External reference pricing

External reference pricing (ERP), also known as international reference pricing, is the practice of regulating the price of a medication in one country, by comparing with the price in a "basket" of other reference countries. It contrasts with internal reference pricing, where the price of one drug is compared to the domestic price of therapeutically related drugs, and with cost-plus pricing, where the price involves negotiating an acceptable markup to the unit cost to develop and produce.[8]: 300 

Policy-making

For using ERP in medicine cost regulation policies, the Euripid collaboration recommends the following 12 key principles:[9]

  1. ERP is an important tool but should not be used as the sole criterion, but rather in a mix with other instruments.
  2. ERP should compare single specific products rather than based on indices.
  3. The reference countries basket should be chosen in accordance with the aim of the national pharmaceutical policy.
  4. Evidence has shown that ERP is most effective when applied to pharmaceuticals without generic or therapeutic competition.
  5. Price comparison should be done on the first price in the pharmaceutical distribution chain.
  6. When pharmaceuticals are considered as comparable, competent authorities should describe clear and transparent procedures.
  7. Pricing formula applied for ERP should reflect the national pricing policy objective.
  8. ERP procedures should be done with the highest possible accuracy and completeness of data sources.
  9. If price information is adjusted to national requirements, it should be done transparently and in a sustainable manner.
  10. ERP activities should be carefully planned and be considered as a policy tool for price revisions and monitoring.
  11. The procedures and price inputs to ERP should be transparent to ensure predictability and effectiveness.
  12. Policy-makers should consider strengthening their cooperation, in particular through the contribution and benefits of existing policies.

Human rights

Access to needed essential medicines is an international human right, also named the "right to health", as stated by the United Nations and the WHO.[10]: 209 [11][12] In 2001, the World Health Assembly passed the resolution No. 54.11 that called for exploring the feasibility and effectiveness of implementing systems to ensure medicines affordability and availability.[10]: 209  The WHO/HAI methodology and database is one of the projects that were created in response,[10][11] along with the WHO recommending the implementation of centralized price sharing systems and the implementation of pharmaceutical price cost-containment policies.[13]: 192 

Medication cost policies

Medicines pricing policies are defined as "regulations and processes used by government authorities to set the price of a medicine as part of exercising price control".[13]: 190  ERP is a mechanism for price control, or cost-containment policy.[13]: 192  A quarter of all health expenditures globally is on medicines.[12] However, authorities may want to control other components than price, such as prescription volumes.[13]: 190 

ERP is a widely accepted tool to design cost-containment policies, used in the European Union, Brazil, Jordan, South Africa, Canada, and Australia.[2]: 13  This is used as the main drug pricing strategy in 23 of 27 European countries in 2019.[8]: 302  In 2010, 20 members out of 27 in the European Union and 24 countries in the OCDE were using it.[3][14] For this usage, each country usually has a legal framework to define the calculation of ERP and selection of reference products, with variations across high-income countries (e.g., using the median price or instead the lowest price across the reference countries), but the majority use ex-factory prices.[8]: 302 [2]: 21  A basket prices are ideally drawn from countries in the same global region and similar economy. For example, Pakistan uses prices from Bangladesh and India, while Iran uses prices from Greece, Spain, Turkey and the drug country of origin. However pricing data from LMICs can be lacking, and in such situations, international medicine prices can be obtained from the International Medical Products Price Guide.[8]: 303  The United Kingdom has a critical role in the ERP system, as it is often used as a reference country since medication prices are often low,[8]: 302  although it is not using ERP itself.[1]

The WHO recommend in the Guideline on Country Pharmaceutical Pricing Policies that countries "use a combination of different pharmaceutical pricing policies that should be selected on the objective, context and health system".[13]: 191–192  As of 2019 ERP superseded or completed older cost-containment strategies such as cost-plus or internal reference pricing.[8]: 300 

High-income countries

European countries saw a 76% rise in pharmaceutical outpatient expenditure between 2000 and 2009.[8]: 302  Furthermore, the 2008 global financial crisis added to the financial pressure, which prompted most European countries to consider health expenditures as a major target for healthcare cost reduction.[8]: 302 [2]: 13  European countries which were affected by the global financial crisis have reported restricted access to essential medicines.[12]: 4 

