External Reference Pricing Research Articles

Optimal price regulations in international pharmaceutical markets with generic competition

In a two-country (home and foreign) model in which the home producer of a branded pharmaceutical product faces generic competition in each market, we analyze home's optimal policy choices regarding two major types of price regulations: external reference pricing (ERP) and direct price controls. Home's nationally optimal ERP policy lowers domestic price while maintaining the firm's export incentive. This ERP policy results in a negative international price spillover that the foreign country can (partly) offset via a local price control. Generic competition in either market reduces home's welfare gain from instituting an ERP policy. Weaker competition abroad or a greater weight on firm profits relative to consumer surplus in home's welfare function makes it more likely that home prefers an ERP policy to a price control. While international integration of national generic markets can improve welfare, such is not the case if it causes home to relax its ERP policy.

Pharmaceutical Price and Spending Controls in France: Lessons for the United States

As U.S. policymakers consider strategies to control pharmaceutical spending, they can learn from France, which has stopped drug spending growth without slowing access to innovative medicines. France determines the comparative therapeutic value of new drugs. Insurance pays more for drugs superior to their comparator and the same or less for drugs offering modest or no improvement. Contracts require discounts for high sales volume and prohibit price increases. In addition, payers reduce prices of older drugs. Furthermore, Parliament sets an insurance pharmaceutical spending budget, and manufacturers pay clawbacks when spending exceeds the budget. France offers these lessons: setting prices based on added therapeutic value is a principled means to cap new drug prices and provides incentives for manufacturers to negotiate prices. Restricting formularies can help lower prices. Insurers can link prices and quantity to control spending and improper uses. Insurers can use global budgets to control spending and negotiate prices. Contracts can prevent manufacturers from raising prices after launch. External reference pricing can reduce price discrimination but is difficult to implement. Nations can ensure rapid access to new drugs while controlling prices. Regulation and competition are complementary strategies to control drug spending.

Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market

External reference pricing (ERP), the practice of benchmarking domestic drug prices to foreign prices, generates an incentive for firms to withhold products from low-income countries. Using a novel moment inequality approach, we estimate a structural model to measure the extent to which ERP policies affect access to innovative drugs across Europe. We find that ERP increases entry delays in eight low-income European countries by up to one year per drug. The European Union could remove these delays without replacing ERP by compensating firms through lump-sum transfers at the cost of around 18 million euro per drug.

PNS133 BEYOND INTERNATIONAL PRICING INDEX MODEL IN THE UNITED STATES - IMPACT TO GLOBAL PRICING STRATEGIES & ACCESS TO INNOVATIVE MEDICINES

International Pricing Index (IPI) model has been proposed in the United States (US) with the aim to reduce Medicare Part B drug expenditures. IPI may introduce the external reference pricing (ERP) mechanism to the US market during 2020. The primary objective was to analyze how interconnected European ERP landscape could indirectly affect US prices as a result of price drops in non-IPI reference basket countries (RB). A sample of 25 Medicare Plan B drugs with the highest sales in 2018 was analyzed using Cogvio's medicine price database.Average selling price (ASP) in the US was compared to ex-factory prices of comparable packages in the proposed RB. Total spending on medicines was used as a proxy for sales and consecutively for IPI weighted average price calculation. An algorithm considering ERP regulation in each European country from the IPI RB (“baskets of the IPI basket”) has been created and hypothetical US prices were set. Stress tests were performed by dropping the price by 10% in a non-IPI RB to examine the indirect effect on US prices. US prices are on average 193 % higher compared to IPI RB price. Non-IPI RB countries were ranked based on the ability to indirectly impact US prices during the price drop stress test. Spain is being referenced by 10 out of 14 IPI RB and is the only EU5 country not listed in the IPI RB. As a result, Spain is an example of a highly-ranked country influencing US prices significantly together with several other countries in the CEE region. The simulation proved the possible impact of medicine prices outside of the proposed IPI RB to the US market. International pharmaceutical companies may adjust global pricing strategies to maximize revenues. As a consequence, low priority market may experience delayed access to innovative medicines.

