International Reference Pricing Potentially Coming to U.S.
Trump’s Medicare Part B Pricing Plan Could Bring Pricing Strategy to America
President Trump’s proposal to create an International Pricing Index (IPI) model for Medicare Part B could effectively bring international reference pricing to the United States. This system, which is widely used in many countries around the globe, essentially creates a price influenced by what other countries pay (i.e., which countries are “referenced”).
The proposed change, part of a demonstration project covering just half the nation, applies to physician-administered therapies as part of the Medicare Part B program but not outpatient drugs covered under Part D. For these drugs, the pricing system would shift from one where Medicare establishes the payments based on average sales data as well as a markup for physician administration. Instead, the price would likely be based on some methodology involving the basket countries as captured within the international reference pricing data inside DRG’s Global Market Access Solution. As shown in the example below for Brazil, the pricing rules under an IRP system are complex and vary by country with each feature contributing to how well pharma can maximize list pricing.
- Countries referenced: 10 (United States, Canada, Portugal, Spain, France, Italy, Greece, New Zealand, Australia, country of origin)
- Referenced by other countries: 1 (Colombia)
- ERP’s Role: Main Criterion
- Type of Use: Formal
- Process Stage: Price-setting
- Price Used: Minimum price
- Criteria: Ex-factory
- Type of Drugs Used For: On patent (Category I)
- A drug’s initial list price is dependent on its level of innovation and an external reference pricing process. The Câmara de Regulação do Mercado de Medicamentos (CMED; Pharmaceutical Market Regulation Council) assigns a drug to one of 6 categories based on its level of innovation as determined by clinical evidence and an economic analysis. Ex-manufacturer launch prices are dependent on the drug’s classification.
- The launch price of a new patent-protected drug that offers an advance in efficacy and/or safety relative to established treatments (Category I) cannot exceed the drug’s lowest price in reference countries.
- Generic drugs (Category VI) cannot have a launch price that exceeds 65% of the respective reference product’s price. ANVISA publishes the Lista de Medicamentos de Referência (Reference Drug List), which contains reference products for establishing equivalence.
If the United States adopts the IPI policy, the choice of countries within its reference basket will ultimately affect list prices for Medicare Part B therapies. As seen in the example above, Brazil references 10 countries and uses the minimum price of those 10. In contrast, Japan just references four (France, Germany, the United Kingdom, and the United States), and uses an average of those countries to determine its price. How the United States answers those two questions – which countries and how is it calculated – will go a long way to determining the ultimate impact on pharma.
Based on our knowledge of the global market access environment and the United States’ system, we anticipate the reference basket for the United States would likely include the following countries: Germany, the United Kingdom, Canada, France, and Japan. All are developed, profitable markets for industry, but they all bring certain challenges.
For Germany, the benefit to industry is that Europe’s biggest market allows for free pricing in the first year of a drug’s launch, but the assessments by the Institute for Quality and Efficiency in Healthcare (IQWiG) and the Federal Joint Committee (G-BA) after that first year often mean that drugs that do not provide added benefit are relegated to a reference group that conveys much lower prices. This situation has even driven some companies to depart the German market because so many other countries reference Germany in their international pricing baskets.
In the United Kingdom, the government’s use of an incremental cost per quality-adjusted life year (QALY) model is often leveraged to drive down prices via patient access schemes (most commonly through simple discounts). The acceptable range of cost-effectiveness for the UK is well below what the drugs would fetch in the United States – the United Kingdom sees cost effectiveness as up to ₤20,000 or ₤30,000 per QALY gained, much lower than what America’s Institute for Clinical and Economic Review targets ($100,000 to $150,000 per QALY gained). Therefore, America’s adoption of the UK as a reference partner would sharply drive down prices.
Moreover, for many branded agents, the United Kingdom will not reimburse drugs until they have gone through formal health technology assessment, meaning the U.S. would need to delay inclusion of the U.K. in its reference basket until HTA is completed there.
The same situation also applies to Canada, which follows a U.K. model of HTA. However, in the case of Canada, the U.S. could technically reference the publicly-available price regulated by PMPRB. This would be available soon after launch (prior to reimbursement) and would not be linked to any sort of HTA conducted in Canada.
France would also require waiting until the assessment is completed and its use of the SMR and ASMR system would again push down drug prices because the price paid in France is based on how important the treatment is and how much added benefit there is. Drugs rarely receive top scores that bring with them high prices.
Japan has its own pricing rules that can create challenges for industry as well, including regular price cuts on long-marketed therapies. If the United States included Japan in its basket, prices could actually decrease the longer the drug is on the market.
Fully fleshed out details are somewhat lacking as it relates to Trump’s proposal, but most likely the United States would allow the current pricing model for new drugs but eventually switch over to an IRP model once they have gone through HTA in Europe and Canada (likely a year after launch). Otherwise, reimbursement in Medicare Part B might need to be delayed until after launching in Japan and Germany, which no one would support in the U.S.
While we expect more information to be forthcoming on the IPI proposal, the ultimate impact on industry will be negative as it will drive down prices. Because profits in the U.S. help offset tighter margins in the rest of the world, industry will either need to respond via raising prices in Europe and Asia (a very difficult task in the best of circumstances) or accepting narrower margins.
About Global Market Access Solution
DRG’s Global Market Access Solution allows global teams to monitor and assess the evolving market access environment—through a country, indication or therapeutic lens. Commercially focused data and insights support strategic activities with global revenue implications by helping businesses to scope global opportunities, shape relevant messaging, calibrate go-to-market planning assumptions, and achieve and maintain maximum access and reimbursement. Find out more: Global Market Access Solution