ERP is one of the major mechanism used by these countries for this purpose, along others such as direct price control (i.e., fixed maximum prices), profit ceiling, internal reference pricing and free pricing.[8]: 302 [1] ERP is most commonly used by high-income countries to control the prices of patented medicines, or with other intellectual property rights such as pricing monopolies, for therapeutic agents that are state-reimbursed.[8]: 302  European Union countries started building medicine prices databases since the 1990s,[17]: 262  which led to the creation of Hungary's Common European Drug Database in 2008[17]: 263  and its successor Euripid since 2009,[18] a database with standardly formatted data on drug prices and pricing regulations, fed with data from participating countries who are the only ones who can access the data in return,[18] and is used as a shared and centralized ERP system.[17]: 263 [9][19] Japan is an exception, using ERP to systematically adjust local prices within a range of the ERP according to a formula.[8]: 302 

Drug prices are reevaluated regularly in European countries, ranging from 3 months in Greece, to 5 years in France.[8]: 302 

Few studies have investigated the impact of ERP on high-income countries, but two studies conducted in countries both inside and outside of the European Union found no substantial decrease or increase in drug prices.[8]: 302  Furthermore, with the widespread adoption of ERP, pharmaceutical manufacturers are developing counter strategies to limit the negative impacts on them, such as reduced drug prices.[8]: 302  One strategy is to delay the launch of new drug products into the market, as is the case with Belgium, being usually not among the countries with the highest drug prices in the European Union.[8]: 302  This increase in the launch delay of new medicines is however observed to some extent in all European countries implementing ERP.[20]: 212 [21] Another observed strategy in Germany and New Zealand is to deliberately keep the prices of some medicines high, knowing these countries would later be used as reference countries to derive higher external reference prices.[8]: 302  These counter strategies raise the question of the sustainability of ERP as an objective measure.[8]: 302 

In several European countries, implementing ERP led to a decrease of the average drug price, but not the maximum nor minimum drug prices. Since the ERP was the sole criterion for drug pricing in these countries, the observed decrease can only be due to ERP implementation. It was also observed that prices decreases was correlated with the frequency of price revision, with countries infrequently revising prices having flat prices, whereas those with frequent revising saw a regular price decline over time. The median drug price decrease observed at 10 years was approximately 15%.[2]: 43–46 

A report for the European Commission simulated various ERP use strategies for drug price regulation, and found that frequent price revisions, iterative price cuts, having a large number of countries in the basket, price calculation methods, the impact of generics and prices’ sources were the most influent parameters on the drug prices evolution over time for countries using ERP as their main criterion for drug price regulation.[2]: 107  Although it is conceptually inadequate to use ERP for drug price regulation instead of as a benchmark measure,[2]: 107 [6] this report concludes that ERP can be a "very effective tool", especially when several of the aforementioned strategies are combined.[2]: 107 

In the United States, medicines prices, which are not directly regulated by any cost-containment policy ("free pricing"),[13]: 191  continually rank among the highest in the world.[22][16] There are political discussions As of  2019 to implement ERP in the United States.[16][23]

Low and moderate-income countries

High medicine price and availability are the two crucial obstacles preventing one-third of the global population,[11]: xi, 1 [13]: 189  or about two billion people,[10]: 209  mainly in low and moderate-income countries (LMICs, as defined by the World Bank),[24] from accessing needed medication.[11][13] There is evidence that medicine prices are not correlated to income differences between countries, with essential medicines being higher priced in low income countries than in high income countries due to retail markups.[25]: 27 

