Advocates for Evidence-Based Health Policy Speakers
International House of Pricing
Late last year, the House of Representatives passed landmark legislation to lower pharmaceutical prices. Among its many components, H.R.3 creates a price index to set Medicare Part D prices based on averages of six high-income countries.
International reference pricing (IRP) has been suggested by both political parties, with the Trump administration proposing use of IRP for drugs under Medicare Part B. IRP in other nations can help American lawmakers explore how the policy would prove effective here.
A recent article examined the potential savings if Medicare Part D were to adopt a price index referencing the United Kingdom (UK), Japan, and Ontario, Canada. The authors identify 79 drugs—representing $56.6 billion in Part D spending—with no generic competition, determine the average price for each across countries, and compute potential savings under three IRP schemes.
The authors indicated US prices to be between 3.2 and 4.1 times higher than in referenced countries, extrapolating that rebates would need to be as high as 78% to make prices match. Potential savings are calculated between $19.8 and $41 billion, depending on the IRP scheme, making clear that while IRP holds real policy significance its specific implementation is critical to the degree of savings.
The study, however, was unable to account for how the pharmaceutical industry may react. Today, US consumers are attributed to approximately 70 percent of total pharmaceutical profits, so it is reasonable to expect IRP to significantly impact the industry’s profits and thus its behaviors—potentially leading to delayed launches or price inflation in referenced markets.
While IRP is a serious policy prescription, we must look to how other nations’ IRP schemes fit into accompanying mechanisms for cost reduction. Many countries using IRP incorporate it as just one of many mechanisms to lower prices, in addition to government negotiations or compulsory licensing. Alone, it is unclear whether IRP would produce the savings this study claims. Given factors unique to the US market, we should investigate how IRP can be tied to other price controls to bring meaningful cost savings to American patients.
This Health Policy Journal Club review is written by Anmol Gupta as part of our collaboration with the Health Policy Journal Club at Baylor College of Medicine where he is a medical student.
Abstract
Many countries use external reference pricing to help determine drug prices. However, external reference pricing has received little attention in the US-perhaps because the US is often the first adopter of drugs. External reference pricing could be used to set prices for drugs that were already established in the market. We compared the price differentials between the US and the UK, Japan, and Ontario (Canada) for single-source brand-name drugs that had been on the market for at least three years. We found that the prices averaged 3.2-4.1 times higher in the US after rebates were considered. The price differential for individual drugs varied from 1.3 to 70.1. The longer a drug remained on the market, the greater the differential. The estimated savings to Medicare Part D of adopting the average price of drugs in the reference countries was $72.9 billion in 2018. Medicare could use external reference pricing in Part D to improve affordability for patients.
PMID: 31059372
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