Setting the record straight on international reference pricing

This blog sets the record straight on international reference pricing and the effect it could have on innovation and access to medicines.

Kevin Haninger
Kevin HaningerJuly 16, 2019

Setting the record straight on international reference pricing.

There’s been a lot of talk in Washington about how to help patients better access and afford their medicines. These are important discussions that will hopefully result in real affordability solutions for patients. Unfortunately, some proposals have centered on the misguided idea of having the government set prices through a mechanism known as international reference pricing. Today, we’re taking a step back to examine what international reference pricing is and what it has meant for patients abroad.

What is international reference pricing?

In many countries, governments are the primary or only payer of health care and in effect dictate the prices of medicines as a condition of market access. Biopharmaceutical companies are often forced to accept these prices or face further restrictions on coverage. Some countries have discriminatory policies or threaten to break patents on valuable new medicines. Practices like these force artificially low prices, delay patient access to new medicines and keep some innovative treatments off the market entirely.

International reference pricing implicitly relies on these harmful and even illegal practices in other countries to set prices. Through this mechanism, governments regulate prices based on the price set by other governments, which can include a small number of economic peers or dozens of economically diverse countries. Austria, for example, sets prices to not exceed the average price among 26 countries with mostly lower GDP per capita. The Netherlands references just four countries, but these four countries reference an additional 24 countries.

While international reference pricing was once used informally by a small number of countries that lacked the resources to inform price negotiations, it is increasingly wielded to extract the lowest possible price no matter what the consequence. This is the opposite of the market-based competition needed to expand patient access, improve affordability and encourage investment in the next generation of treatments and cures.

What does it mean for patients?

In countries that use international reference pricing and other government price controls, patients face significant restrictions in accessing new medicines and treatment options. That becomes clear when you compare the availability of new medicines in the United States to other countries. Nearly 90% of new medicines launched since 2011 are available in the United States compared to just 50% in France, 48% in Switzerland and 46% in Canada – countries that use some form of international reference pricing. In addition to having fewer options, patients in these countries often must wait years longer, on average, for medications than patients in the United States.

While not a new idea globally, international reference pricing would be an entirely new approach to health care in the United States, upending the only truly market-based system in the world. In America, market competition determines the net price of a medicine, patients have faster access to more medicines than anywhere else in the world and doctors and patients work together to decide which medicine is right for them. Policymakers should keep these facts in mind and work toward the right reforms instead of copying the flawed policies of other governments.

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