International Reference Pricing for Prescription Drugs in the United States: Administrative Limitations and Collateral Effects

Abstract

Objectives: Many countries use international (or external) reference pricing-benchmarking prices against those in other countries-to manage spending on prescription drugs. By contrast, the United States (US) allows manufacturers to set drug prices freely. In December 2019, a major bill passed the House of Representatives that would introduce international reference pricing to reduce US drug spending. In September 2020, President Trump issued an executive order to apply international reference pricing for drugs purchased under Medicare. As US policymakers consider adopting reference pricing, it is important to recognize four key administrative issues that have complicated other countries' experiences.

Methods: We analyzed the US policy proposals and literature on international experience with international reference pricing to identify implementation challenges and potential effects of US adoption of international reference pricing.

Results: Four key administrative issues were identified: lack of price transparency, delays in market approvals, the frequency of price revisions, and the prevalence of cross-referencing.

Conclusions: Failure to account for the key issues in the emerging US approach will lead to overspending from overestimation of prices. Policymakers also need to recognize the collateral effects that the US adoption of international reference pricing may have on other countries' prices. Given the size of the pharmaceutical market in the US and other market issues, US reference pricing will likely increase drug list and net prices in other countries. Because of limitations in implementation and collateral effects, US policymakers should consider international reference pricing as a supportive tool alongside other cost containment policies, such as value-based pricing or volume agreements. International reference pricing could limit drug spending in the US but faces implementation challenges and will negatively affect other countries.

Keywords: drug pricing; external reference pricing; international reference pricing; prescription drugs.