PNS170 CHEAP OR TIMELY DRUG? PRACTICAL IMPACT OF EXTERNAL REFERENCE PRICING POLICY IN THE EUROPEAN UNION

External reference pricing (ERP) is one of the major determinants of drug prices regulation in EU markets. The aim of our work was to analyze the consequences of ERP rules for both companies and the national authorities by i) optimal market access timing or ii) overall availability of drugs on certain markets. Calculation of the optimal launch sequence of countries with an innovative drug was part of the analysis. We used hierarchical clustering of countries together with the evolutionary optimization heuristic (genetic algorithm). This algorithm optimizes the sequence of countries by maximizing the estimated revenue based on the market characteristics (ERP rules, willingness to pay threshold (WTP), population/market size, and others). The optimal launch sequence was calculated. As expected, we typically see that larger countries with high WTP are favored. On the other hand, countries with i) aggressive ERP rules (e.g. minimal price referenced), iii) low WTP, iv) countries referring to or v) referenced by a large number of countries stand in the back of the sequence. The main reason is that they cause greater price erosion in further countries. The unintended consequence of strong price referencing can, therefore, be lower availability of innovative drugs or shortage of older essential drugs, as companies prefer not to enter such markets and postpone market access. Our analysis provides both a guideline for companies when launching an innovative drug and crucial information for national authorities about the consequences of their ERP policies. The suggestion for national policies on how to keep drug prices low while ensuring their good availability could be setting weaker ERP rules (e.g. average rather than minimum price) and take advantage of confidential price discounts. That reduces the risk of further price erosion in other markets and increases the attractivity of such markets for innovative medicines.

How the Euripid collaboration contributes to affordability of medicinal products

Abstract Issue National authorities for pricing and reimbursement of medicinal products need up-to-date, easy accessible and unbiased information on the availability and prices of medicinal products in their fellow countries. Such information is needed for informed decision making, very often by countries who have an element of external price referencing (EPR) integrated into their national drug policy. EURIPID (www.euripid.eu) is a voluntary, non-profit collaboration between mainly European countries on building up and maintaining a database with information on national prices of medicinal products. It makes prices of price regulated medicinal products more transparent via an on-line accessible, comprehensive, reliable, and easy-to-use database. Challenges of the database are to bring the numerous products of the currently 28 countries to a common platform in a standardised format and to translate the products and their presentation into English language (especially those who have no centralised EMA marketing authorisation),to present four comparable price types (e.g., to which Danish price type does the British NHS price compare),to calculate or approximate missing price types,to provide additional information allowing to indicate the real price of the product rather than its list price. Results and lessons learned The participating countries agreed by online voting to share information on Managed Entry Agreements (or related arrangements) and provide volume information for the reimbursed products in the database. The countries also agreed to provide background information on the national pricing system. In the last EU period the Collaboration developed a Technical Guidance Document on External Price Referencing that regulates in 12 principles the “Do’s and Don’ts of ERP”. In the new grant period a stakeholder dialogue platform will be established to strengthening the cooperation within the EU in the field of pricing of medicinal products. Key messages The Euripid database is a valuable tool that is aiding countries to perform price comparisons for ERP or price monitoring for medicinal products in a standardised format. ERP is still widely used in Europe. The new activities of Euripid (e.g., a website offering information to the public), will contribute to a fair use of ERP and thus improve national decision making.

