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The End of the International Reference Pricing System?

Persson, Ulf LU and Jönsson, Bengt (2015) In Applied Health Economics and Health Policy
Abstract
All 28 EU member states except Sweden and the UK apply international reference pricing (IRP), international price comparison, external reference pricing or cross-reference pricing. The attractiveness of using prices of other countries as a benchmark for decisions within a national price control is obvious. Alternative models for price and reimbursement decision making such as value-based pricing (VBP), i.e. cost-effectiveness analyses, are more complicated. However, IRP provides incentives for stakeholders to take action not in line with optimal (welfare-maximizing) pricing. IRP is costly for two reasons. First, manufacturers are incentivised to limit or delay access to new innovative treatments in countries with small markets and/or a low... (More)
All 28 EU member states except Sweden and the UK apply international reference pricing (IRP), international price comparison, external reference pricing or cross-reference pricing. The attractiveness of using prices of other countries as a benchmark for decisions within a national price control is obvious. Alternative models for price and reimbursement decision making such as value-based pricing (VBP), i.e. cost-effectiveness analyses, are more complicated. However, IRP provides incentives for stakeholders to take action not in line with optimal (welfare-maximizing) pricing. IRP is costly for two reasons. First, manufacturers are incentivised to limit or delay access to new innovative treatments in countries with small markets and/or a low income, which can be costly in terms of loss of health. Second, all countries also experience a loss of welfare (health) because IRP reduces the opportunities for differential pricing (Ramsey pricing), i.e. using the fact that the ability and willingness to pay differs between countries. Thus, IRP results in less sales revenue to finance research and development of new innovative drugs. We can now observe that payers and manufacturers are engaged in different types of risk-sharing schemes, price-volume negotiations, payback arrangements, confidential discounts, coverage with evidence developments, etc., all with the purpose of returning to the old model of price discrimination and Ramsey pricing. Shortly, real prices for use in IRP systems will cease to exist and, thus, we expect to soon see the end of IRP, a new system for price discrimination and an increasing demand for VBP. (Less)
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author
organization
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Contribution to journal
publication status
published
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Applied Health Economics and Health Policy
publisher
Springer
external identifiers
  • pmid:26112982
  • scopus:84958125397
  • wos:000369613700001
ISSN
1179-1896
DOI
10.1007/s40258-015-0182-5
language
English
LU publication?
yes
id
aff34e9b-8169-4523-98b9-90eca9f60122 (old id 7477834)
alternative location
http://www.ncbi.nlm.nih.gov/pubmed/26112982?dopt=Abstract
date added to LUP
2015-07-10 22:32:32
date last changed
2017-06-11 04:42:55
@article{aff34e9b-8169-4523-98b9-90eca9f60122,
  abstract     = {All 28 EU member states except Sweden and the UK apply international reference pricing (IRP), international price comparison, external reference pricing or cross-reference pricing. The attractiveness of using prices of other countries as a benchmark for decisions within a national price control is obvious. Alternative models for price and reimbursement decision making such as value-based pricing (VBP), i.e. cost-effectiveness analyses, are more complicated. However, IRP provides incentives for stakeholders to take action not in line with optimal (welfare-maximizing) pricing. IRP is costly for two reasons. First, manufacturers are incentivised to limit or delay access to new innovative treatments in countries with small markets and/or a low income, which can be costly in terms of loss of health. Second, all countries also experience a loss of welfare (health) because IRP reduces the opportunities for differential pricing (Ramsey pricing), i.e. using the fact that the ability and willingness to pay differs between countries. Thus, IRP results in less sales revenue to finance research and development of new innovative drugs. We can now observe that payers and manufacturers are engaged in different types of risk-sharing schemes, price-volume negotiations, payback arrangements, confidential discounts, coverage with evidence developments, etc., all with the purpose of returning to the old model of price discrimination and Ramsey pricing. Shortly, real prices for use in IRP systems will cease to exist and, thus, we expect to soon see the end of IRP, a new system for price discrimination and an increasing demand for VBP.},
  author       = {Persson, Ulf and Jönsson, Bengt},
  issn         = {1179-1896},
  language     = {eng},
  month        = {06},
  publisher    = {Springer},
  series       = {Applied Health Economics and Health Policy},
  title        = {The End of the International Reference Pricing System?},
  url          = {http://dx.doi.org/10.1007/s40258-015-0182-5},
  year         = {2015},
}