The Implementation of External Reference Pricing within and across Country Borders - Panos Kanavos Anna-Maria Fontrier Jennifer Gill Dionysis ...

The Implementation of
External Reference Pricing
within and across Country

Panos Kanavos
Anna-Maria Fontrier
Jennifer Gill
Dionysis Kyriopoulos
The Implementation of External Reference Pricing within and across Country Borders        2

London School of Economics
Houghton Street


First published 2017

Copyright© Panos Kanavos, Anna-Maria Fontrier, Jennifer Gill, Dionysis Kyriopoulos 2017


                                           LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders          3

     List of Figures                                                                  4
     List of Tables                                                                   4
     List of Acronyms                                                                 5
     Acknowledgements                                                                 6
     Abstract                                                                          7
     Background                                                                        7
     Method                                                                            7
     Results                                                                           7
     Conclusion                                                                        7
     Executive summary                                                                8
1.   Introduction                                                                     9
2.   Methods                                                                          10
     2.1   Study endpoints                                                            10
     2.2   Systematic Literature Review: Data sources, search strategy and keywords   11
     2.3   Study selection, data extraction, evaluation and synthesis                 11
     2.4   Primary Data Collection                                                    11
3.   Results                                                                          13
     3.1   Results of the literature review                                           13
     3.2   Objective of ERP and alignment with health system objectives               13
     3.3   Characteristics of products subject to ERP price regulation                14
     3.4   Is ERP the main pricing policy or a supportive tool?                       15
     3.5   Transparency of ERP pricing policy                                         16
     3.6   Competent authorities responsible for ERP implementation                   16
     3.7   Appeals by stakeholders to regulator decisions                             18
     3.8   Number of basket countries                                                 18
     3.8   Frequency of price revisions                                               18
     3.9   Criteria for basket country selection                                      19
     3.10 Type of comparator price used in ERP                                        22
     3.11 Methods for calculation of the reference price                              22
     3.12 Sources of information for pricing decisions                                22
     3.13 Inclusion of wealth adjustments in ERP calculations                         23
     3.14 Accounting for exchange rate fluctuations                                   23
     3.15 Link between price and reimbursement                                        24
     3.16 Interaction of ERP with HTA and VBP                                         25
     3.17 ERP alignment with other negotiation tools of reimbursement                 25
     3.18 Link between ERP regulation and patent status                               25
4.   Discussion & Policy Implications                                                 28
     4.1   Policy implications                                                        30
           4.1.1 Objectives and scope of external price referencing system            31
           4.1.2 Administration and operations                                        31
           4.1.3 Methods for the conduct of external price referencing                32
           4.1.4 Implementation of external price referencing                         33
     4.2   Country Adherence to 14 Best Practice Principles                           33

                                                LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                   4

5.    Conclusion                                                                                35
6.    References                                                                                36
      Appendix 1                                                                                42
List of Figures
      Figure 1: PRISMA flow diagram with search results from the systematic literature review   13
List of Tables
      Table 1: Definition of endpoints in ERP implementation                                    10
      Table 2: Results of systematic literature search by source                                14
      Table 3: Type of pharmaceuticals subject to ERP across countries                          15
      Table 4: Main role of ERP                                                                 16
      Table 5: Transparency in ERP across countries                                             17
      Table 6: Competent authorities in ERP implementation across countries                     17
      Table 7: Presence of appeals process for stakeholders                                     18
      Table 8: Overview of basket across countries                                              19
      Table 9: Number of reference countries of basket across other non-EU countries            20
      Table 10: Frequency of price revisions across the studied countries                       20
      Table 11: Criteria for basket selection across studied countries                          21
      Table 12: Price selection across countries                                                21
      Table 13: Method for calculation of reference price across countries                      22
      Table 14: Sources of information across countries                                         23
      Table 15: Inclusion of wealth adjustments in ERP calculation                              24
      Table 16: Methods for dealing with exchange rate fluctuations                             24
      Table 17: ERP relationship with other pricing and reimbursement policies                  26
      Table 18: Adherence to the 14 best practice principles                                    34

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The Implementation of External Reference Pricing within and across Country Borders                           5

List of Acronyms
AUT        Austria                                      LTU        Lithuania
BEL        Belgium                                      LUX        Luxemburg
BGR        Bulgaria                                     LVA        Latvia
BMI        Business Monitoring International            MDA        Moldova
CHE        Switzerland                                  MLT        Malta
CRD        Centre for Reviews and Dissemination         NLD        The Netherlands
CYP        Cyprus                                       NOR        Norway
CZE        Czech Republic                               OECD       Organisation for Economic Cooperation and
DEU        Germany                                                 Development
DNK        Denmark                                      POL        Poland
EFPIA      European Federation of Pharmaceutical        PPP        Purchasing Power Parity
           Industries and Associations                  PRT        Portugal
ERP        External Reference Pricing                   R&D        Research and Development
ESP        Spain                                        ROU        Romania
EST        Estonia                                      RUS        Russia
EU         European Union                               SRB        Serbia
FIN        Finland                                      SVK        Slovakia
FRA        France                                       SVN        Slovenia
GRC        Greece                                       SWE        Sweden
HiT        Health in Transition                         TUR        Turkey
HRV        Croatia                                      VBP        Value Based Pricing
HTA        Health Technology Assessment                 VED        Vital & Essential Drugs
HUN        Hungary                                      WHO        World Health Organization
IRL        Ireland                                      WHO-CC     World Health Organisation Collaborating
ISL        Iceland                                                 Centres
ISR        Israel                                       WoS        Web of Science
ITA        Italy

                                               LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders        6

We would like to thank Mackenzie Mills, Erica Visintin,
Olina Efythimiadou and David Taylor for their insight
and support throughout the development of the
paper. Finally, we thank Pfizer Ltd. for providing
the sponsorship that allowed us to carry out this

