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If you want to navigate pharma price changes in Europe, you have to understand international reference pricing (IRP).

As many of you know, all but two countries in the European Union apply IRP to some extent (also named external price referencing) when determining the price of a new drug. This practice of letting the price be determined by the price level in other countries is very concentrated in Europe but also prevails to a lesser extent in other areas of the world.

"Study on enhanced cross-country coordination in the area of pharmaceutical product pricing"

The European Commission has just sponsored a study looking at how the IRP praxis can be optimized to give broader access to medicine in the light of future budget restraints. So what does the study suggest?

The authors suggest changes in five different areas:

  1. Set up a central pricing database.
    This is actually already on its way, although not 100% up and running yet. The EURIPID database will be managed by member states and will act as a common place to collect prices and exchange them for reference. A simple and straight-forward idea, but how will they make sure data is correct and who will have access to validate?
  2. Incorporate discounts into the IRP calculations.
    Today, the prices are in most cases not reflecting the real prices as discounts are not officially open in all countries. Will the discount opportunity be abundant if everyone can see it?
  3. Regular price reviews and more frequent re-referencing.
    The study calculates that the more re-referencing, the lower the prices. Hence, countries should raise the number of times they re-reference. The administrative task is briefly touched upon, but the expected reaction from the pharma industry is not.
  4. Coordination of IRP formulae.
    It seems like each country invents a new IRP formulae! This is almost true, so the idea of coordination is new and will need to sink in. One consequence is that countries with a strong economy can no longer reference countries with a poor economy.
  5. Introduction of differential pricing scheme.
    It seems like even the study’s authors are skeptical about the idea that prices for an identical product should be significantly different in two different countries. In theory, there are many good and honorable reasons. In practice, there does not seem to be the willingness. One of the first hurdles is the soul of the European Union: the idea of free trade among member states.

We will be writing a blog series on the impact of this study, and in the next blogs, we will take a closer look at the implications for each of these suggestions.  In the meantime, we invite you to test your IRP knowledge with our new online quiz.

Daniel_Suhr

Daniel Suhr
CEO, Two Scenarios