The impact of international benchmarking on the price of immunosuppressive medicines for transplant recipients in South Africa

Background. External reference pricing (ERP) is an internationally applied pricing policy to regulate the price of medicines. In 2005, the South African (SA) Minister of Health published a Government Gazette of regulations relating to a transparent pricing system for medicines and scheduled substances, stating that the Minister must publish a methodology for conforming to international benchmarks. In May 2014, the most recent proposed benchmark methodology was published, detailing that international benchmarking of medicines (IBM) requires that the lowest price in a selected basket of countries (Australia, Canada, New Zealand, Spain and SA) be used as the ultimate price for the purposes of benchmarking of originator products. Objectives. To provide a broad observational basis for the use of IBM and the proposed countries as a pricing tool; the feasibility of using BRICS countries (Brazil, Russia, India, China and SA) as comparator countries; and a small sample comparison of local state tender pricing in relation to the IBM proposed basket of comparator country pricing. Immunosuppressant medicines for organ transplant patients were used for this comparison, as they are relatively expensive and there is reluctance to implement pricing and reimbursement policy options to contain their costs. Methods. Ex-manufacturer medicine pricing information for 2016, 2017 and 2018 was sourced for immunosuppressive medicines for SA (public and private sectors), Australia, New Zealand, Canada, Spain, Brazil and Russia. Unit prices were compared for products with the same international non-proprietary name (INN), strength, formulation and manufacturer. In most cases the products were matched on product name, bearing translation nuances in mind. Results. Across all 3 years, in the majority of products, ERP using the proposed basket of comparator countries Australia, New Zealand, Canada and Spain lowered the local private sector ex-manufacturer price of medicine. Similarly, for the majority of products comparing local pricing with that of available BRICS country pricing data, the comparison lowered the price. For 92% of products where a comparison could be made, the SA state tender price was the lowest available price. Conclusions. Conducting an ERP analysis consumes time and resources. However, it may prove to reduce a current or proposed medicine price and may be considered as one of a range of medicine pricing policies employed by a country. It should not be used in isolation from other medicine pricing and reimbursement policies.

International price comparisons: An area of further research

The keen interest by politicians, regulators, and competition authorities in international price rankings has sparked a series of management consultancies to produce regularly studies that purport to compare and rank prices for mobile wireless services across the world. These rankings, so they claim, are the Swiss Army knife of competition analysis. A country that ranks lower on a list is declared a laggard or noncompetitive and thus supposedly is in need of regulatory intervention. Such claims require scrutiny and further analysis. An accurate price comparison should follow the scientific method and include a testable hypothesis, a properly designed study methodology, and accurate data collection and interpretation. One such ranking exercise is produced biannually by Finnish management consultancy Rewheel. The present review fills a void with its analysis of the Rewheel study and suggests that it is a highly simplistic international price comparison exercise. The methodology of Rewheel assumes an unrealistic world where consumers only care about how much data they can get for a certain budget (i.e., price), and all other competitive differentiators (i.e., plan and quality differences) and costs differences (e.g., size of network built) are irrelevant.

Does external reference pricing deliver what it promises? Evidence on its impact at national level

BackgroundExternal reference pricing (ERP) is widely used to regulate pharmaceutical prices and help determine reimbursement. Its implementation varies substantially across countries, making it difficult to study and understand its impact on key policy objectives.ObjectivesTo assess the evidence on ERP in different settings and its impact on key health policy objectives, notably, cost-containment, pharmaceutical price levels, drug use, equity, efficiency, availability, affordability and industrial policy; and second, to critically assess the quality of evidence on ERP.MethodsPrimary and secondary data collection through a survey of leading experts and a systematic literature review, respectively, over the 2000–2017 period.ResultsForty five studies were included in the systematic review (January 2000–December 2016). Primary evidence was gathered via survey distribution to experts in 21 countries (January–July 2017). ERP contributes to cost-containment, but this is a short-term effect highly dependent on the way ERP is designed and implemented. Low prices, as a result of ERP, can undermine the availability of medicines and lead to launch delays or product withdrawals. Downward price convergence can hamper investment in innovation. ERP does not seem to promote efficiency in achieving health system goals. As evidence is weak, results need to be interpreted with caution.ConclusionsERP has not regulated prices efficiently and has unintended consequences that reduce the benefits arising from it. If ERP is carefully designed with minimal price revisions, prudent selection of basket size and countries, and consideration of transaction prices, it could be a more effective mechanism enhancing welfare, equitable access to medicines within countries and help promote industry innovation.