                                              LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                        7


BACKGROUND                                               RESULTS
External reference pricing (ERP), a frequently           The systematic literature review confirmed that
implemented pricing policy, seeks to rationalize         there is heterogeneity in the way that ERP is
prices and contain costs by using foreign prices         implemented across countries. There tends to be
as reference for the determination of domestic           variation in the size of the country baskets, with
prices and facilitation of negotiation. Its use across   larger baskets becoming more common and in the
countries varies significantly in terms of objectives,   way that countries chose their basket countries
methods, administration and implementation.              – some choose those with similar socioeconomic
                                                         characteristics whilst others do not. Furthermore
METHOD                                                   there is variation in the calculation used with most
                                                         countries vying away from the average-based
A systematic literature review was conducted
                                                         calculations towards the lowest basket price or the
according to CRD guidelines. 17 Study endpoints
                                                         average of the lowest ‘n’ prices. The frequency of
were used to identify characteristics of ERP
                                                         price revisions differs according to authorities and
implementation across 29 countries, of which 17
                                                         government negotiations, as does the rate at which
were EU member states. Multiple databases were
                                                         exchange rate fluctuations are taken into account in
examined to provide a wide range of ERP sources.
                                                         pricing decisions. In terms of the 14 best practice
After filtering for mention of ERP implementation
                                                         principles Belgium, France, and South Africa adhered
related to at least one of the 17 study endpoints 176
                                                         to the most principles whilst Bulgaria, Hungary and
studies remained. Primary data collection, in the
                                                         Romania had the most instances of non-adherence.
form of questionnaires directed at key stakeholders,
were also used to supplement data in instances
where information received from the systematic           CONCLUSION
literature review was outdated or minimal. Findings      Heterogeneity and recent trends in ERP design have
from the systematic literature review and primary        policy implications for governments, which include
evidence from key stakeholders were benchmarked          globally declining pharmaceutical prices and other,
against 14 best practice principles inherent to an       potentially more undesirable consequences such as
optimal ERP system to determine the quality of ERP       launch delays in low-income countries, parallel trade
systems implemented by the countries of interest.        reducing drug stock levels, inflated prices in low-
                                                         income countries, reduced incentive for continued
                                                         R&D and reduced access to medicines in some
                                                         regions. Overcoming this issue to ensure that ERP
                                                         is beneficial to all stakeholders will require a focus
                                                         on developing sustainable, transparent, simple and
                                                         stable systems using a set of key guidelines that
                                                         should maximise the benefits of the pricing policy.

                                             LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                           8

This paper aimed to highlight differences in the          Rapidly evolving healthcare costs and increases in
way that 29 countries implement ERP, which aims           life expectancy and chronic disease prevalence mean
to contain medicine costs, using a systematic             that reduced drug prices are the ultimate aim for most
literature review-based process combined with             country governments. However, badly designed ERP
primary evidence from key stakeholders. Of the            systems can be detrimental to all stakeholders and
29 countries analyzed 17 were European Member             should be avoided at all costs. ERP systems should
States, with the remainder representative of Latin        be designed with both health and industrial policy
America, South East Asia, the Middle East and North       aims in mind to ensure that the requirements of all
Africa. Secondary data was collected from literature      stakeholders including patients, manufacturers and
published between 2000 and 2015 on a set of 17            governments are represented in order to ensure that
criteria (endpoints) based on the ERP system design.      patients get access to well-priced medicines as and
Databases examined included Web of Science (WoS),         when required, governments can spend within their
CINAHL, EconLit, Medline, ProQuest, Cochrane              means and manufacturers have enough incentive to
Library and Scopus. Special keywords and a defined        continue investing in future R&D in order to benefit
search strategy were used to arrive at an initial         future patient populations.
list of studies. After filtering for mention of ERP
implementation related to at least one of the 17 study    There are a number of key criteria that can be adhered
endpoints 176 studies remained. Primary evidence          to that may ensure an ERP system is designed to
was collected via questionnaires distributed among        benefit all stakeholders and remains transparent,
key stakeholders. Results of the systematic literature    simple, stable and sustainable. These criteria are
review and of the primary evidence collection were        based on the selection of reference countries and
contrasted with analysis of the goals and observed        prices; the use of exchange rates; the types of products
impacts of the different ERP systems to identify          for which ERP should be used; price revisions; and
optimal design features of ERP systems.                   the derivation of target prices. Furthermore, as no
                                                          two countries are identical any EPR system should
Findings confirmed high levels of heterogeneity           outline the objective and scope of the ERP system
between the ERP systems of different countries.           and ensure it reflects the overall healthcare system’s
Variation was present in many of the 17 endpoints         values and objectives. It is also recommended that
analyzed. For example, some countries use ERP             target prices should align with the expected value of
for all medicines, regardless of their patent status,     the product, determined by using HTA or a similar
whilst others use it only for in-patent medicines. ERP    mechanism. Encouraging countries to follow such
processes range from formal to informal and from          guidelines could ensure that ERP systems do not
the main to the supportive pricing policy in place in a   alienate the innovative pharmaceutical company
country. In cases where the process is informal there     and ensure that they are incentivized to continue
is limited definition of policy objective and scope       investing in global R&D which in the long run will
which can affect transparency. Country baskets range      maximize global population health. In this paper, 14
in size from three to 36 (not including those countries   basic principles that an optimal ERP system should
that use prices in the medicine country of origin)        follow were benchmarked against the findings
whilst very few countries use any kind of wealth          from the systematic literature review and primary
adjustment, even if countries are not selected based      evidence from key stakeholders to determine the
on financial characteristics. Reference calculations      quality of ERP systems implemented by the countries
tend to be based on a lowest price in the basket style    of interest. Belgium, France, and South Africa adhered
calculation, rather than an average based calculation.    to the most principles whilst Bulgaria, Hungary and
Some countries use ex-factory prices, which do not        Romania had the most instances of non-adherence.
reflect confidential discounts or rebates, to form the
basis of their calculations meaning referenced prices
do not reflect reality.

                                              LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                         9

ERP, also known as external price referencing or          trigger a manufacturer to set either a single price or
international price comparison/ benchmarking, is a        narrow band of prices before launch is allowed. Such
widely used pricing policy with high global research      linking of low and high income markets can lead to
interest. It is introduced when governments decide        prices converging at a higher level than would have
to use foreign drug prices to regulate domestic prices    been the case if markets had been separate. In low-
(EFPIA, 2014; Danzon and Towse, 2003) and to              income countries, this can lead to inappropriately
impose price caps based on prices of similar drugs in     high prices and reduced access for patients. In high-
other reference countries (Houy and Jelovac, 2014)        income countries, whilst in the short run imported
with the official definition being: “the practice of      lower prices may be beneficial, in the long run,
using drug prices in several countries to derive a        lower revenues can lead to reduced return on R&D
benchmark or reference price for the purposes of          investment and consequently fewer new medicines
setting or negotiating prices in countries” (WHO,         (Danzon and Towse, 2003). Furthermore, marketing
2013; EFPIA, 2014). The primary aim of the pricing        authorization holders may prefer initially to promote
mechanism is to control in-patent drug prices             their products to high-price countries rather than
(Ruggeri and Nolte, 2013) via the containment of          low-price countries so that these high prices are
pharmaceutical prices and expenditure (Espin et           used as references in countries performing ERP
al., 2010). The widespread use of ERP generally           (Vogler et al., 2015). At the same time, the accuracy
arises due to government cost control requirements.       of international comparisons may be distorted due
Authorities can use international comparisons to          to methodological issues and differences across
evaluate the fairness or appropriateness of the actual    countries in strength, formulation and pack sizes
price related to comparative cases (OECD, 2008).          available (Timur and Picone, 2010). ERP assessment
Specifically, drug prices in other countries are used     is considered complex compared to other pricing
as a reference to determine a limit for the entry price   methods. The promotion of transparency around
of a drug or reimbursement price (Nguyen et al.,          the use of ERP may improve the accountability of
2015).                                                    decision-making, which could reduce uncertainty
                                                          for manufacturers and eliminate discrimination and
The implementation of ERP varies significantly            corruption (Espin et al., 2014).
between countries in terms of the various rules
followed by individual countries to calculate the         There is a need to study the implementation of
final product price (Espin et al., 2014). For example,    ERP with a focus on differences in implementation
an increase in the number of reference countries          across countries. The present study will attempt, via
in a basket generally leads to further reductions in      a combination of primary and secondary evidence,
drug prices (BMI Research, 2010). Furthermore,            to contribute to the review, analysis and body of
the countries used in the basket can affect price         information about ERP structure and its alignment
variation. Financial performance of the country,          with other policies across countries where the
pharmaceutical pricing systems, publication of            following countries are of interest: Austria, Belgium,
actual versus negotiated or concealed prices, exact       Bulgaria, Czech Republic, Estonia, France, Germany,
comparator products and disease burden of the             Greece, Hungary, Italy, Latvia, Poland, Portugal,
potential reference country all need to be taken into     Romania, Russia, Slovakia, Slovenia, Spain, Turkey,
account when choosing reference countries (WHO,           Brazil, Egypt, Jordan, Kuwait, Lebanon, Qatar, Saudi
2015).                                                    Arabia, South Africa, South Korea and United Arab
                                                          Emirates. To determine the quality of ERP systems
Although ERP may have the potential to contribute         implemented by the countries of interest we
to improved access and counteract affordability           benchmark findings from the systematic literature
problems sometimes seen in lower-income                   review and primary evidence from key stakeholders
countries, there are potential consequences. The          against 14 basic principles that an optimal ERP
most significant concern is related to the fact that      system should follow (Sullivan et al., 2017).
ERP could lead high-income countries to demand
low prices creating resulting difficulties for low-
income countries. ERP-related price leakages can

