively manage the downside risks associated with such proposals if implemented.

Learning from history and other country’s experiences, in policy arena, it would be wise for manufacturers to focus their attention on those pricing and cost control mechanisms that have produced the largest downward pressure on the industry’s growth especially policies that completely negate value.

Given aging population, limited healthcare budget and accelerated introduction of higher priced yet also higher value health technologies, manufacturers must link pricing to comparative product value, which needs to be demonstrated through clinical trials and real-world evidence. Do this early and throughout the product development life cycle.

References:

1. Inclusion Of H.R. 3 Drug Price Control Measures In Infrastructure Bill May Negatively Impact Drug Industry, Forbes, 4/4/2021, https://www.forbes.com/sites/joshuacohen/2021/04/04/inclusion-of-hr-3-drug-price-control-measures-in-infrastructure-bill-may-negatively-impact-drug-industry/?sh=153626bf5200 (Accessed 4/18/21)

2. International Reference Pricing: A Lazy, Misguided, Bi-Partisan Plan To Lower US Drug Prices, Health Affairs, 12/2/20, https://www.healthaffairs.org/do/10.1377/hblog20201130.594055/full/, Accessed 12/8/20

3. Rand et al. International Reference Pricing for Prescription Drugs in the United States: Administrative Limitations and Collateral Effects, ISPOR Value in Health. 2021; 24(4):473–476

4. Ruggeri et al. Pharmaceutical pricing: The use of external reference pricing, RAND Europe, 2013

5. Steve Morgan, Summaries of National Drug Coverage and Pharmaceutical Pricing Policies in 10 Countries: Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland and the U.K., Working Papers for the 2016 Meeting of the Vancouver Group in New York, NY

6. PPRS evolution and what does it mean for pharma? 2/4/2019, pharmaField, https://pharmafield.co.uk/in_depth/pprs-evolution-what-does-it-mean-for-pharma/ (Accessed 4/10/21)

7. Rodwin MA. How the United Kingdom Controls Pharmaceutical Prices and Spending: Learning From Its Experience. International Journal of Health Services. March 2021

8. Annual Report 2014 Patented Medicine Prices Review Board, Canada

9. Ontario urged to provide better access to breakthrough hepatitis C drugs, 6/21/2015, https://www.toronto.com/news-story/5688306-ontario-urged-to-provide-better-access-to-breakthrough-hepatitis-c-drugs/ (Accessed 3/28/21)