Variations in external reference pricing implementation: does it matter for public policy?

External reference pricing (ERP) seeks to rationalize prices and contain costs using foreign prices as a reference for the determination of domestic prices and is often used as the starting point for the facilitation of negotiations between health authorities and pharmaceutical manufacturers. A systematic literature review was used to identify characteristics of ERP implementation across 29 countries. Primary data collection, in the form of surveys directed at key stakeholders, was also used to supplement data in instances where information received from the systematic literature review was outdated or minimal. Findings from the systematic literature review and primary evidence from key stakeholders were bench-marked against 14 best practice principles inherent to an optimal ERP system. Significant heterogeneity in ERP implementation across countries was identified. Country basket size, pricing calculation, and frequency of price revisions varied between countries. Belgium, France, and South Africa were more likely to adhere to the best practice principles, whilst Bulgaria, Hungary, and Romania had the most instances of non-adherence. The observed heterogeneity has policy implications for governments including globally declining pharmaceutical prices, launch delays in lower income countries, reduced incentive for continued R&D, and reduced access to medicines. Overcoming this issue to ensure that ERP is beneficial to all stakeholders will require a focus on developing sustainable, transparent, simple, and stable systems using a set of key guidelines that should maximize the benefits of the pricing policy.

External Reference Pricing for Pharmaceuticals—A Survey and Literature Review to Describe Best Practices for Countries With Expanding Healthcare Coverage

BackgroundCountries with expanding healthcare coverage (CEHCs) increasingly use external reference pricing (ERP) for pharmaceuticals. The ERP policies must aim to optimize efficiency, minimize disturbances, and maximize access to effective therapies for all patients. ObjectiveThis research aims to deduce best practices for prudent ERP regulations from past experiences and currently applied policies and to guide policymakers in CEHCs in implementing robust ERP policies. MethodsThe literature was reviewed for methods and effects of ERP for pharmaceuticals. Pharmaceutical pricing experts from Asia, the Middle East, Russia, and South Africa were surveyed for current approaches to ERP in their respective countries. ResultsKey determinants of ERP relate to scope, number, and choice of reference countries; price definitions; computation rules; frequency; and stringency of applying ERP. The scarce evidence shows that ERP seems to lead to narrower price windows with the risk of reducing prices in high-price countries and raising prices in low-price countries. Moreover, launch delays and indirect price effects are often observed. The ERP policies in CEHCs are often applied in isolation, not always in a consistent and transparent manner, neglecting its indirect effects. ConclusionPolicymakers should consider a set of requirements when introducing ERP, including clear definitions and decision criteria in full transparency. External reference pricing should inform and serve as a benchmark for pricing decisions, rather than being used as the sole pricing mechanism. External reference pricing is primarily a tool to support decisions regarding on-patent pharmaceuticals, and for off-patent products, competition may prove more effective in reducing prices than ERP.

Multilateral Sato–Vartia index for international comparisons of prices and real expenditures

The Sato–Vartia (SV) index for bilateral price comparisons has impressive analytical properties and is used intensively in recent international trade and macroeconomic analyses. We show that the SV index is only one of many logarithmic indices that satisfy the factor reversal test discussed in index number theory. In this paper we propose several transitive multilateral versions of the SV index but note that these do not satisfy factor reversal test. We derive closed form expressions for the transitive logarithmic indices and empirically implement the new indices for cross-country price comparisons using World Bank data from the 2011 International Comparison Program.

International impact of external reference pricing: should national policy-makers care?