                                              LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                                             10

Both primary and secondary evidence have been used                 The number of basket countries and the criteria
to identify characteristics of ERP implementation                  used for their selection was also analysed alongside
across 29 countries and to inform the discussion                   the methods used for price calculation. The role
and analysis in the sections that follow. Secondary                of the patent status and innovation was taken into
evidence was collected via a systematic literature                 account. Furthermore, investigation around the
review, which was carried out based on the CRD                     inclusion of wealth adjustments, price revisions
guidelines for systematic reviews.                                 and exchange rate fluctuations was necessary given
                                                                   their impact on price determination (Toumi et al.,
2.1 STUDY ENDPOINTS                                                2014). The sources, dissemination and accessibility
A number of defined endpoints relating to the                      of price data were also assessed as key issues in
structural elements of ERP were analysed in this                   price setting. As far as interaction with other policies
systematic literature review (see Table 1). The main               is concerned, the alignment of the pricing process
role of ERP in each country of interest was analysed               with the reimbursement process was examined and
in order to determine differences in application                   the combination of ERP with different negotiation
across countries. Transparency was evaluated to                    tools for reimbursement was used as an endpoint.
examine fairness in pricing. We also investigated the              The interaction of other pricing processes such as
role of stakeholders in the design of ERP systems                  value based pricing (VBP) and health technology
and their involvement in any appeals processes.                    assessment (HTA) with ERP was also examined.

Table 1: Definition of endpoints in ERP implementation

Endpoints                                       Definition
                                                      Structural Elements
Objective and alignment with health system      Assesses the aim of international comparisons and the relationship with health
objectives                                      systems’ objectives

Characteristics of pharmaceuticals subject to   Takes into account the categories of drugs included in the ERP system
Main role                                       Determine whether ERP provides the major or supportive role in negotiations and
                                                determination of drug prices
Transparency                                    Includes the legislative criteria used by countries to promote a fair pricing process
Competent authorities in ERP implementation     Presents the authorities in control of ERP policy implementation
Appeals by stakeholders to regulator decisions Assesses the possible appeals of stakeholders in pricing process
Number of basket countries and countries in     Presents the countries and the number of members included in each basket
the basket
Criteria for basket country selection           Assesses the appropriate criteria to select reference countries
Type of comparator price                        Presents the selection of price category across countries
Method for calculation of the reference price   Examines the different methods of countries to determine reference price
Sources of information for pricing decisions    Presents the sources and stakeholders that contribute to public access of price data
Inclusion of wealth adjustments                 Assesses whether wealth adjustments made to the reference price when countries
                                                of higher or lower GDP are included in the basket
Accounting for exchange rate fluctuations       Assesses whether calculations used to account for exchange rate fluctuations
                                                across countries
                                                 Interaction with other policies
Link between price and reimbursement            Refers to the countries that take into account price determination and
                                                reimbursement process at the same time
Interaction with HTA or VBP                     Assesses the parallel use of international comparisons with other methods to set
                                                drug prices
Alignment with other negotiation tools of       Refers to the combination of international comparisons with reimbursement
reimbursement                                   purposes
Link between ERP regulation and patent status   Takes into consideration the role of patent status in ERP price calculation

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The Implementation of External Reference Pricing within and across Country Borders                           11

