In the EU 24 out of 27 countries use the practice of international (or external) reference pricing in order to regulate pricing for new pharmaceuticals coming onto the market in their country. Only Germany, Sweden and UK have resisted using this price-control mechanism so far.

Reference pricing occurs when a country bases its drug prices on those in other Member States, with the number of countries included in the ‘basket’ ranging from as little as three, e.g. Slovenia to as many as 26, e.g. Latvia. Each country also defines its own price selection criteria—the mean of countries; the lowest price; the mean price minus a further discount; the median price. The result can be a self-referencing spiral, usually a downward one.

The ENVI report found that the use of international reference pricing in the EU seemed to be leading to price convergence for some drugs and, in general, to lower prices. This is good news for governments, but what about patients? The report also raised concerns over patient access to pharmaceuticals.

In some cases a low price for a new product in one national market can lead manufacturers to refrain from launching the product in other markets, since the low price might jeopardise their pricing prospects elsewhere due to the wide application of international reference pricing.

A different problem is seen regarding generic medicines: here, manufacturers of generics may decide not to enter smaller markets. As a result, healthcare systems and patients in these markets may not have access to these lower priced alternatives.

Other problems included currency fluctuations and it was suggested that countries using the Euro should limit their reference countries to those using the Euro and vice versa.

The report goes on to recommend that reference pricing should use the average price of all countries in the basket, rather than lowest or average of lowest few, adding that there should be further study of the impact of reference pricing on launch delays, with a view to developing policies to discourage such practices.

Reference

1. Kanavos P, Vandoros S, Irwin R, Nicod E, Casson M. Differences in costs of and access to pharmaceutical products in the EU. ENVI. IP/A/ENVI/ST/2010-12. March 2011.