The End of the International Reference Pricing System?

Area of Science:

• Health Economics
• Pharmaceutical Policy
• Drug Pricing

Background:

• Most EU member states utilize international reference pricing (IRP) for drug price control.
• IRP involves using prices from other countries as benchmarks for national price decisions.
• Alternative models like value-based pricing (VBP) are more complex but potentially more effective.

Purpose of the Study:

• To analyze the economic and health implications of IRP in the EU.
• To investigate the incentives and disincentives created by IRP for stakeholders.
• To explore the potential shift towards alternative pricing models like VBP.

Main Methods:

• Analysis of existing drug pricing and reimbursement policies in EU member states.
• Economic modeling to assess the welfare implications of IRP.
• Review of current industry practices and emerging pricing strategies.

Main Results:

• IRP incentivizes actions misaligned with welfare-maximizing pricing.
• Manufacturers may limit drug access in smaller markets, leading to health losses.
• IRP hinders differential pricing, reducing R&D revenue and innovation.
• Emerging risk-sharing schemes aim to reintroduce price discrimination.

Conclusions:

• IRP leads to significant welfare losses and hinders pharmaceutical innovation.
• The current IRP system is unsustainable and likely to be replaced.
• A future shift towards price discrimination and increased demand for VBP is expected.