2.2 SYSTEMATIC LITERATURE                                  2.3 STUDY SELECTION, DATA
STRATEGY AND KEYWORDS                                      SYNTHESIS
Both peer-reviewed and grey literature were                The results were filtered according to title and
examined to minimize bias and identify all relevant        abstract relevance to the topic. Papers with relevant
information. Multiple databases were utilised, these       titles were downloaded for further examination. In
were the Web of Science (WoS), CINAHL, EconLit,            order to arrive at a final set of studies, the main body
Medline, ProQuest, Cochrane Library and Scopus. A          of these texts was assessed according to the following
combination of broad and policy key words were used        criterion: mention of ERP implementation relating to
to ensure that all relevant literature was captured. All   at least one of the selected endpoints. The number
synonyms and different phrasings of ERP or External        of studies based on evidence at each endpoint was
Price Referencing were included in the search. The         noted with cases where some papers related to
search run was (“Pharmaceutical Price Regulation” OR       multiple endpoints, and were therefore referenced
“Pharmaceutical Regulation” OR “Cost Containment”          multiple times, being taken into account.
OR “Pharmaceutical Pricing” OR “External Price
Referencing” OR “External Price Referencing” OR            An excel spreadsheet was used to extract the
“International Price Comparisons” OR “International        relevant information on each endpoint for the
Reference Pricing” OR “International Price                 selected studies. It includes paper titles in the
Referencing”) AND (drug OR drugs OR medicine OR            rows, endpoints in the columns and significant
medicines OR pharmaceutical OR pharmaceuticals).           information from the texts being extracted and
The search was restricted to keywords present within       entered into the respective cells. A comprehensive
abstracts only, to limit the number of irrelevant          synthesis of the literature was carried out to identify
papers being returned. When searching the WoS,             key trends related to ERP implementation across
the search terms were restricted to title only, as the     countries. Results from other systematic literature
option to restrict to abstract was not available. This     reviews were included if the selected endpoints
study includes only papers in English. There were no       in the review were different to the respective
restrictions in terms of country in the initial search     endpoints in this study. This process is significant
to ensure that evidence is representative of a wide        in order to minimize bias of results.
geographical range. However, once the search was
concluded, the study was limited to the following          2.4 PRIMARY DATA COLLECTION
countries: Austria, Belgium, Bulgaria, Czech Republic,
                                                           As evidence drawn from the systematic literature
Estonia, France, Germany, Greece, Hungary, Italy,
                                                           review was not conclusive, primary evidence was
Latvia, Poland, Portugal, Romania, Russia, Slovakia,
Slovenia, Spain, Turkey, Brazil, Egypt, Jordan, Kuwait,    collected to complement the secondary evidence
Lebanon, Qatar, Saudi Arabia, South Africa, South          findings. Primary evidence was gathered via
Korea and United Arab Emirates. Our study included         questionnaires distributed to key stakeholders in
literature published from 2000 to 2016.                    all study countries, from which there were returns
                                                           from 21 countries i.e.: Belgium, Bulgaria, Jordan,
We also completed a targeted and comprehensive             Qatar, Italy, Brazil, South Africa, Romania, Slovenia,
search of the WHO, the WHO collaborating Centre for        Spain, Germany, Egypt, Latvia, Poland, Portugal,
Pharmaceutical Pricing and Reimbursement policies          Russia, Hungary, Greece, France, Estonia and
and the OECD online databases to ensure that no            Slovakia. Respondents included representatives
valuable reports were excluded. The key words used         from government agencies, industry representatives
to search these were “External Price Referencing”          and academics, all of whom expressed personal
OR “External Price Referencing” OR “International          views on how ERP is implemented in their respective
Reference Pricing” OR “International Price                 countries. Beyond understanding the characteristics
Referencing”. Relevant information was recorded and        of ERP in different settings, other important
combined with the results of the systematic literature     endpoints, such as the national and international
review. Finally, additional literature gathered from       effects of implementing ERP, were addressed in the
contacts was also included.                                questionnaires to increase understanding of how

                                               LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                      12

different ERP systems perform against 14 basic          A combination of both primary and secondary
principles that each country should follow to achieve   evidence is presented in the results section. When
an optimal ERP system (see Appendix 1) (Sullivan et     evidence from the systematic literature review was
al. 2017). The questionnaire was divided into four      used, primary data were used to validate the findings.
sections in order to address specific thematic areas    In cases where minimal or outdated evidence was
around ERP and its use within specific jurisdictions.   drawn from the systematic literature review, primary
These areas were (i) Objectives and Scope of External   data was used.
Price Referencing Systems, (ii) Administration and
Operations, (iii) Methods for the Conduct of External   Findings from both primary and secondary evidence
Price Referencing, and (iv) Implementation of           were then benchmarked against a framework of
External Price Referencing.                             14 basic principles (Sullivan et al. 2017), which
                                                        countries should follow in order to achieve an
                                                        optimal ERP system (Appendix 1).

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The Implementation of External Reference Pricing within and across Country Borders                         13


3.1 RESULTS OF THE LITERATURE                              Figure 1: PRISMA flow diagram with search
REVIEW                                                     results from the systematic literature review
The database search yielded 6,877 studies and the
results of the systematic literature search were              Records identified          Additional records
combined with the results from the search of the WHO,         through database            identified through
the WHO Collaborating Centre for Pharmaceutical              searching (n=6,877)        other sources (n=143)
Pricing and Reimbursement policies and the OECD
online databases. Additional literature was provided           Records after duplicates removed (n=3,979)
by our network. 3,979 studies remained and were
screened based on relevant titles and abstracts by
removing the duplicates using EndNote software                                           Records excluded of
                                                              Records screened
(see Figure 1). From the 3,979 studies, 3,526 were                                      irrelevance of title or
peer-reviewed papers and 453 were grey literature.                                       abstract (n=3,430)
549 papers were then downloaded and assessed for
eligibility. Many studies were excluded because they
did not relate to ERP, others because they referred            Full text articles          Full text articles
to internal reference pricing or because only the           assessed for eligibility           excluded
abstract was available, rather than the full text.                 (n=549)                     (n=266)
The main body of 283 texts was then assessed. The
detailed analysis of the studies providing evidence on
                                                             Number of articles
each of the endpoints included can be seen in Table                                      Articles excluded
                                                             assessed relative to
2. 176 papers were included as final studies in this                                    due to poor evidence
                                                            the inclusion criteria
systematic literature review, a significant proportion                                        (n=107)
of which were grey literature (138 studies) with only
38 peer-reviewed papers (Table 2). Throughout the
text, the evidence shown in the tables refers to the        Final studies included
latest available source.                                           (n=176)

3.2 OBJECTIVE OF ERP AND                                   ERP to limit pharmaceutical and budget spending
ALIGNMENT WITH HEALTH SYSTEM                               (Economou, 2010), Turkey introduced ERP in order
OBJECTIVES                                                 to control drug expenditure (BMI Research, 2016),
ERP is a commonly implemented pricing policy,              Slovenia uses ERP as a tool to regulate the growth of
related to the use of prices of similar drugs to set and   public and private drug expenditure (Albrecht et al.,
benchmark domestic prices (BMI Research, 2012).            2009), and in 2010, Russia promoted ERP to regulate
Generally, ERP has three main aims (Kanavos et al.,        prices (Popovich et al., 2012). In Spain, ERP was
2010): (a) negotiate or set prices within a country,       implemented to control drug prices for which there
(b) negotiate coverage and reimbursement and (c)           are no alternatives available on the market (Rémuzat
authorize product marketing. The use of ERP has            et., 2015); Latvia implements ERP to reimburse
increased significantly as a price control method          drugs at manufacturer prices (Behmane, 2007); and
(Kanavos and Vandoros, 2011) in in-patent medicines        in Bulgaria, ERP aims to estimate a ceiling price for
and as a cost containment measure due to issues like       innovative and generic prescription drugs (Kazakov,
the global financial crash in 2008, the increase in life   2007). In 2004, the Turkish government introduced
expectancy and the increase in prevalence of chronic       ERP to contain pharmaceutical expenditure.
conditions (Rémuzat et al., 2015).
                                                           However, complicated interrelations between
The general aim of ERP is the attainment of low            countries can lead to issues around the achievement
domestic prices to limit pharmaceutical spend. For         of these low prices (Barros et al. 2010) due to
instance, Greece implemented price controls through        variations in the basket of reference countries,

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The Implementation of External Reference Pricing within and across Country Borders                             14

