International Reference Pricing: A Wee Bit of Political Agreement, a Great Deal of Uncertainty


Timothy Kelley

C​ould drug prices be lowered by pegging them to what is paid in other countries? The Trump administration took a step in that direction last fall, when CMS floated a proposal to use international reference pricing (IRP)—average prices paid in a select group of other high-income nations—to limit prices of Medicare Part B drugs (mostly those administered by physicians, including many chemotherapy agents). Reports this summer suggested the administration might be considering an executive order that would apply IRP also to the much larger group of pharmacy-distributed Part D medications. When House Speaker Nancy Pelosi unveiled her plan for lowering drug prices late last month, it also included a version of IRP. One headline read, “Pelosi Borrows a White House Idea to Lower Drug Prices.” Is such a Trump–Pelosi reform too good to be true? It may be, and not just because supporters of each are profoundly allergic to the other. In a Sept. 9 Health Affairs blog post, Loren Adler, associate director of the USC–Brookings Initiative for Health Policy, joined with three co-authors to explore some of the possibilities—and complications—of taking IRP beyond Part B.

The idea, they conceded, “offers the potential to reduce drug prices in the United States and may not commensurately reduce the expected financial returns to new drug development, to the extent it places upward pressure on drug prices in the reference countries.” In other words, it could be a bit more favorable to drugmakers than just taking out the meat axe. 

How would that upward pressure work? If faced with a requirement that a U.S. price for a drug must match that offered in another nation, Adler explained in a recent phone interview with Managed Care, drugmakers may be “less willing to offer that lower price to the other country, and more willing to walk away from the table.” In other words, pegging U.S. prices to international ones may just lead to higher prices elsewhere. 

However, “the magnitude of the model’s impact on reference country drug prices is highly uncertain,” Adler and her blog post coauthors noted, adding that there are ways to cut U.S. prices without also raising drug prices elsewhere.

“To Republican orthodoxy, and to, I think, almost every Republican senator, international reference pricing is anathema,” Adler told us. “It certainly would have been so to a non-Trump Republican administration.” But as a New York Times article pointed out—and it isn’t just the Times that is saying this—“by the time he hits the campaign trail again next year, President Trump wants to persuade voters that he lowered the cost of prescription drugs.”

After all, the idea that American consumers have been snookered into subsidizing drugs for the rest of the world—and that we can fix that—has a nice Trumpian nationalist ring to it. On the other hand, some of the unorthodox moves the President says or tweets about end up not happening. 

One of several possible flies in this ointment: bitter pharma industry opposition. “Maybe IRP would be more pharma-friendly than direct Medicare price negotiations,” said Adler, “but it’s still something pharma is going to fight tooth and nail.”

Another difficulty is that IRP could be a clumsy mechanism to apply. For example, said Adler, “it’s really hard to figure out the actual net-net price in other countries.”

Then there’s simple logic. If all countries copied each other’s prices, as American Enterprise Institute fellow James C. Capretta wrote recently on RealClearPolicy.com, it could “descend into a circular farce.” Some countries, Adler explained, use IRP more as a guide than as a binding requirement. Others don’t use IRP at all; the United Kingdom bases permissible drug prices on its own assessment of clinical value along with agreed rates of return for drugmakers.

Finally, there’s the notion that drugmakers will find ways to get around the IRP pricing requirements. “You’ll probably get some pricing reductions” out of applying IRP across the board, said Adler. “But I don’t think you’ll get the reductions you initially thought you’d get, given the gaming that will probably happen.”

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