Impact of changes in the methodology of external price referencing on medicine prices: discrete-event simulation

Abstract

Background: Several governments apply the policy of external price referencing (EPR), which considers the prices of a medicine in one or more other countries for the purpose of setting the price in the own country. Different methodological choices can be taken to design the EPR policy. The study aimed to analyse whether, or not, and how changes in the methodology of EPR can impact medicine prices.Methods: The real-life EPR methodology as of Q1/2015 was surveyed in all European Union Member States, Iceland, Norway and Switzerland through a questionnaire responded by national pricing authorities. Different scenarios were developed related to the parameters of the EPR methodology. Discrete-event simulations of fictitious prices in the 28 countries of the study that had EPR in place were run for a period of 10 years. The continuation of the real-life EPR methodology in the countries as surveyed in 2015, without any change, served as base case.Results: Consideration of discounts (an assumed 20% discount in five large economies and the mandatory discount in Germany, Greece and Ireland) and determining the reference price based on the lowest price in the country basket would result in higher price reductions (on average -47.2% and -34.2% compared to the base case). An adjustment of medicine price data of the reference countries by purchasing power parities would lead to higher prices in some more affluent countries (e.g. Switzerland, Norway) and lower prices in lower-income economies (Bulgaria, Romania, Hungary, Poland). Regular price revisions and changes in the basket of reference countries would also impact medicine prices, however to a lesser extent.Conclusions: EPR has some potential for cost-containment. Medicine prices could be decreased further if certain parameters of the EPR methodology were changed. If public payers aim to apply EPR to keep medicine prices at more affordable levels, they are encouraged to explore the cost-containment potential of this policy and to take appropriate methodological choices in the design of EPR.