Table 2: Results of systematic literature search by source

                  CINAHL Cochrane Econ- Pro-  Pub- Scopus                  WoS OECD WHO WHO-           WHO Net-
                         Library  Lit   Quest Med                                       HiT            CC-  work
No. of original
                    30         11        26     2,169       58      684    796     10     18     60      68     49
                    30         11        17     1,899       58      678    796     -       -      -       -     37
Grey Literature      -          -         9      270        -        6       -     10     18     60      68     12
No. of studies
with relevant
                    6           1         6     299         12      39      40     10     18     32      37     49
titles &
                    6           1         6      29         12      39      40     -       -      -       -     37
Grey Literature      -          -         -      270        -        -       -     10     18     32      37     12
No. of studies
that match          2           0         1     104         5       15      10     10     18     32      37     49
                    2           -         -      11         4       15      10     -       -      -       -     37
Grey Literature      -          -         1      93         1        -       -     10     18     32      37     12
No. of studies
that match
                    2           0         0      87         2        6      7      8      2      15      27     19
ERP Impact
                    2           -         -       7         2        6       7     -       -      -       -     14
Grey Literature      -          -         1      80         -        -       -     8      2      15      27     5

the type of price compared, calculation methods                  all marketed medicines, or particular categories
employed, exchange rate fluctuations and data                    of medicines such as reimbursable medicines,
availability (European Commission, 2015). Another                prescription-only medicines or innovative medicines
paper in this series examines the impact of variations           (European Commission, 2015 and WHO 2015) (Table
in ERP system design within- and across-countries                3). According to the recommendations of EFPIA
on a number of different endpoints including                     (2014), ERP should be limited to in-patent medicines
pharmaceutical price levels, launch delays and price             because: (a) More dynamic and effective methods
convergence (Kanavos et al., 2017)                               can enhance competitive prices in the off-patent
                                                                 market (b) Price comparison between in-patent and
3.3 CHARACTERISTICS OF PRODUCTS                                  off-patent drugs undermines patent protection and
                                                                 intellectual property characteristics.
There are a number of variations in terms of the type            Whilst there is some evidence describing the type
of medicines subject to ERP systems. For example,                of medicines covered by ERP policies in individual
the system can focus only on in-patent, originator               countries (see Table 3), ERP implementation mainly
drugs that are reimbursable (included in the national            relates to reimbursable medicines (Vogler et al.,
positive list), or, less commonly, on off-patent, generic        2008); Bulgaria, Romania, Slovenia and Poland
drugs that are paid out of pocket. Generally the use             set prices for generic prescribed drugs based on
of ERP is limited to originator products (Leopold                international reference pricing policy (Kazakov,
et al. 2012, WHO 2015) but it can be applied to                  2007). Russia refers to retail prices of publicly

                                                LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                                    15

Table 3: Type of pharmaceuticals subject to ERP across countries

                                           Pharmaceuticals subject to ERP
                        All medicines (regardless             Only medicines               In-patent         All drugs
                            of inclusion in the               included in the              drugs only      regardless of
                          national positive list)           national positive list                         patent status
 Austria                                                                 ü                                        ü
 Belgium                               ü                                                        ü
 Bulgaria                                                                ü                                        ü
 Czech Republic                                                          ü                                        ü
 Estonia                                                                 ü                      ü
 France                                                                  ü                      ü
 Germany                                                                 ü                      ü
 Greece                                                                  ü                      ü
 Hungary                                                                 ü                      ü
 Italy                                                                   ü                      ü
 Latvia                                                                  ü                                        ü
 Poland                                                                  ü                                        ü
 Portugal                                                                ü                                        ü
 Romania                               ü                                                                          ü
 Slovakia                                                                ü                                        ü
 Slovenia                                                                ü                                        ü
 Spain                                                                   ü                      ü
 Egypt                                 ü                                                        ü
 Jordan                                ü                                                                          ü
 Lebanon                                                                                                          ü
 United Arab Emirates                  ü                                                                          ü
 Brazil                                                                                         ü
 Russia                                                                  ü                                        ü
 South Korea                                                                                    ü
 Turkey                                ü                                                        ü
 South Africa                                                                                   ü

Sources: The authors, adapted from secondary and primary evidence

reimbursed medicines (Rudisill et al., 2014); Latvia,               3.4 IS ERP THE MAIN PRICING POLICY
Poland and Austria use reimbursed drugs (Espin et                   OR A SUPPORTIVE TOOL?
al., 2014); and Portugal excluded hospital drugs from
                                                                    Our analysis showed that 29 EU countries
ERP, and Austria includes outpatient drugs in the
                                                                    implemented ERP as a major or supportive criterion
ERP system (Rémuzat et al. 2014). Many countries
                                                                    in price determination (European Commission, 2015;
do not specify officially whether ERP is used for the
                                                                    Paris and Belloni, 2013; Mossialos et al., 2006), either
in-patent or off-patent market.
                                                                    formally or informally (OECD, 2008), 16 of them use

                                                   LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                            16

international comparisons as a core concept, while         to facilitate negotiations between industry and the
some countries focus on specific sectors or specific       Medicine Agency (Martini et al., 2012, Ferre et al.,
medicines. The countries of interest are presented in      2014). In Poland ERP serves only a complementary
Table 4 below.                                             role to control the expenditure of the National Health
                                                           Fund (Janiszewski and Bondaryk, 2007). In Slovenia
Russia seeks to inform pricing rules through ERP           ERP is the main policy used to determine maximum
unofficially (Rudisill et al., 2014). In Belgium ERP is    allowed prices, but it is also used in a supplementary
used as a supplementary tool, although comparisons         role when prices are set at a particularly high or low
have resulted in price reductions in reimbursed            level (European Commission, 2015).
patented drugs over the last five years (Toumi et
al., 2014). Germany introduced ERP to control
reimbursement prices, while Italy changed the role         3.5 TRANSPARENCY OF ERP PRICING
of ERP from the major to a supplementary method            POLICY
                                                           An ideal ERP system would be a transparent,
Table 4: Main Role of ERP                                  administratively simple process requiring minimal
                                                           information input (Kanavos et al., 2010) based on
   ERP as main (M) or supportive (S) method                statutory pricing rules and regulations (Leopold et
Austria                                 M                  al., 2012). In reality ERP implementation contains a
Belgium                                  S                 number of composite points which can be resource
Bulgaria                                 S                 intensive and administratively complex, resulting in
Czech Republic                          M                  poor transparency. The level of transparency can be
Estonia                                  S                 enhanced by specifying the basket of countries and
France                                   S                 improving the accessibility of pricing data sources
Germany                                  S                 used by countries for the referencing process. The
Greece                                  M                  estimation of medicine prices based on price caps or on
Hungary                                  S
                                                           the reference country average promotes predictability
                                                           for industry, while flexible negotiations between
Italy                                    S
                                                           authorities and industry may lead to a less transparent
Latvia                                   S
                                                           procedure (OECD, 2008). Many low-income countries
Poland                                   S
                                                           face difficulties in achieving transparency as they
Portugal                                M
                                                           lack a reliable historic and systematic data source on
Romania                                 M                  medicine prices (Nguyen et al., 2015). This can lead
Slovakia                                M                  to ERP system distortion, as decisions will be based
Slovenia                                M                  on virtual prices. It is difficult to find information
Spain                                    S                 on the level of ERP system transparency in different
Egypt                                   M                  countries but the systematic literature review
Jordan                                  M                  completed here showed that countries like Austria,
Kuwait                                  M                  Portugal have highly transparent, well-established
Lebanon                                 M                  processes (Toumi et al., 2014) whilst countries like
Qatar                                   M                  Estonia have reduced transparency (Table 5).
Saudi Arabia                            M
United Arab Emirates                    M                  3.6 COMPETENT AUTHORITIES
Brazil                                   S                 RESPONSIBLE FOR ERP
Russia                                   S                 IMPLEMENTATION
South Korea                              S                 ERP systems are implemented by different authorities
Turkey                                  M                  across different countries. In some countries, ERP
South Africa                            M                  lies in the jurisdiction of the Ministry of Health and in
Sources: The authors, adapted from secondary and primary   others pricing committees or medicines associations
evidence                                                   are responsible for the process (see Table 6).

