International Reference Pricing: List vs. Net Pricing issues

Leah Rand and Aaron Kesselheim have an interesting commentary in Value in Health reviewing some of the challenges of implementing international reference pricing (IRP) in the U.S. IRP would set drug prices in the U.S. as no higher than a basket of drug prices in other developed countries. This issue is of particular interest due to recent legislative initiatives:

In December 2019, the House of Representatives passed the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3), which would require the government to negotiate a “maximum fair price” for the most expensive drugs in Medicare Part D and anchor the negotiations with a target price that is the lowest price in Australia, Canada, France, Japan, Germany, or the United Kingdom. It also requires the maximum price not to exceed 120% of average price in those countries…In 2018, the [Trump] administration announced proposed rule-making that would allow Medicare to use international referencing of prices from Canada, Japan, and across Europe for Part B drugs. On September 13, 2020, President Trump issued an executive order to accelerate the rule making and adopt IRP for prescription drugs covered under Medicare Parts B and D by paying no more than the lowest price from a group of “most-favored nations.”⁶

Yet implementing international reference pricing has a number of challenges. Rand and Kesselheim highlight four of these: lack of price transparency, delays in market approvals, the frequency of price revisions, and the prevalence of cross-referencing. We respect to the first issue, true net prices (i.e., prices after accounting for rebates) are not known and the gross or list prices may be the only price that is publicly available. Thus, IRP likely will result in a rise in prices (either gross and/or net price) for countries included in the US IRP basket. The authors write:

US referencing will put greater pressure on countries to hide their net prices, a concern that has already been realized in Mexico and Canada, where drugs were purposefully given high list prices (with large, confidential discounts) to avoid cross-border trade. Because only list prices are available for IRP, increased list prices will drive up the benchmarked prices across countries….If the United States can reference net prices in other countries, then there will be incentives for manufactures to end discounts, thereby increasing net prices.

Rand and Kesselheim wisely conclude the article noting that some European countries–such as the United Kingdom and Sweden–do not use IRP and instead focus on value-based pricing. A more U.S.-tailored that would better link price with value appears to be a better approach than using IRP and effectively outsourcing our value and pricing decisions to other countries.

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