International Reference Pricing

What is international reference pricing (IRP)? IRP is system whereby a country states that they will pay no more than the price paid by another country or a basket of countries. In theory, countries could also regulate drug prices by saying that they would not pay more than X% of country A’s price or X% of the reference basket of country A, B and C. How does this work in practice? A paper by Houy and Jelovac (2015) repots:

In 2010, all EU countries except Germany, Sweden, and the UK extensively use IRP [international reference pricing]. This policy leads to an interdependence of prices between countries. Many authors recognize that this interdependence gives pharmaceutical firms an incentive to launch new drugs in high-price countries first and to delay launch or even not to launch new drugs in low-price countries.

Who uses reference pricing and which countries’ prices are most important in determining a countries own price?

Slovakia had the maximum number of countries in the reference basket (n=26 ) and Luxembourg had the minimum number of RCs (n=1 ). Germany (n=13 ), Spain (n=13 ), France (n=11 ), and the UK (n=11) were the countries most frequently referenced.

The authors create a model pharmaceutical firms’ response to IRP and reach three conclusions:

First, there is no withdrawal of drugs in any country in any period. Second, whenever the drug is sold in a country, it is also sold in all countries with larger willingness to pay (WTP). Third, there is no strict incentive to delay the launch of a drug in any country.


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