#HEORInsights

In the complex landscape of pharmaceutical pricing, two prominent approaches have gained traction: International Reference Pricing (IRP) and Value-Based Pricing (VBP). As nations grapple with the challenge of balancing affordability and incentivizing innovation in healthcare, the debate over which approach to prioritize continues to spark discussion.[1]

IRP is an approach that sets drug prices based on the average or lowest prices in a basket of reference countries. Proponents argue that IRP promotes affordability by preventing price disparities between countries, thereby reducing the financial burden on patients and healthcare systems. Additionally, IRP is perceived to discourage excessive pricing strategies, preventing pharmaceutical companies from exploiting differences in pricing regulations across countries.[2]

However, IRP has its share of shortcomings. Critics contend that this strategy may inadvertently hinder innovation by limiting the potential rewards for pharmaceutical research and development. Additionally, IRP’s reliance on external benchmarks may not account for individual nations’ unique economic, regulatory, and healthcare dynamics, potentially resulting in skewed pricing decisions that fail to reflect a country’s specific circumstances. It’s worth noting that IRP could also lead to a country missing out on innovative medicines, as manufacturers might lack the incentive to invest in research and development due to constrained pricing structures.[3]

VBP, on the other hand, seeks to price drugs based on their demonstrated therapeutic benefits and impact on patient outcomes. This approach aims to align drug prices with the value they deliver to patients and healthcare systems. Advocates of VBP argue that this strategy incentivizes innovation that truly addresses unmet medical needs, driving pharmaceutical companies to develop drugs that provide substantial clinical and societal benefits.[4]

VBP, however, is not without challenges. Determining the exact value of a drug can be complex and may involve subjective assessments. The methodology for assessing value needs to be transparent, robust, and adaptable to changes in medical knowledge and patient needs. Additionally, implementing VBP requires an extensive data infrastructure and cooperation between pharmaceutical companies, payers, and regulatory bodies, which can pose logistical challenges. It’s worth noting that while VBP can encourage the right price for the right value if the methods to assess this value are not accurate and robust enough, the VBP can make healthcare quite expensive.[5]

The decision between IRP and VBP should be informed by a nuanced understanding of a country’s healthcare system, economic conditions, and goals for healthcare accessibility and innovation.[4]

IRP can be beneficial for countries seeking to maintain cost control and reduce price differentials for medications. It provides a mechanism to avoid overpricing and ensures that drug costs remain reasonable for patients and payers. However, countries that prioritize fostering a conducive environment for innovation may find IRP limiting in terms of providing the necessary incentives for pharmaceutical research.[1]

On the other hand, VBP aligns drug prices with the clinical value they offer, potentially driving the development of breakthrough treatments. It encourages pharmaceutical companies to invest in research that directly addresses patient needs, leading to advancements that improve health outcomes. Yet, VBP requires robust infrastructure for data collection, analysis, and collaboration, which might be challenging for some healthcare systems to establish.[1]

Rather than an all-or-nothing choice between IRP and VBP, some countries are exploring hybrid models that combine elements of both strategies. These hybrid models aim to strike a balance between affordability and innovation, leveraging external benchmarks while considering the unique value a drug brings to its population. While considering the therapeutic value a drug can provide for pricing negotiations (thus incorporating VBP), the prices in other countries can also be considered to set the maximum price levels for these drugs (thus incorporating IRP). Other hybrid models include outcomes-based IRP approach that links pricing adjustments to real-world drug performance, and differential pricing that tailors prices based on disease factors.[1,5-7]

Choosing between IRP and VBP necessitates a comprehensive understanding of a nation’s healthcare landscape, financial capacity, and innovation goals. Each strategy comes with its merits and challenges, and the ideal approach may differ from country to country. As policymakers deliberate on drug pricing strategies, a holistic evaluation of societal needs, economic realities, and long-term healthcare objectives will be crucial in determining which path to embrace – one that provides equitable access to medications while fostering an environment that encourages pharmaceutical innovation.

Become A Certified HEOR Professional – Enrol yourself here!

Learn AI Potential For Writing Manuscripts – Enrol yourself here!

References

1. WHO guideline on country pharmaceutical pricing policies [Internet]. Geneva: World Health Organization; 2020. 3, Evidence and recommendations. Available from: https://www.ncbi.nlm.nih.gov/books/NBK570143/
2. Seidner M, Pearson SD. Value Assessment and International Reference Pricing: Distinctive Strengths and Weaknesses as a Foundation for Medicare Drug Price Negotiation. 2021
3. Persson U, Jönsson B. The end of the international reference pricing system?. Applied health economics and health policy. 2016 Feb;14:1-8.
4. Liozu S, Boland D, Hinterbuber A, Perelli S. Mindful pricing: Transforming organizations through value based pricing. InMarketing Dynamism & Sustainability: Things Change, Things Stay the Same. Proceedings of the 2012 Academy of Marketing Science (AMS) Annual Conference 2015 (pp. 412-421). Springer International Publishing.
5. Labban M, Patrick A, Lederer NM, Jao R, Patel P, Jaksa A. EE155 The Impact of Value-Based Pricing (VBP) Vs International Reference Pricing (IRP) on Innovative Drugs in the US. Value in Health. 2022 Jul 1;25(7):S364.
6. Rand LZ, Kesselheim AS. International reference pricing for prescription drugs in the United States: administrative limitations and collateral effects. Value in Health. 2021 Apr 1;24(4):473-6.
7. Seeley E, Kesselheim AS. Outcomes-based pharmaceutical contracts: an answer to high US drug spending. Issue Brief (Commonw Fund). 2017 Sep 1;2017:1-8.