                                               LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                                               17

Table 5: Transparency in ERP across countries
                                                Transparency in price setting
 Austria           Well-established process
 Bulgaria          Lack of transparency
 Estonia           Insufficient granularity on the ERP rules
 France            See note below1
 Germany           Insufficient granularity on the ERP rules
 Italy             Pricing and reimbursement not straightforward. Conflict between government and industry
 Portugal          Introduction of well-established pricing rules2
 Saudi Arabia      Concern related to the weight of different factors in estimating prices
 Russia            Ministry of Health and Social Development of Russia provide official prices for drugs to consumers, which are
                   included on the essential medicines list.
Notes: 1In France, ERP is a part of an agreement between the Healthcare Products pricing committee and the pharmaceutical companies
(Toumi et al., 2014). The use of France as a reference country led authorities and industry to find many incentives in order to induce
hidden price payback rules. As a result, authorities can buy medicines at a reasonable price and industry can benefit from participation
in a large market. Nevertheless, applied discounts can create a gap between the actual and nominal price, while the actual price is not
public in France. 2Portugal have promoted defined rules about price comparisons in case of non-availability of similar drugs in the
reference countries. (Leopold et al., 2012).
Sources: The authors, adapted from secondary and primary evidence

Table 6: Competent authorities in ERP implementation across countries
 Austria                 The Pricing Committee of the Federal Ministry of Health and Women’s Issues
 Belgium                 Ministry of Economic Affairs
 Bulgaria                National Council for Pricing and Reimbursement of Medicinal Products (NCPR)
 Czech Republic          State Institute for Drug Control (SUKL)
 Estonia                 Ministry of Health
 France                  Comité Economique des Produits de Sante (CEPS)
 Germany                 National Association of Statutory Health Insurance Funds
 Greece                  EOF and Pricing committee of MOH
 Hungary                 National Health Insurance Fund Administration (OEP)
 Italy                   AIFA
 Latvia                  State Medicines Pricing and Reimbursement Agency (SMPRA) under the Ministry of Health
 Poland                  Ministry of Health
 Portugal                Infarmed
 Romania                 Ministry of Health
 Slovakia                Ministry of Health
 Slovenia                Medicines Agency – Public Agency of the Republic of Slovenia for Medicinal
 Spain                   Interministerial Committee for Pricing and Reimbursement (CIPM)
 Egypt                   Ministry of Health
 Jordan                  Jordan Food and Drug Administration (JFDA)
 Kuwait                  Ministry of Health
 Lebanon                 Ministry of Health
 Qatar                   Ministry of Health
 Saudi Arabia            Saudi Food and Drug Authority (SFDA)
 United Arab Emirates    Ministry of Health
 Brazil                  National Health Surveillance Agency (ANVISA)
 Russia                  Ministry of Health and Federal Antimonopoly Service
 South Korea             The Health Insurance Review & Assessment Service (HIRA) and the National Health Insurance Service (NHIS)
 Turkey                  General Directorate of Pharmaceuticals and Pharmacies
 South Africa            Pharmaceutical Economic Evaluations (PEE) Directorate
Sources: The authors, adapted from secondary and primary evidence

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The Implementation of External Reference Pricing within and across Country Borders                          18

3.7 APPEALS BY STAKEHOLDERS TO                             EU members generally elect to use a reference basket
REGULATOR DECISIONS                                        that contains 5 to 20 countries (Ruggeri and Nolte,
                                                           2013). Table 8 (adapted from Kanavos et al. (2010)
There is limited evidence on the presence of an
                                                           and Toumi et al. (2014)) highlights the size of country
appeals process for stakeholders. Information was
                                                           baskets in European countries and the number
only isolated in one country – the Czech Republic,
                                                           of times each country is used as a reference in the
where in June 2008 a newly implemented ERP
                                                           basket of another country. Italy currently selects
system set maximum prices for 3,944 products. As a
                                                           drug prices by referencing the largest number of
result, at the end of 2008, price cuts led to a number
                                                           EU countries, while it is referenced by only a limited
of appeals by industry due to distortion in price
                                                           number of reference countries (Austria, Belgium,
regulation (BMI Research, 2010).
                                                           France, Germany, Greece, Portugal and Spain). In
Table 7: Presence of appeals process for                   recent years there has been a trend to increase the
stakeholders                                               basket size (Houy and Jelovac, 2014), potentially as a
                                                           means to reduce medicine prices further.
Presence of appeals process for stakeholders
Austria                                  ü                 Austria expanded its basket of countries from 14 to
Belgium                                  ü                 24 countries, while the Czech Republic used only 8
Bulgaria                                 ü                 countries until 2009 (Leopold et al., 2012). In 2010,
Czech Republic                           ü
                                                           Greece increased its basket to 22 EU countries in
                                                           order to reduce pharmaceutical prices and cut
Estonia                                  
                                                           pharmaceutical expenditure due to the financial
France                                   
                                                           crisis. Other countries have also increased or have
Germany                                  ü
                                                           expressed interest in increasing the number of
Greece                                   ü
                                                           reference countries they use: Slovakia (from 8
Hungary                                                   countries in 2009 to all EU members) and Latvia
Italy                                                     (which is carrying out negotiations for the expansion
Latvia                                   ü                 of the number of reference countries used).
Poland                                   
                                                           Germany, UK and France are the most referenced
Portugal                                 ü
                                                           countries, because they launch drugs early and two
Romania                                                   of them (Germany, UK) employ free pricing methods
Slovakia                                 ü                 for in-patent drugs (OECD, 2008).
Slovenia                                 ü
Spain                                    ü
                                                           3.8 FREQUENCY OF PRICE REVISIONS
Egypt                                    ü
                                                           Alongside the number, and choice, of countries, in the
Brazil                                   ü
                                                           basket the frequency of price revisions can affect the
Russia                                   
                                                           prices derived using ERP. Many EU countries have
Turkey                                   ü
                                                           a legal framework that calls for price renewals on a
South Africa                             ü                 regular basis with regular intervals lasting from three
Sources: The authors, adapted from secondary and primary   months to five years (Rémuzat et al., 2015). Frequent
evidence                                                   price revisions may distort the role of the market, as
                                                           they may reduce predictability and produce errors,
                                                           especially when large baskets of countries are used
The number of countries in a basket, and the specific      (EFPIA, 2014). Nevertheless, the appropriate interval
countries chosen, can have a significant impact on         of price revisions depends on the respective national
resulting drug prices (Houy and Jelovac, 2013) –           policy (European Commission, 2015) (See Table 10).
a small number of reference countries could give
significant weight to few countries whilst a large
basket size can increase administrative difficulty
without adding any value.