Whereas European Union and OCDE countries have put in place shared regulated medication cost-containment systems, low and moderate-income countries did not and lack health-care information systems to help in policy decision making, which worsened their situation as "price acceptors".[8]: 303  Indeed, their out-of-pocked expenditure increased, with 61% to 77% (per capita) of total pharmaceutical expenditure being paid by individuals out of their pocket with no state-reimbursement.[8]: 303 [11] Pharmaceuticals expenditures also account for an important share of all expenditure on health, particularly in low-income countries with a mean of 30.4% in 2006 compared to 19.7% in high-income countries.[26] Furthermore, medicines prices are usually high, particularly in the private sector and up to 80 times the price in high-income countries; availability can be low, particularly in the public sector; treatments are often unaffordable, requiring 15 days of wage to buy a 30 days treatment; government procurement can be inefficient by buying expensive original medication as well as cheaper generics; and numerous taxes and duties are being applied to medicines, including essential ones.[11]: 4  These issues were observed in China, an upper-middle-income economy,[24] with its bribery scandals involving GlaxoSmithKline and Sanofi.[27]

However, inspired by the use of ERP by high-income countries and the lesser technical and analytical requirements to implement ERP compared to other price control mechanisms such as cost-plus or pharmacoeconomic analysis,[8]: 303 [3] LMICs are increasingly following suit, by using ERP in combination with other methods of cost control (cost plus, internal reference pricing, profit controls, economic evaluation, direct fixation).[8]: 303 

Similarly to high-income countries, there is only limited evidence as to the impact of ERP in LMICs. However, some countries such as Turkey and Indonesia saw a decrease in drug prices following the implementation of ERP, although there is no objectively direct evidence this decrease was caused by the introduction of ERP.[8]: 303 

As of 2017, a systematic review found that markup regulation and ERP are the most commonly implemented drug pricing policies in LMICs, followed by cost-plus and the use of generics.[4]

Another review found limited evidence that implementing ERP had the effect of narrowing down the prices, by lowering drug prices in high-price countries and raising them in low-price countries.[6] Hence, it is suggested that optimal ERP implementations are dependent on a clear set of requirements and calculation in full transparency, and that ERP should not be used as the sole pricing mechanism but rather as one benchmark for pricing decisions.[6]

Internal reference pricing

ERP differs from internal reference pricing, or therapeutic reference pricing, where the price of a medication is compared against other domestic drugs that are its therapeutic equivalents, based on a given ATC level.[8][13]: 200 [28]: 9  This sets a reference price for a class of equivalent or similar therapeutic agents, the rest being paid out-of-pocket by the patient.[26] Hence, a prerequisite of internal reference pricing is the availability of comparable medicines, which usually implies this can be implemented only after patents expiry and when generic or biosimilar medicines enter the market.[13]: 193 

Internal reference pricing may reduce expenditures in the short term by incentivizing people to use the reference drugs at the reference price, but the effect on drugs with a higher price than reference and on health is uncertain.[26][29] Some countries, such as Denmark which has a long history of using ERP, switched to internal reference pricing.[2]: 17  In 2016, out of 42 surveyed countries including WHO European countries, Canada and South Africa, 30 reported having internal reference pricing between generics, but only 15 also applied this policy to biosimilar medicines.[13]: 193 

