For IRP, the impact did not wait.

International reference pricing (IRP) is defined as the practice of using the price(s) of a medicine in one or several countries in order to derive a benchmark or reference price for the purpose of setting or negotiating the price of the product in a given country.

Brexit shook the EU and impacted pharmaceutical price setting. To some extent, the impact was imminent—but we still have several things to come. Let us take a look at four Brexit-related IRP insights.

  1. As one of the top 5 countries out of the 28 in Europe, the UK is - with or without Brexit - a dominant player in the European economy. And from an IRP perspective, the UK is one of only two countries in the EU not applying this methodology—Sweden being the other one. So, the short answer to what impact Brexit and international reference pricing rules will have to UK prices is… none.
  2. However, there is also a longer answer and it starts with: Other countries referencing UK pharmaceutical prices.

Why do they reference UK prices, and will they continue after Brexit?

A classic reason for including the UK in the reference basket is that a NICE assessment looks into the value of the drug. So, countries solely applying IRP will indirectly assess the value as they include the UK price.

Will Brexit change this?

Yes and no. Given NICE assessment still takes place and prices are still publicly available, the UK continues to be included in numerous reference baskets after Brexit. We should look more towards the volatility Brexit poses on prices, including exchange rate fluctuations towards especially the Euro and the Dollar. But do not forget the Japanese Yen and the Chinese Yuan.

This brings us back to the (sub) headline, that the impact did not wait.

Like the stock market where investors assess on expectancy and not future reality, so did the impact on IRP in other countries occur overnight after the Brexit election in June 2016—as the exchange rate impact meant that UK pharma prices suddenly dropped 15% relative towards prices in the Euro zone. There is a time lag before a lower price takes place in other countries, but it impacted the UK immediately.

Pharma companies will argue the UK price is not relevant to include, but the payers may not listen. This could lead to pharma delaying launch of new treatments in the UK if the reference consequences are too severe.

  1. What if Scotland stays in the EU?

In the real world, many assumptions must materialize before a given scenario plays out. Let us not spend time listing and weighing all of them in this case. If they do stay, it is also feasible Scotland will have their own pharma price setting methodology. Then we have a new player in the IRP game affecting prices and we could see yet another IRP rule strongly based on NICE assessment prices as well as prices in other European countries with similar economic strength as Scotland.

  1. What about joint procurement?

Joint procurement has basically nothing to do with the EU, Brexit and negotiations with Brussels – and that may be the advantage.

We see several joint procurement examples materialising now, where countries join bargaining power to get pharma companies to reduce prices. One example was the thorough report from the European Commission in 2015 arguing joint EU procurement of pharmaceutical products showed strong bargaining power towards large pharma companies. It remains tricky to agree on healthcare levels among 28 countries, and that is why we see enclaves of countries trying to join forces now.

Brexit and joint procurement of pharmaceutical go well hand in hand as no direct negotiations are needed with Brussels, and this may give UK politicians a win at home. Here, the UK can gain traction using trade agreements with a handful of countries, an action made easier by the fact that partnering up with a large market like the UK is not such a bad idea for smaller countries.

As always, pricing of pharmaceuticals is in the spotlight and changes are constant. Interpretations and amendment of IRP rules follow the same pattern and we look forward to continue updating you.

This blog’s author, Daniel Suhr CEO of Two Scenarios, is a globally recognized expert in international reference pricing. DRG partners with Two Scenarios on offers in this field. Find out more here.

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