Many European countries use external reference pricing (ERP) to help set their drug prices. External reference pricing caps the prices of drugs at some average or weighted average of the drug price in other countries. The comparison countries typically are either in close proximity or of similar GDP/capita level.
The advantage of reference pricing is that it is a tool to drive down prices. The disadvantage is that it may increase cost for lower income countries or drug manufacturers may elect not to enter a market to avoid a price decrease in a richer market. The time to market is slower with reference pricing as shown in these four research studies.
But how does one implement ERP in practice? Euripid published a Guidance Document on External Reference Pricing (ERP) in 2018. Here are 12 of their key guiding principles.
- ERP…should be used in a mix with other instruments and not as a stand-alone policy tool.
- ERP should take place on a single-product basis rather than by indices.
- The aim of the national pharmaceutical policy should determine the selection of reference countries.
- …ERP is most effective when applied to pharmaceuticals without generic or therapeutic competition.
- The comparison of prices of medicinal products should be done on the first price (type) in the pharmaceutical distribution chain.
- Competent authorities should apply clear and transparent procedures to determine which pharmaceuticals are considered comparable.
- The pricing formula applied for ERP should reflect the national pricing policy objective.
- ERP procedures should be performed with the highest possible accuracy and completeness of data sources.
- If price information is adjusted to national requirements, it should be done in a transparent and sustainable manner.
- ERP activities need careful planning and should also be considered as a policy tool for price revisions and monitoring.
- The procedures and price inputs to ERP should be transparent to ensure predictability and effectiveness.
- Policymakers should consider strengthening their cooperation, in particular through the contribution and benefits of existing policies.
The Bipartisan Policy Center, however, disagrees with setting ERP based on list price (point 5) and instead recommend using discounted prices.
- Bipartisan Policy Center. Examining Two Approaches to U.S. Drug Pricing: International Prices and Therapeutic Equivalency. October 2019. https://bipartisanpolicy.org/wp-content/uploads/2019/10/Examining-Two-Approaches-to-U.S.-Drug-Pricing-1.pdf
- I Verniers, S Stremersch, et al. “The Global Entry of New Pharmaceuticals: A joint investigation of launch window and price.” International Journal of Research in Marketing. 28(4): 295-308. 2011.
- European Federation of Pharmaceutical Industries and Association. Market Access Delays Analysis. 2018. Available at: https://efpia.eu/media/412416/market-access-delays-2017-final-140318.pdf.
- European Observatory on Health Systems and Policies. Health Systems in Transition: Pharmaceutical regulation in 15 European countries. 2016. Available at: http://www.euro.who.int/__data/assets/pdf_file/0019/322444/HiT-pharmaceutical-regulation-15-European-countries.pdf?ua=1.
- Swedish Dental and Pharmaceutical Benefits Agency. International Price Comparison 2018: An analysis of Swedish pharmaceutical prices and volumes relative to 19 other European countries. 2018. Available at: https://www.tlv.se/download/18.7ff0047816a0150064d26514/1554902942161/international_price_comparison_2018.pdf