References

  1. 1 2 3 Rémuzat, C; Urbinati, D; Mzoughi, O; El Hammi, E; Belgaied, W; Toumi, M (2015). "Overview of external reference pricing systems in Europe". Journal of Market Access & Health Policy (Systematic review). 3: 27675. doi:10.3402/jmahp.v3.27675. PMC 4802694. PMID 27123181.
  2. 1 2 3 4 5 6 7 8 9 10 Toumi, Mondher; Rémuzat, Cécile; Vataire, Anne-Lise; Urbinati, Duccio (2014). "External reference pricing of medicinal products: simulation based considerations for cross-country coordination" (PDF). European Commission. Retrieved 27 November 2019.
  3. 1 2 3 Espin, J; Rovira, J; De Labry, AO (May 2011). "WHO/HAI project on medicine prices and availability-Working paper 1: external reference pricing" (PDF). Health Action International. WHO/HAI. Retrieved 28 November 2019. In all of the case study countries, a manufacturer submitting a new product for pricing is obliged to provide the price of the product in the reference countries. Failure to do so or to provide false information could lead to fines and penalties.
  4. 1 2 Rida, Nada Abdel; Ibrahim, Mohamed Izham Mohamed; Babar, Zaheer-Ud‐Din; Owusu, Yaw (2017). "A systematic review of pharmaceutical pricing policies in developing countries". Journal of Pharmaceutical Health Services Research (Systematic review). 8 (4): 213–226. doi:10.1111/jphs.12191. ISSN 1759-8893. S2CID 80486443.
  5. ↑ Bangalee, Varsha; Suleman, Fatima (28 September 2018). "A Comparative Study on Medicine Pricing in Brazil, Russia, India, China and South Africa (BRICS)". Global Journal of Health Science. 10 (10): 152. doi:10.5539/gjhs.v10n10p152.
  6. 1 2 3 4 Holtorf, Anke-Peggy; Gialama, Fotini; Wijaya, Kalman Emry; Kaló, Zoltán (1 September 2019). "External Reference Pricing for Pharmaceuticals—A Survey and Literature Review to Describe Best Practices for Countries With Expanding Healthcare Coverage". Value in Health Regional Issues (Review). 19: 122–131. doi:10.1016/j.vhri.2019.04.003. ISSN 2212-1099. PMID 31416014.
  7. ↑ "Use of External Reference Pricing for Medicines". www.haiweb.org. Health Action International. 2014. Retrieved 28 November 2019.
  8. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Saeed, Amna; Li, Zongjie; Kabba, John Alimamy; Yang, Caijun; Fang, Yu (2019). "External Reference Pricing and Medicines". Encyclopedia of Pharmacy Practice and Clinical Pharmacy. Academic Press. ISBN 978-0-12-812736-0.
  9. 1 2 Habl, C; Schneider, P; Sebesta, R; Németh, G (November 2018). "Euripid Collaboration Guidance Principles for External Reference Pricing in Europe". European Journal of Public Health. 28 (suppl_4). doi:10.1093/eurpub/cky212.217.
  10. 1 2 3 4 Raju, Priyanka Konduru Subramani (2019). "Chapter 6.2 - WHO/HAI Methodology for Measuring Medicine Prices, Availability and Affordability, and Price Components". Medicine Price Surveys, Analyses and Comparisons (Monograph). Academic Press. pp. 209–228. ISBN 978-0-12-813166-4. Retrieved 27 November 2019.
  11. 1 2 3 4 5 6 Measuring medicine prices, availability, affordability and price components. World Health Organization & Health Action International. May 2016. pp. 123, 289. Mirror: 2008 original publication by WHO.
  12. 1 2 3 Wirtz, VJ; Hogerzeil, HV; Gray, AL; Bigdeli, M; de Joncheere, CP; Ewen, MA; Gyansa-Lutterodt, M; Jing, S; Luiza, VL; Mbindyo, RM; Möller, H; Moucheraud, C; Pécoul, B; Rägo, L; Rashidian, A; Ross-Degnan, D; Stephens, PN; Teerawattananon, Y; 't Hoen, EF; Wagner, AK; Yadav, P; Reich, MR (28 January 2017). "Essential medicines for universal health coverage". Lancet. 389 (10067): 403–476. doi:10.1016/S0140-6736(16)31599-9. PMC 7159295. PMID 27832874.
  13. 1 2 3 4 5 6 7 8 9 10 11 Vogler, Sabine (2019). "Pharmaceutical Pricing Policies". Encyclopedia of Pharmacy Practice and Clinical Pharmacy. Academic Press. pp. 188–201. ISBN 978-0-12-812736-0.
