International reference pricing: Love it or hate it, there is a good way and a bad way to do it
Whilst at the Pharma Pricing & Market Access 2017 conference held recently in London, I had the opportunity to hear how a number of industry members are thinking about international reference pricing (IRP) these days. In a dedicated presentation, Sam Taylor, Pfizer's Global Pricing Director, gave an interesting analysis of the pros and cons of IRP and put forward some best practice considerations from an industry standpoint, in which he asked whether the pricing mechanism should be thought of as "friend or foe."
Some of his views overlap with those of Panos Kanavos, of the London School of Economics, who set out 14 "best practice" principles for IRP (a work in progress) at the Second Plenary session at ISPOR Vienna in November. Kanavos and colleagues have developed principles for the design, operation and implementation of IRP as informed by stakeholder input. Kanavos regards IRP as a "reasonable" drug pricing methodology, if certain conditions hold. From the industry perspective, Taylor argued that IRP makes sense as long as it forms one part of an overall price-setting strategy, balanced with broader health policy objectives.
IRP challenges….and some solutions
As outlined by Taylor, there are a number of critical aspects which need to be considered when implementing or conducting IRP, and which remain key challenges for industry as increasing numbers of payers worldwide look toward this policy framework. In some of these areas, the industry perspective articulated by Taylor overlaps with the best practice principles developed so far by Kanavos and team:
- Exchange rate volatility- Decision-makers should put greater thought into how exchange rates are utilized; this is a key issue for markets outside the Eurozone in particular, as reference baskets by default include markets using other currencies. Pronounced exchange rate fluctuations (e.g. such as in Egypt) result in a severe revenue impact due to price spiralling. According to Kanavos's principles, the IRP formula adopted by a country should avoid the impact of exchange rate volatility. This perhaps could be addressed by taking the average period exchange rate across a given length of time, as opposed to the spot approach frequently used by payers.
- Administrative burden- As more markets are included in an IRP reference basket (such as in Egypt, Austria, the Czech Republic or Slovakia), the administrative challenges grow. For example, Egypt, with a reference basket of 36 countries, conducts a biennial IRP revision, which turns into an administrative burden due to frequent reliance on the pharmaceutical industry to put prices forward. The more complicated the IRP rules, the greater the risk of administrative mistakes.
- Frequency of revisions- From an industry perspective, and as echoed by Kanavos, price revisions should be kept to a minimum and undertaken in a consistent fashion; however, many countries reference twice a year or even more frequently. While Taylor gave the example of a revision every 5 years (as practised by Saudi Arabia, with its reference basket of 30 countries) seeming reasonable, IRP revisions can also be triggered by changes in production or regulatory processes. This ad-hoc approach increases difficulty for industry from a planning and sustainability standpoint, which could be resolved with greater transparency or clarity on how the rules work.
- IRP basket composition and formula- Negative consequences of IRP could be minimised if reference baskets were comprised of countries with similar economic status and health system objectives. In his presentation, Taylor explained that if a larger market references the prices of a smaller market in terms of GDP, it should factor in a calculation to minimise this disparity. With regards to the formula, Kanavos's best practice recommends the use of the mean price, while the Pfizer representative focused on urging payers not to use the lowest price in the basket.
What might best practice IRP look like?
Best practice might see an IRP-derived price serving as the starting point for negotiations between industry and payers, whilst also seeing improved transparency, consistency and predictability in how IRP operates more generally. This would iron out problems typically seen in IRP systems around timeliness, effective regulation and fairness, etc. In fact, methodological robustness and credibility were the main reasons cited by Kanavos when explaining why the Czech Republic is viewed as a regional IRP gold standard in Eastern Europe.
Despite ultimately not regarding IRP as innovation-friendly, Taylor believes a sustainable payer-industry relationship could be attained amidst use of IRP, provided the pricing tool is implemented appropriately. Best practice in IRP could have the benefit for healthcare systems of reduced launch delays and lower likelihood of manufacturers deciding not to commercialise, a phenomenon common in small markets with aggressive IRP practices, something that is very problematic when no therapeutic alternatives exist. A shift in the IRP dialogue to focus on "best practice" indicates recognition that this policy framework is here to stay - and it behoves all stakeholders to try to reach a consensus on what best practice looks like.
We are currently in the midst of deep-dive IRP research due to be published in July, updating the countries in our existing Multi-Client Study and adding a significant number of new markets. Please get in touch if you are interested to learn more about this research, designed as an actionable tool to make sense of the global IRP landscape.
Tania Rodrigues is a Life Sciences Consultant for IHS Markit specializing in healthcare policy, market access, pricing and reimbursement and corporate strategies.
Posted 27 March 2017
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