Global Marketing

International Reference Pricing for Pharmaceuticals

Pharmaceutical pricing is a controversial topic these days. Over the last decade, drug list prices grew annually by 9.1%. When taking into consideration discounts and rebates, that percent, although still high, boasts around 4.5%. The alarming aspect is that consumer’s costs for specialty drugs has increased faster than the Gross Domestic Product.

To combat this problem, back in late 2020 while President Donald Trump was in office, he threatened drug manufactures with an Executive Order, which would mandate international reference price limitations, except for companies that could provide a firm commitment to reduce their own drug prices. This order sought to benchmark US drug prices to comparable drugs in other countries and then restrict outlandish prices to a narrow range of the discovered index.

Upon not receiving his desired reaction, Donald Trump threatened Executive Order on Lowering Drug Prices by Putting America First. This order directs the Secretary of the Department of Health and Human Services which would develop a test model under Medicare Part B, which would implement a maximum payment for high-cost prescription drugs.

Some spectators say that the proposed pricing policy would cause companies to charge temporary monopoly prices, which would exacerbate the current pricing model even more. Couple this with the fact that overall demand for these drugs increase due to most Americans have health insurance, and the result is that insurers pay for drugs at monopoly pricing, further fueling the industry profits. The insurance companies consequently will be forced to raise premiums, which would lower the chance of an employer providing creditable coverage to their employees. Thus, the vicious cycle continues.

There are two varying schools of thought as to how to solve the drug price problem. The first school of thought supports pricing based on a drug’s value, ie: cost in relation to benefit. The second school of thought supports free pricing and rejects any type of value assessment.

No matter the school of thought, it is important to look more closely at the implications drug pricing is having on our nation.