                                               LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                                                                                                                                19

Table 8: Overview of baskets across countries

                                                                                                   Countries acting as references                                                                                 Basket size
                                   AUT                                                                                                                                                                                24
                                   BEL                                                                                                                                                                                26
                                   BGR                                                                                                                                                                                10
                                   HRV                                                                                                                                                                                3
                                   CYP                                                                                                                                                                                10
                                   CZE                                                                                                                                                                                17
                                   DNK                                                                                                                                                                                9
                                   EST                                                                                                                                                                                3
                                   FIN                                                                                                                                                                                28
                                   FRA                                                                                                                                                                                4
Countries with reference baskets

                                   DEU                                                                                                                                                                                0
                                   GRC                                                                                                                                                                                22
                                   HUN                                                                                                                                                                                29
                                   ISR                                                                                                                                                                                8
                                   ISL                                                                                                                                                                                4
                                   IRL                                                                                                                                                                                9
                                   ITA                                                                                                                                                                                27
                                   LVA                                                                                                                                                                                7
                                   LTU                                                                                                                                                                                8
                                   LUX                                                                                                                                                                                0
                                   MLT                                                                                                                                                                                11
                                   MDA                                                                                                                                                                                9
                                   NLD                                                                                                                                                                                4
                                   NOR                                                                                                                                                                                9
                                   POL                                                                                                                                                                                30
                                   PRT                                                                                                                                                                                3
                                   ROU                                                                                                                                                                                12
                                   RUS                                                                                                                                                                                4
                                   SRB                                                                                                                                                                                3
                                   SVK                                                                                                                                                                                27
                                   SVN                                                                                                                                                                                3
                                   ESP                                                                                                                                                                                16
                                   CHE                                                                                                                                                                                6
                                   TUR                                                                                                                                                                                5
                                   SWE                                                                                                                                                                                0
                                   GBR                                                                                                                                                                                0
 country is 15                               16   11   7   10   14   14   11   13   20   20   13   14   0   2   12   17   12   15    9   8   0   15   5   10   15   10   0   1   15   15   19   3   0   12   17
 in a basket

Notes: 1Belgium, the Czech Republic, Poland, Hungary, Denmark, Finland and Estonia are included as additional reference countries in
case of non-availability of drug pricing data in other basket countries. 2The Czech Republic and Spain contribute as alternatives in case
of non-availability of drug pricing data in other basket countries. 3Whilst Cyprus has an overall basket of 10 countries the actual price
is based on a selection of countries from each of three sub baskets – high income (Denmark, Germany and Sweden); medium income
(Austria, Belgium, France and Italy); and low income (Greece, Portugal and Spain).
Sources: The authors, adapted from secondary and primary evidence

3.9 CRITERIA FOR BASKET COUNTRY                                                                                                     There is limited information on the criteria that
SELECTION                                                                                                                           most countries use to choose their basket. Most
                                                                                                                                    EU countries use other EU members as references
In terms of basket content, countries mainly take
                                                                                                                                    (OECD, 2008). For instance, the three Baltic countries
into account the following components to create a
                                                                                                                                    (Estonia, Latvia and Lithuania) use each other
basket: (a) geographical characteristics, (b) financial
                                                                                                                                    in their reference baskets as they have common
similarity (Vogler et al., 2011), (c) availability of
                                                                                                                                    socioeconomics factors (Pudersell et al., 2007;
price data, (d) public health status and health
                                                                                                                                    Behmane et al., 2008), while northern and southern
insurance and (e) investment and contribution of
                                                                                                                                    EU countries follow a similar trend (European
pharmaceutical industry in financial performance
                                                                                                                                    Commission, 2015).
(Critchley 2006).

                                                                                                            LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                                           20

Table 9: Number of reference countries in basket                   Table 10: Frequency of price revisions across the
across other non-EU countries                                      studied countries

 Countries               Number of reference                                  Frequency of price revisions
                         countries of basket                       Austria          Two additional evaluations at six-month
 Brazil1                 9                                                          intervals, if reference prices were available
                                                                                    in fewer than 12 EU Member States at
 Egypt                   36 (and other optional)
                                                                                    the time of the initial evaluation; ad hoc
 Jordan                  16                                                         revisions

 Kuwait                  Country of origin                         Belgium          At launch only

 Lebanon                 14                                        Bulgaria         For reimbursed pharmaceuticals- every
                                                                                    6 months, For non-reimbursed- at launch
 Qatar                   Country of origin (and 2 optional)                         only
 Saudi Arabia            30                                        Czech Republic   Annually
 South Africa2           5                                         Estonia          For outpatient: on the basis of price
 South Korea             7                                                          agreement duration; For inpatient: once,
 United Arab Emirates3 31
                                                                   France           Every 4 to 5 years at product re-
Notes: 1Brazil includes the following countries in the basket:                      assessment
USA, Canada, Portugal, Spain, France, Italy, Greece, New Zealand
and Australia. 2South Africa includes the following countries      Germany          At launch only, at manufacturer’s request
in the basket: Australia, New Zealand, Canada, Spain. 7Prices                       and if new evidence becomes available
are set to innovative drugs based on the ex-factory prices in      Greece           Biannual revision within four years of
seven industrialized countries (BMI Research, 2012). 3Pricing                       market entry
is set at the median from referenced EU countries, the lowest      Hungary          At launch only
price paid either in Saudi Arabia or the lowest price of an
active pharmaceutical ingredient in the country of origin (BMI     Italy            Ad-hoc and periodically depending on
Research, 2015).                                                                    specific agreements
Sources: The authors, adapted from secondary and primary           Latvia           Every two years
evidence                                                           Poland           Ad-hoc and periodically in tiered intervals
                                                                                    (every two, three, or five years)
                                                                   Portugal         Annually
                                                                   Romania          Annually
                                                                   Slovakia         Twice per year
                                                                   Slovenia         Twice per year
                                                                   Spain            Every two years and ad hoc
                                                                   Egypt            At launch, at manufacturer’s request and
                                                                                    on a random basis
                                                                   Jordan           Every 2 years (plus four months after th
                                                                                    reduction of prices in a reference country)
                                                                   Kuwait           At launch only
                                                                   Lebanon          Every 5 years
                                                                   Qatar            At launch only
                                                                   Brazil           At launch only
                                                                   Russia           At manufacturers’ request
                                                                   South Africa     At manufacturers’ request

