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 EPR. 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 (where applicable), 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 were run over 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 In most scenarios, after 10 years, medicine prices in all or most surveyed countries were—sometimes considerably—lower than in the base case scenario. But in a few scenarios medicine prices increased in some countries. 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 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 by taking appropriate methodological choices in the EPR design.

A systematic review of pharmaceutical price mark-up practice and its implementation

“…Most countries have implemented price control mechanisms as recommended by the WHO, such as external reference pricing which is commonly used by most European countries to determine the mark-up margin. 38 , 39 The external reference pricing uses the price of a pharmaceutical product in one or several countries to derive a benchmark or reference price in order to set or negotiate the price of the product in the host country. 2 Such a mechanism is not without its drawbacks.…”

“…First, pricing estimation using external reference pricing will be inaccurate if the market intelligence collected the wrong medicine pricing details, including in terms of strength, dosage size, pack size and active ingredients. 38 , 39 Second, setting a low price for a medicine measured using external referencing pricing could potentially lead to a medicine going out of stock in a particular country simply because the pharmaceutical companies will tend to divert supply to neighbouring countries that offer a better price. 40 …”

The value of evaluating and implementing pharmaceuticals

“…Some countries use policies such as International Reference Pricing (IRP) that reference prices in other countries, and some countries use confidential discounts or other price agreements. 8,19,49 Cost-effectiveness appraisal In many countries, the formal cost-effectiveness appraisal of pharmaceuticals is a central part of the reimbursement process. 47 The cost-effectiveness appraisal estimates the long-term cost and effect of implementing a treatment in clinical practice to ascertain whether the treatment represent good use of health care resources.…”

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

“…They will avoid launching in smaller countries with lower price potential, not to jeopardize the price in larger ones ( Bauer, 2017 ). Or they may introduce “gross-to-net” (GTN) strategies to maintain a higher list price while matching willingness and ability to pay of individual countries by providing confidential discounts ( Vogler et al, 2020 ). Or they may withdraw a product to protect their pricing corridor.…”