International Implementation of IRP

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Many countries use IRP to negotiate prices, so we sought to understand how the 2 most prominent recent US proposals compared with the implementation of IRP in the countries that would be referenced by the United States. The Cummings bill referenced 6 countries: Australia, Canada, France, Germany, Japan, and the United Kingdom.¹ The executive order covered member states of the Organisation for Economic Co-operation and Development (OECD) with a US-comparable gross domestic product (GDP) per capita, which the CMS rule specified as at least 60% of the United States.^3,4 OECD members with a GDP per capita 60% or greater of the United States were the 6 countries referenced in the Cummings bill and Austria, Belgium, Denmark, Finland, Iceland, Ireland, Israel, Luxembourg, the Netherlands, New Zealand, Norway, Sweden, and Switzerland.

To describe the characteristics of IRP policies, we searched peer-reviewed publications and grey literature reports to determine if and how IRP is implemented, basket sizes, referenced countries, percentage of GDP spending on drugs, and other price negotiation policies in place.^7-15

Of the 19 countries, 15 used IRP. Ten used IRP to supplement health technology assessment, domestic therapeutic reference pricing, and other agreements reached through direct negotiation with manufacturers. The remaining 5 countries used IRP as the primary approach to negotiate prices, of which 3 were in the bottom third for spending on drugs but also had higher GDP per capita and substantially smaller populations than the United States. The median basket size was 7 countries (range = 1-29). The most common approach was to use the average price among basket countries (n = 9), whereas 1 country used the lowest. The United Kingdom was the most frequently referenced country by the sample (n = 13), followed by Germany (n = 12). All 15 countries employing IRP used ex-factory (list) prices for IRP exclusively for on-patent, brand-name drugs, with generics separately regulated by non-IRP pricing procedures (Table 1).

TABLE 1 Characteristics of IRP Among 19 US Comparator Countries and 3 US Policy Proposals7-15

Among the smaller cohort of 6 countries named in the Cummings bill, all primarily used health technology assessment to negotiate prices, with 4—excluding Australia and the United Kingdom—using IRP as a supplement, for example, to set a range that the price should be in or to compare prices when there are not clinically similar drugs already available. These 4 countries have small baskets (median = 5.5, range = 4-15), all reference UK prices, and 2 (Japan and Canada) reference US prices. Canada will remove the United States from its basket in July 2021.

Policy Implications

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Most high-income countries use IRP to negotiate drug prices, typically complementing other strategies—such as health technology assessment for value-based pricing—that aim to align prices with the health impact of new drugs. For example, Switzerland uses a strong, formal IRP approach that calculates a reimbursement price that is weighted by two-thirds of the average IRP price and one-third by comparison with Swiss prices for comparator drugs.⁷ By contrast, the German informal IRP approach limits IRP use to instances when agreement is not reached with the manufacturer on a reimbursement price based on health technology assessment.¹⁶ The Cummings bill was most similar to the majority of sampled countries because IRP is used to supplement other methods. In addition, the Cummings bill used a small reference basket, identified an average price based on the basket countries and applied to brand-name drugs.

By contrast, the most favored nation approach taken by CMS and the executive order benchmarked to the lowest basket price and did not include additional methods for negotiation. Few countries adopt an approach using IRP alone to price drugs. A primary reason is that only list prices are available for IRP. Because most countries negotiate confidential discounts off list prices, relying exclusively on IRP would overestimate actual prices. Also, there are economic concerns about the effects of strictly benchmarking to other countries’ list prices and how list prices may be manipulated to minimize price reductions in the United States or elsewhere.^17,18 Additional concerns with an IRP-only approach include missing data and the heterogeneity of available pricing information, unaffordability of IRP prices, and the introduction of country-specific formulations to make IRP more difficult.^19,20 Finally, the CMS rule applied narrowly to 50 drugs, while most other countries using IRP broadly apply it to brand-name drugs.

If the United States implements IRP, US prices will become sensitive to price changes in the referenced countries and the referenced countries’ basket of countries. For example, the United Kingdom is the most influential country for IRP schemes because most countries reference its prices and it does not use IRP. Political changes, such as Brexit, and currency fluctuations affect drug prices and can have ripple effects because of price cross-referencing between countries.^21,22 Using an average price provides some insulation from fluctuations. Thus, our results show that if brand-name manufacturers raise list prices in other countries, it would blunt the impact of IRP and especially the most favored nations approach.

The future of IRP under the Biden administration and current Congress is uncertain. Learning from the example of its comparator countries, if the United States adopts an IRP policy, it should be one that uses IRP to anchor price negotiations and complements it with other reimbursement strategies, such as value assessments.