External reference pricing (ERP) is widely used to regulate drug prices. Although the literature has largely focused on the impact of ERP on a number of policy endpoints and its impact from a geographical perspective, a comparative study drawing on evidence from different settings does not exist to date. A systematic literature review was conducted on pre-defined endpoints on the impact of ERP across countries, such as price stability, price convergence and launch delays. Expert consultation was undertaken to analyse whether or not the international implications of ERP are considered during its design. 46 studies were included in the analysis. Across countries, ERP may cause launch delays, price instability and lead toprice convergence. However, these effects cannot be solely attributed to ERP, as there may be other factors at play, such as the size and the GDP of a country and other regulations in place, which can trigger these effects or reduce their effect. Nevertheless, the nature of ERP facilitates these unintended consequences and directly links them to it. Despite these cross-country implications being well known to decision-makers, they are not necessarily considered during the design of ERP. As the effects of ERP as a stand alonepolicy are very difficult to isolate in the presence of other regulatory measures implemented within countries and the presence of other extrinsic factors across countries, our findings are inconclusive. Still, there is an unquestionable unmet need related to the design of ERP systems to attain a positive impact internationally.

Oversimplified and Misleading International Price Comparisons Must Not Guide Policy and Regulatory Decisions

Rewheel’s “Digital Fuel Monitor” (DFM) has never been subject to a comprehensive peer review. The present report fills this void by examining the proclaimed accuracy of a complete version of one of Rewheel’s studies, namely, Rewheel/research’s “The state of 4G pricing – 1H2018,” Digital Fuel Monitor 9th release, dated May 1, 2018, as a tool to compare international retail prices for mobile wireless services and as a measure of a country’s state of competition. It finds that Rewheel’s Digital Fuel Monitor is a highly simplistic international price comparison exercise that results in economically meaningless rankings.

Multilateral index number systems for international price comparisons: Properties, existence and uniqueness

Over the past five decades a number of multilateral index number systems have been proposed for spatial and cross-country price comparisons. These multilateral indexes are usually expressed as solutions to systems of linear or nonlinear equations. In this paper, we provide general theorems that can be used to establish necessary and sufficient conditions for the existence and uniqueness of the Geary–Khamis, IDB, Neary and Rao indexes as well as potential new systems including two generalized systems of index numbers. One of our main results is that the necessary and sufficient conditions for existence and uniqueness of solutions can often be stated in terms of graph-theoretic concepts and a verifiable condition based on observed quantities of commodities.

Euripid Collaboration Guidance Principles for External Reference Pricing in Europe

Euripid Collaboration Guidance Principles for External Reference Pricing in Europe

Euripid Collaboration Guidance Principles for External Reference Pricing in Europe

Euripid Collaboration Guidance Principles for External Reference Pricing in Europe

Effectiveness of National Pricing Policies for Patent-Protected Pharmaceuticals in the OECD: A Systematic Literature Review.

The aim of this review is to assess the current state of empirical research regarding the effectiveness of national pricing regulations of the patent-protected market for prescription pharmaceuticals. Effectiveness is understood to be the capacity of policies to have a desired impact on outcomes, such as health status, patient access, healthcare expenditure, and research investments, among others. A systematic review of the published literature on pricing regulations in OECD countries was performed. The PubMed, MEDLINE, Scopus, Web of Science, Cochrane Library and the OECD iLibrary databases were searched in September 2016 and December 2017, with an update in August 2018. Interrupted time series studies and additional empirical studies were included, as well as systematic reviews if appropriate methods were applied. The risk of bias was assessed based on the recommendations of the BMJ guidelines, Cochrane EPOC criteria, QHES instrument, HTA good practice guidelines, CRD's guidance and the CHEC criteria. The quality of evidence was evaluated using the suggestions from EPOC and GRADE. Thirty-one publications met the inclusion criteria. Most of the assessed empirical research included therapeutic (TRP) and/or external reference pricing (ERP), with a clear majority focusing on TRP. The main outcomes that were analysed were drug prices, expenditures and drug use. For value-based pricing (VBP), only limited empirical data were found. We found evidence that TRP may reduce pharmaceutical prices and expenditures in the short term. Furthermore, TRP may lead to substitution effects towards lower-priced pharmaceuticals. The effects of TRP on patient access, healthcare utilisation and R&D investments were found to be uncertain. No conclusions were drawn for ERP and VBP. No evidence was found for the effects on health outcomes for any of the analysed policies. There is a strong need for evidence generation regarding effective pricing policies, particularly for VBP, managed entry agreements and non-financial outcomes.

