Is International Reference Pricing Still Relevant?
Executive Summary
International reference pricing is becoming more irrelevant as increasing emphasis is placed on other cost-containment measures.
“International reference pricing [IRP] is coming under attack from different directions,” according to Peter Zimmermann, of Model N, a provider of revenue management solutions to the life sciences industry.
Speaking this week at the virtual World Evidence, Pricing and Access Congress 2021, Zimmermann said that the shift towards individual pricing agreements for medicines could “end” IRP.
IRP is one of the most popular cost containment tools used across the world, said Zimmermann, who is senior director of customer success at Model N. Only a small number of countries in Europe refrain from using IRP, while markets in the Middle East and Asia, including China, have adopted it, he said, adding that the US will potentially use it too.
IRP is a popular tool because it helps countries to avoid paying a higher price for drugs than the price paid in other countries. “It is a simple method to anchor prices. It's easy to implement and helps set limits around maximum allowed prices,” he said.
However, as Zimmermann points out, there are a number of limitations. For example, IRP uses gross prices, and not the net price, which tends to remain confidential between the payer and provider. This can mean that pricing decisions are based on a false picture.
IRP does not necessarily protect countries from paying a higher price. It leaves little scope for differential pricing, which means the price a lower income country pays is closer to the price paid in wealthier countries. In addition, some lower-price countries face launch delays or exclusions as companies try to avoid price erosion in higher priced markets.
Zimmermann argued that IRP is becoming less relevant as a cost-containment tool as health care providers increasingly undertake more negotiations on access and pricing agreements with companies.
There has been an increase in the number of volume-based rebate agreements. These see companies pay rebates when agreed volumes are met. These volumes could be the number of patients treated or a level of spending for either a particular product or across a product group.
There is also an increase in the number of value-based agreements, particularly where more expensive, innovative products are concerned. These include outcome-based agreements where payment is made only if certain outcomes are met.
Indeed, in the Netherlands, which was an early adopter of outcomes-based agreements, there has been a growth in the number of pay-for-performance contracts for certain classes of drugs, including gene therapies, said Jolanda Koenders, head of patient value and access at Takeda. “Because who can tell if these gene therapies have lasting effects for 30, 40 or 50 years?” she said during a separate presentation at the congress.
“IRP is, essentially, less and less relevant in containing costs as we see more and more of these individual negotiations happening with the providers of treatments. And therefore, the difference between the gross price that is publicly available, and the net price that is actually being paid is varying, more and more,” Zimmermann said.