  14. ↑ Leopold, C; Vogler, S; Mantel-Teeuwisse, AK; de Joncheere, K; Leufkens, HG; Laing, R (January 2012). "Differences in external price referencing in Europe: a descriptive overview". Health Policy (Amsterdam, Netherlands). 104 (1): 50–60. doi:10.1016/j.healthpol.2011.09.008. PMID 22014843.
  15. ↑ "Pharmaceutical spending (indicator)". data.oecd.org. OECD. 2019. doi:10.1787/998febf6-en. Retrieved 28 November 2019.
  16. 1 2 3 "Drug Prices". Bloomberg. 1 February 2019. Retrieved 8 December 2019.
  17. 1 2 3 Vogler, Sabine; Schneider, Peter (1 January 2019). "Chapter 8 - Medicine Price Data Sources". Medicine Price Surveys, Analyses and Comparisons. Academic Press: 247–268. doi:10.1016/B978-0-12-813166-4.00014-0. If medicine prices are not regulated, they tend to vary between dispensaries and retailers of a country. To survey medicine prices in these contexts, the WHO/HAI methodology was developed, and it was frequently used for conducting price studies.
  18. 1 2 Schneider, Peter; Vogler, Sabine (2019). "Chapter 3 - Price Studies for Specific Medicines". Medicine Price Surveys, Analyses and Comparisons. Academic Press. pp. 113–164. ISBN 978-0-12-813166-4.
  19. ↑ "Euripid". euripid.eu.
  20. ↑ Ding, Min; Eliashberg, Jehoshua; Stremersch, Stefan (2013). Innovation and Marketing in the Pharmaceutical Industry: Emerging Practices, Research, and Policies (Monograph). Springer Science & Business Media. ISBN 978-1-4614-7801-0. Although they did not observe a direct effect of regulation on launch price, they did find an effect of regulation on launch timing. Apparently, regulatory restrictions are more useful to regulators in constraining the price of mature drugs rather than the price of newly launched drugs.
  21. ↑ Panteli, D; Arickx, F; Cleemput, I; Dedet, G; Eckhardt, H; Fogarty, E; Gerkens, S; Henschke, C; Hislop, J; Jommi, C; Kaitelidou, D; Kawalec, P; Keskimaki, I; Kroneman, M; Lopez Bastida, J; Pita Barros, P; Ramsberg, J; Schneider, P; Spillane, S; Vogler, S; Vuorenkoski, L; Wallach Kildemoes, H; Wouters, O; Busse, R (October 2016). "Pharmaceutical regulation in 15 European countries review". Health Systems in Transition (Review). 18 (5): 1–122. PMID 27929376.
  22. ↑ Hollis, Aidan; Grootendorst, Paul (1 January 2019). "Chapter 2.2 - Medicine Prices in the United States and Canada". Medicine Price Surveys, Analyses and Comparisons. Academic Press: 31–43. doi:10.1016/B978-0-12-813166-4.00004-8.
  23. ↑ Simmons-Duffin, Selena (19 September 2019). "How An 'International Price Index' Might Help Reduce Drug Prices". NPR.org. Retrieved 8 December 2019.
  24. 1 2 "World Bank Country and Lending Groups – World Bank Data Help Desk". datahelpdesk.worldbank.org. 2019. Retrieved 30 November 2019.
  25. ↑ Yadav, Prashant (August 2010). "Differential Pricing for Pharmaceuticals. Review of current knowledge, new findings and ideas for action" (PDF). gov.uk. U.K. Department for International Development (DFID). Retrieved 28 November 2019.
  26. 1 2 3 Acosta, A; Ciapponi, A; Aaserud, M; Vietto, V; Austvoll-Dahlgren, A; Kösters, JP; Vacca, C; Machado, M; Diaz Ayala, DH; Oxman, AD (16 October 2014). "Pharmaceutical policies: effects of reference pricing, other pricing, and purchasing policies". The Cochrane Database of Systematic Reviews (Systematic review) (10): CD005979. doi:10.1002/14651858.CD005979.pub2. PMC 6703418. PMID 25318966.
  27. ↑ "Spotlight on China". www.haiweb.org. Health Action International. Retrieved 28 November 2019.
  28. ↑ "Mapping External Reference Pricing Practices for Medicines" (PDF). haiweb.org. Health Action International. September 2014.
  29. ↑ Dylst, Pieter (15 August 2012). "Reference pricing systems in Europe: characteristics and consequences". Generics and Biosimilars Initiative Journal (Review). 1 (3–4): 127–131. doi:10.5639/gabij.2012.0103-4.028.
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