International Reference Pricing Gets Thumbs-Down From ISPOR Panel

There’s not enough study of the effects of international reference pricing, but it is likely to stifle innovation and create access problems, according to an expert panel at Virtual ISPOR 2020, the annual meeting of the International Society for Pharmacoeconomics and Outcomes Research.

International reference pricing (IRP), by which drug prices would be pegged to international standards, is under consideration in the United States, although it could lead to adverse long-term consequences, according to a panel of health care and economic experts who discussed the prospect at the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) annual meeting, Virtual ISPOR 2020, held this week.

IRP may bring down the high cost of medicine for US consumers, but it could also stifle investment in new drug products because pharmaceutical companies would earn lower returns and have less money to invest in new medicines, said Lou Garrison, PhD, of the Comparative Health Outcomes, Policy, and Economics Institute Department of Pharmacy at the University of Washington in Seattle.

The intense clinical investigation to find a vaccine spurred by the coronavirus disease 2019 (COVID-19) pandemic illustrates how the US pharmaceutical industry is motivated to explore new therapies, he said. “Reference pricing is a poor and risky approach” to saving money for health care consumers, he noted.

IRP Legislation in the Works

IRP legislation has been introduced and passed in the House, Garrison noted. The Elijah E. Cummings Lower Drug Costs Now Act would allow HHS to negotiate drug prices and establish an international drug index that would cap drug prices at 120% of prices in 6 selected countries. The Congressional Budget Office has forecast that this could save $456 billion over 10 years, although it would lead to 8 fewer drugs coming to market from 2020 to 2029.

United States residents pay, on average, 3 times more than Canadian citizens do, in terms of drug costs, and many European countries pay less than Canadian citizens, even though the national gross domestic product (GDP) per capita may be higher in those countries than in Canada, according to data presented during the discussion. For example, in Norway, the GDP per capita is more than twice that of Canada but the average drug price is roughly 75% that of Canada’s. Meanwhile, drug prices in the United States are soaring.

These issues notwithstanding, Garrison maintained that higher prices in the United States support innovation that would not occur otherwise. He cited one estimate that, on average, “$2.5 billion is required in additional revenue to support the invention of 1 new chemical entity.”

Pricing power granted to companies through product exclusivities in the United States “elicits a greater supply of new drugs in the long term, but…results in higher prices and, thus, worse access in the short term,” he said. “But if new medicines aren’t invented, no one can access them in the long term.”

In fact, panelists said, outside of the United States, in Europe, for example, IRP is seldom used alone. It may be used on a limited basis, and other pricing systems may be combined to make it workable, said Jaime Espin, PhD, BLaw, MScHE, a professor at the Andalusian School of Public Health in Granada, Spain.

One of the downsides of IRP in the countries that use it is that it creates a disincentive for pharmaceutical companies to launch their products in lower-drug-price countries, he said. These countries may be the last to see new products launched, the panelists noted. Further, there is a tendency for countries to peg their prices to the lowest prices elsewhere, which compounds issues of poor access and lack of innovation.

European Commission Report

A European Commission report cited by Espin indicated that the United Kingdom, Germany, and Sweden have freer pricing systems and are generally preferred by companies as product launch locations.

A lack of pricing transparency makes it difficult to understand IRP dynamics, and there is not enough “conclusive evidence” about IRP and its value, owing to a scarcity of investigation, the panelists noted.

Espin suggested that countries use IRP to negotiate or benchmark the prices of medicines and improve transparency. He also suggested that countries and payers choose comparator countries for IRP based on economic status, pharmaceutical pricing systems, actual versus negotiated prices, and other factors.

Panelist Zoltan Kalo, PhD, a health economist with the Center for Health Technology Assessment at Semmelweis University/Syreon Research Institute in Budapest, Hungary, said “inferior health outcomes” are one consequence of IRP, owing to access issues that arise. “Drugs might be available only for VIP patients,” he said. For this reason, he suggested avoiding IRP in lower-income countries, instead recommending that the salaries of nurses and physicians in lower-income countries be indexed according to international standards. This, he said, would prevent physicians and nurses from migrating across borders in search of higher pay. COVID-19, he said, has put a spotlight on how this dynamic has created a shortage of clinicians in Hungary.


Garrison L, Espin J, Kalo Z, Incze A. International reference pricing: US vs. rest of world—who is shooting whose foot? In: Proceedings from Virtual International Society for Pharmacoeconomics and Outcomes Research 2020; May 18-20, 2020; Orlando, FL.

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