Down with Drug Reference Pricing!

With the branded drug industry in the US braced for a mauling over prices in this week's Democratic primary debates, the sector's main lobby group is fighting back hard against the notion that healthcare spending could be cut by linking domestic prices to prices in other countries: international reference pricing. PhRMA has taken out paid advertisements ahead of the debates in a bid to debunk this concept - and its arguments, whatever their merits in DC, will also be read with particular interest by drug producers and payers in Europe.

In the advertised statement, Kevin Haninger, Vice President for International Advocacy at PhRMA, spells out what he see as the dire consequences of going down that road, "Nearly 90% of new medicines launched since 2011 are available in the United States compared to just 50% in France, 48% in Switzerland and 46% in Canada - countries that use some form of international reference pricing."

In addition to having fewer options, he contends, "patients in these countries often must wait years longer, on average, for medications than patients in the United States."

The reason for this poor service to patients, he suggests, is that, "governments regulate prices based on the price set by other governments" - and these can include a small number of economic peers or dozens of economically diverse countries. "Austria, for example, sets prices to not exceed the average price among 26 countries with mostly lower GDP per capita. The Netherlands references just four countries, but these four countries reference an additional 24 countries."

The consequences are that, "biopharmaceutical companies are often forced to accept these prices or face further restrictions on coverage." Alongside that, "some countries have discriminatory policies or threaten to break patents on valuable new medicines," and for Haninger the result is to impose artificially low prices, delay patient access to new medicines and keep some innovative treatments off the market entirely.

The Washington chattering classes have got it all wrong by entertaining the idea of international reference pricing, he claims. It is a "misguided idea" for governments to set prices through these "harmful and even illegal practices.” The system has become so distorted that it militates against good care, he claims. "While international reference pricing was once used informally by a small number of countries that lacked the resources to inform price negotiations, it is increasingly wielded to extract the lowest possible price no matter what the consequence."

The method is the antithesis of, "the market-based competition needed to expand patient access, improve affordability and encourage investment in the next generation of treatments and cures." For the US, international reference pricing would be an entirely new approach to health care, "upending the only truly market-based system in the world," where "market competition determines the net price of a medicine."

The PhRMA clincher is that while Europe, "used to be the global leader in medical innovation," it has been overtaken by the US "In 1986, biopharmaceutical R&D investment in Europe was 24% higher than in the US. Today, after adopting reference pricing, Europe trails the US by over 40%. Foreign reference pricing could hand America's global leadership to someone else," warns the industry association's advertisement.

It's a bold bid to avert one of the current threats to the industry's performance - and a threat that has been wielded on more than one occasion by President Donald Trump. But it may not go far to repel the many other attacks that are likely to come from the industry's far more ambitious opponents. Democratic contenders to face Trump in 2020 have been ramping up their criticisms - with accusations ranging from murder to institutionalised corruption - and fleshing out comprehensive plans to get a grip on rising drug prices. Haninger is going to have to broaden his defences accordingly.

Meanwhile, European observers are wondering how long it will be before drug firms in Europe, brandishing in turn the claims that Haninger has put in their hands, will be seeking price increases to compensate for the mis-treatment and discouragement he claims to identify in Europe. And if prices in Europe were to rise because of the Trump-led rhetoric about the evils of reference pricing, where would that leave the Trump arguments?