The worldwide guide to pharmaceutical pricing & reimbursement

For the pharmaceutical industry, pricing and reimbursement decisions are important in determining the likely commercial success of a pharmaceutical product in the marketplace. So how is pharmaceutical pricing established? There is no simple answer to this question. For other consumer goods, pricing may be as simple as the manufacturer setting a price at which their product can reasonably be sold in a particular market. In other words, a competitive price that is both affordable for the customer and allows the manufacturer to make a profit. For pharmaceutical companies, pricing is often far more complicated. Governments and health insurance providers around the world strive to contain costs while providing effective medicines for their patients. Their efforts to do so have resulted in national pricing policies that include various direct and indirect pricing controls. For prescription pharmaceuticals in particular, the issues of pricing and reimbursement are inextricably linked, as one is dependent on the other.

In the majority of countries surveyed for this report, there is some form of pricing control for pharmaceuticals that are reimbursed under the public health system, whether direct or indirect. National pricing authorities employ various methods of arriving at pharmaceutical prices, such as reference pricing schemes, medico-economic assessment, fixed generic price reductions, fixed wholesale and pharmacy mark-ups, or limitations on company profits. Rather than relying on one method of price control, government agencies generally employ several tactics to minimise reimbursement costs. These may be directly enforced, or the subject of negotiation between government and industry.

Internal reference pricing schemes are often used to calculate the reimbursement rate for a particular therapeutic group of drugs. These may only come into play once generic alternatives are available for a group of drugs with the same active ingredient, or they may include a wider range of patented drugs with a similar therapeutic effect.

External reference pricing, also known as international reference pricing, is often employed for products that are new to the market. Put simply, a pricing authority will compare the manufacturer’s suggested price for the product with the price in a basket of other countries in which it is marketed. There are numerous variations among external reference pricing schemes. A basket of countries may include as few as three neighbouring states with a similar standard of living, or as many as 30 countries from various parts of the world. The reference price may be calculated as the median price among a group of countries; the mean average of a defined number of countries, to which a percentage reduction may or may not be applied; or it may simply be the lowest price among all countries in the basket. In other words, there are almost as many variations of reference pricing schemes as there are countries that operate them.

Reference pricing schemes in Western Europe have faced particular criticism from industry as a result of austerity measures in countries like Greece and Spain during the economic crisis, which resulted in dramatically reduced prices in those markets. It has been argued that the continued inclusion of these countries in reference baskets has a ripple effect across other markets, causing prices to fall in countries with a higher standard of living.

For a prescription medication to be used by the widest possible number of patients, it needs to be included in a reimbursement scheme, which is rarely straightforward. In some countries, reimbursement and pricing go hand in hand, so that once a price has been arrived at, the product is automatically available for reimbursement. In others, the product will need to be included on a positive reimbursement list, or be recommended by a national health technology assessment (HTA) agency. In some markets, reimbursement decision-making may be at provincial or local level, or rest with individual insurance companies, health maintenance organisations or pharmacy benefit managers. All of these variations add complexity to market access.

For the pharma industry, the shift to value-based pricing emphasises the importance of a well thought out pricing strategy as new products are launched around the world in order to maximise revenue and minimise price erosion. Among the key concerns among pharmaceutical companies, according to a 2015 Global Price Management benchmarking survey, is a lack of global collaboration internally. The survey also highlighted the importance of investing in robust analytical capabilities to assist companies to negotiate profitable prices, diminish parallel import losses and reduce the effects of reference pricing. Survey respondents also expressed concerns about the lack of integration of data sources, including competitor pricing and reimbursement data, country reference rules, indication and launch information, sales and budget data, tender information, external reference pricing and financial systems. This lack of comprehensive information leaves companies with an incomplete picture on which to make decisions.

BMI Research report examines the various strategies employed by healthcare stakeholders in 64 countries around the world in order to secure the medicines they require at the best possible price.

Source: BMIresearch.com