PHP182 - EXTERNAL REFERENCE PRICING: CONSEQUENCES OF FRENCH PRICE DECREASES ON INTERNATIONAL TURNOVER

The goal of external reference pricing (ERP), or international reference pricing (IRP), is to set the price of a drug in a given country in reference to a panel price in other countries. A price decrease in a country referenced by others - usually to control public health spending - leads to additional losses in turnover in other markets. Furthermore, the price decreases could also degrade the trade balance of the reference country if the products are exported. This study measured the impact of French medication price reductions on pharmaceutical turnover in France and ten other European countries. A more specific secondary analysis was made on products which are manufactured in France and exported to the analyzed countries. Twelve products and ten countries applying ERP were considered. Price decreases were considered for each product in all countries from 2012 to 2017. Only decreases in foreign countries that could be directly attributed to an ERP logic decrease in France were selected. The total loss of turnover for the entire period was calculated for France and the other countries by applying these price reductions to the sales volumes. Quantitatively, this study demonstrates that a euro of sales decrease in France leads to a decrease of € 0.46 in the selected countries. This effect is amplified for products exported from France, the induced decline of which is € 0.81. A strong correlation between price decreases in France and the countries considered has been shown. The consequences of this mechanism on European subsidiaries sales and on the value of French exports are signficant. However, these results are exploratory and should be taken with caution. They should be verified with other samples of products and / or countries.

HT8 - DOES IQWIG MATTER? FREQUENCY OF DIVERGENT OPINIONS BETWEEN IQWIG AND THE G-BA

Since 2011, new pharmacological therapies in Germany are subject to an early benefit assessment (EBA) upon launch. The Institute for Quality and Efficiency in Health Care (IQWiG) usually conducts an initial assessment, followed by the Federal Joint Committee (G-BA) issuing a final verdict. If the G-BA deem a new therapy offers no additional benefit over relevant comparators, it is not granted premium-pricing, being subject to reference pricing. This research compares G-BA and IQWiG assessment outcomes. All EBA resolutions were extracted from the G-BA website alongside corresponding IQWiG assessments (01/01/2012-12/31/2016) and key information compared. For extracted outcome data, the focus was the subgroup of greatest additional benefit. Of 155 identified EBAs with both G-BA and IQWiG assessment outcomes published, 63% (98/155) did not differ in their additional benefit. The G-BA concluded on an additional benefit where IQWiG deemed none in 12% (19/155) of cases. Conversely, IQWiG deemed an additional benefit where the G-BA concluded on none in 5% (6/155) of cases. G-BA and IQWiG both agreed that additional benefit was offered but differed in its extent in 19% (29/155; 19 cases: G-BA’s rating was lower, 10 cases: G-BA’s was higher). In the three cases where IQWiG’s verdict was ‘lesser benefit’, the G-BA ultimately concluded no additional benefit was proven. As for the level of certainty with which additional benefit was demonstrated, in 83% (52/63) the G-BA’s verdict matched IQWiG’s assessment; in 5% (3/63) of cases, the G-BA’s certainty rating was higher, in 13% (8/63) it was lower. The G-BA has frequently deviated from IQWiG’s initial assessment, with potential significant pricing consequences. Thus, companies should fully engage with the EBA consultation process post-IQWiG appraisal. As many countries use external reference pricing for price-setting and Germany is one of the most frequently referenced countries, this has global revenue implications.