What should drug pricing reforms look like in the United States?

GPI attended ISPOR last month, in Washington D.C, and had the opportunity to weigh in on this discussion with some of our data comparing two widely-used pricing levers, HTA-based value-based pricing (VBP) and International Reference Pricing (IRP).


The topic of tackling drug prices in the US to curb spending and improve affordability and access to medicines continues to be debated and discussed by lawmakers on both sides of the isle. Both Republican and Democrat administrations have campaigned to lower prescription drug costs, including proposals to allow Medicare to negotiate drug prices, import cheaper drugs from Canada, as well as international reference pricing (IRP) among many others. IRP or external reference pricing (ERP) is the mechanism of setting price caps for drugs based on their prices in foreign markets, and the previous administration was very close to implementing this policy in the US for the first time under the Most Favoured Nation Model before the Final Rule was rescinded by the current administration.

The US contrasts with other developed countries where prices are highly regulated and determined through defined processes like health technology assessment frameworks that generally support value-based pricing (VBP). An even larger selection of countries look at International Reference Pricing (IRP), with notable overlap between these two policies, especially across Europe, Australia and Canada.

Countries with HTA

HTA Countries
Source: GPI pulse™

Countries with IRP

Source: GPI pulse™

We think US drug pricing reforms are likely inevitable, but what shape and form they take will have a significant impact on the pharmaceutical sector globally.

We attended ISPOR last month, in Washington D.C, and had the opportunity to weigh in on this discussion with some of our data comparing two widely-used pricing levers, HTA-based value-based pricing (VBP) and International Reference Pricing (IRP).

We estimated the discounts required on current US list prices to achieve a VBP (based on the Institute for Clinical and Economic Review [ICER] willingness-to-pay thresholds) with those needed to achieve IRP (based on the Most Favored Nation Model framework). We used list prices from Global Pricing Innovations (GPI)’s pulse™ platform, and selected a sample of drugs that had been reviewed by ICER and launched in international markets to ensure comparisons between VBP and IRP can be made (the detailed methodology and results can be downloaded here).

VBP vs. IRP correlation

IRP led to greater discounts than VBP on average, but the two are not correlated

While it was no real surprise that IRP would lead to greater discounts (70.5%) compared to VBP (55.2%), we were somewhat surprised that there was no correlation between IRP and VBP. Although many of the same countries referenced for IRP have HTA-processes in place to set prices, we identified two key reasons why there was no correlation between VBP and IRP.

  1. IRP leverages ex-factory or list prices (publicly disclosed prices) – Some countries like the UK, have a free pricing system for list prices, while the negotiated reimbursement price with NICE remains strictly confidential. It is no surprise that the UK never had the “lowest price” price within our sample, although we are sure NICE has negotiated steep discounts in line with its quality-adjusted life years (QALY)-based willingness-to-pay (WTP) threshold for each drug.
  2. Each country has a different HTA framework, value system, and set of demographics that will determine the VBP – IRP will simply capture the price in the country that seemed to value that product the lowest for a wide array of country-specific reasons. We didn’t have the same lowest-income country determining the IRP price in most of our sample, as we might have initially expected. In fact, we had twelve different countries setting the IRP price in our sample, including Luxembourg, France, Austria, and Japan among others. Although on average South Korea’s prices were among the lowest within our list (see index graph below), other countries managed to price at least one product lower than South Korea half of the time where prices where available.

It is also worth noting that many of the countries at the lower end of the pricing index such as South Korea and New Zealand has a much smaller proportion of the drugs available, 43% and 13% respectively, within our sample. This compares to the UK and Germany that had the highest proportion of drugs within our sample accessible on the market (96% and 87% respectively), at the time of assessment. This suggests that lower prices could be correlated with market access delays. Our sample size was too small to confirm this trend, however lower priced markets tend to be late-launch markets due to IRP considerations.

As highlighted in the data below, there was also significant discrepancy between the US prices and those in other countries. On average, ex-US drug prices in our sample were around 39% of the US list price. This is likely one of the key reasons lawmakers are keen to address the issue of drug pricing in the US.

Average/median US sample drug price index across 22 highest income countries, 2021

Are orphan drugs undervalued by traditional HTA frameworks?

The other highly unexpected finding from our research suggested that orphan drugs might be undervalued by the current ICER methodology, a standard cost-effectiveness framework leveraged by a lot of countries with HTA processes. We identified a group of drugs within our sample that had orphan drug status (n=9), and nearly all of them with the exception of 1, required greater VBP discounts compared to IRP. More research would be required to better understand and explain this observation, but we have a few ideas on why this might be happening.

Percentage point difference between IRP and VBP discounts

percentage difference between VBP and IRP
Source: GPI pulse™

There is growing evidence, including research highlighted at ISPOR this year, that standard economic evaluation methods might be undervaluing certain categories of drugs, particularly those with higher underlying severity. Various sessions at the conference discussed ways HTA agencies could try to address this issue (here and here). It is reassuring to see countries such the Netherlands, Norway, as well as the UK, spearheading major framework reforms that should help mitigate some of these limitations of traditional cost-effectiveness frameworks. We already discussed the introduction of the uncertainty and severity modifiers by NICE that serve to improve the cost-effectiveness scoring and consequently the “value” for certain drugs. Meanwhile, other sessions at ISPOR focused on potential use of alternatives to QALY in cost-effectiveness frameworks, such as the Equal Value of Life metric (EVL; see here), as well as the consideration of a much wider collection of value elements, including those featured in the ISPOR Value Flower among others that could provide meaningful contributions to decision making (here). The challenge, of course, is weighting these value attributes and understanding how to incorporate these elements in health economics models. One methodology that could provide a more quantitative assessment of value would be to leverage multi-criteria decision analysis (MCDA), a framework we currently use for our agile value-based price forecasting tool GPI horizon.

I think what the research featured by us and others at ISPOR has highlighted is that there is likely no “one-size-fits-all”, and whatever drug pricing policies or reforms the US may choose to explore or implement, it is critical to ensure they reflect the value system of the country and facilitate, rather than impede, access to life-saving medicines.

By Margaret Labban, PhD – Pricing & Market Access Solutions Manager, GPI

This blog is based on content from the panel discussion at ISPOR titled ‘What Is the Preferred Approach to US Drug Pricing Reforms: International Reference Pricing or Value Based Pricing?‘, with contribution from multiple authors and panelists. You can find out more about GPI’s published research and presentations at ISPOR by going to our dedicated page.

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