                                                                   Sources: The authors, adapted from secondary and primary

                                                      LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                                        21

Table 11: Criteria for basket selection across                    Table 12: Price selection across countries
studied countries
                                                                  Type of comparator price used
               Criteria for basket selection                      Austria                Ex-factory price
Austria            All EU countries                               Belgium                Ex-factory price
Belgium            Geographical proximity and comparable          Bulgaria               Ex-factory price
                   GDP levels
                                                                  Czech Republic         Ex-factory price
Bulgaria           Not well defined criteria; usually countries
                                                                  Estonia                Ex-factory price
                   with similar GDP
                                                                  France                 The starting point is the price claimed
Czech Republic     All EU countries
                                                                                         by the manufacturer; negotiation can
Estonia            Geographical proximity and comparable                                 use the ex-factory price
                   GDP levels
                                                                  Germany                Retail price (NB: ERP as guidance)
France             Geographical proximity and comparable
                                                                  Greece                 Ex-factory price
                   GDP levels
                                                                  Hungary                Ex-factory price
Germany            Geographical proximity and comparable
                   GDP levels                                     Italy                  Ex-factory price
Greece             All EU countries                               Latvia                 Ex-factory price
Hungary            Geographical proximity                         Poland                 Ex-factory price
Italy              ERP system is increasingly redundant           Portugal               Ex-factory price
Latvia             Socioeconomic criteria                         Romania                Ex-factory price
Poland             All EU countries                               Slovakia               Ex-factory price
Portugal           The countries selected for the basket must     Slovenia               Ex-factory price
                   have a similar per capita GDP to Portugal      Spain                  Ex-factory price
Romania            No clear criteria are used to select basket    Egypt                  Retail price
                                                                  Jordan                 Ex-factory price
Slovakia           Geographical proximity
                                                                  Lebanon                Wholesale price
Slovenia           Geographical proximity
                                                                  Saudi Arabia           Ex-factory price
Spain              Countries where the medicines are
                                                                  United Arab Emirates   Wholesale price
                                                                  Brazil                 Ex-factory price
Egypt              Geographical proximity, comparable GDP
                   levels and the country of origin of the        Russia                 Wholesale and retail price
                   product                                        South Korea            Ex-factory price
Lebanon            The price of an imported drug is based on      Turkey                 Ex-factory price
                   the cost in the country of origin
                                                                  South Africa           Ex-factory price
Brazil             Countries with profile similar to Brazil
                                                                  Sources: The authors, adapted from secondary and primary
Russia             Countries with similar GPD per capita level
                   and consideration of the country of origin
South Korea        South Korea does not specify the countries
                   in the basket and decide on an ad-hoc basis
Turkey             Lowest in EU + geographical criteria
South Africa       Countries where prices are accessible
                   and are regulated. Quality standards of
                   countries also need to be similar.

Sources: The authors, adapted from secondary and primary

                                                       LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
The Implementation of External Reference Pricing within and across Country Borders                                   22

Table 13: Method for calculation of reference                      3.10 TYPE OF COMPARATOR PRICE
price across countries                                             USED IN ERP
        Method of calculation of reference price                   Most European countries have used ex-factory
                                                                   prices in their international comparisons (Kalo et
Austria         Average across basket
                                                                   al., 2015), because this method helps to minimize
Belgium         Average across basket
                                                                   price deviations that may arise due to differences
Bulgaria        Lowest price in basket
                                                                   in distribution mark-ups (Nguyen et al, 2015). The
Czech           Average of the three lowest prices in basket
                                                                   implementation of ERP using the ex-factory price is
                                                                   considered to be more suitable than other methods,
Estonia         Price cannot exceed the highest price in the
                basket                                             for example, using the wholesale price, as distribution
France          “Prices similar to reference countries and not
                                                                   margins and tax rates are different across countries
                lower than the lowest price”                       leading to difficulties in international comparisons
Germany         Weighted based on market size and                  (EFPIA, 2014). However, there are some countries
                purchasing power parity                            that use the wholesale price and some that use the
Greece          Average of the three lowest prices in basket       pharmacy retail price (Espin et al., 2014) (see Table
                                                                   12). ERP is generally based on officially published
Hungary         Lowest price in basket
                                                                   prices. Since price negotiations and discounts are
Italy           Average across basket
                                                                   kept confidential within a country most countries
Latvia          Third lowest price among Denmark, Czech
                                                                   will be using reference prices that may be higher
                Republic, Romania, Slovakia and Hungary
                                                                   than the negotiated price enjoyed in the reference
Poland          Lowest price in basket                             country.
Portugal        Follows different calculation methods
                depending on the sector. Outpatient: country
                average, Inpatient: lowest price                   3.11 METHODS FOR CALCULATION OF
Romania         Lowest price in basket                             THE REFERENCE PRICE
Slovakia        Average of the three lowest prices in basket       Generally, the most preferred method of reference
                                                                   price calculation is the use of an average formula
Slovenia        Lowest price in basket
                                                                   (Gandjour, 2013) although there are other
Spain           Lowest price in basket
                                                                   mechanisms in use, such as using the average
Egypt           Lowest price in basket                             of the n lowest or the lowest price in the basket.
Jordan          Average across basket                              (European Commission, 2015). In the countries
Lebanon         The price of an imported drug is based on the      studied in this paper using a lowest price based
                cost in the country of origin. Final price needs
                                                                   calculation is the most common (Table 13), against
                to be lower than one of the following: (i) The
                ex-factory price in the country of origin. (ii)    the recommendation of EFPIA (2014) which states
                Import prices charged for the same brand           that an average price be used to enhance fairness.
                in seven countries in the Middle East.(iii)        According to our results, some countries may include
                The median manufacturers’ price in seven
                European countries, or (iv) The import price
                                                                   more than one criterion to set the reference price of
                of similar drugs that are already marketed in      a product, while other members may not refer to the
                Lebanon.                                           selected method officially.
Saudi Arabia    Lowest price in basket
United Arab     Lowest price in basket                             3.12 SOURCES OF INFORMATION FOR
Brazil          Lowest price in basket
                                                                   PRICING DECISIONS
Russia          Lowest price in basket                             The implementation of ERP requires access to price
South Korea     Average across basket
                                                                   information and according to EFPIA (2014), this
                                                                   data should be publicly available and reliable. Non-
Turkey          Lowest price in basket
                                                                   availability, price heterogeneity, non-reliability and a
South Africa    Lowest price in basket
                                                                   lack of transparency can reduce the effectiveness of
Sources: The authors, adapted from secondary and primary           ERP (Rémuzat et al., 2015). Many countries support
                                                                   free access to price data, although the extent that

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