New research by the Office of Health Economics (OHE) concludes the proposed International Price Index effectively outsources pharmaceutical policy decisions to countries that “give the government a central role” vs. the U.S.’ greater reliance on the private market.
In an effort to cap the U.S. price of drugs, The Trump Administration has proposed using an International Pricing Index (IPI), which seeks to set prices for physician-administered drugs in Medicare to the average prices paid in a collection of similar countries .
One criticism of the proposal is that the basket of countries suggested are not similar enough to the U.S. in terms of demographics, economic prosperity, the relative market orientation of their healthcare systems, and therefore their preferences for health.
A variant has been proposed that replaces Canada, Finland, Greece, Italy, Spain, Sweden, and the United Kingdom with Denmark, the Netherlands, Singapore, and Switzerland on the basis that they are “the most market-oriented health care systems anywhere in the industrialized world .”
However, new analysis  by OHE finds that the countries that have been proposed as market-based instead “differ markedly from the U.S. and give the government a central role in purchasing medicines, in contrast to the greater reliance on the private market seen in the U.S.”
OHE has analysed the comparability of the proposed countries to the U.S. and considered the larger question of whether the proposed IPI is an appropriate approach to setting drug prices in the U.S.
It finds that within these four countries drug prices are typically set by a single, monopsonistic payer rather than through one-on-one negotiations between insurers and manufacturers as in the U.S. As part of these centralised negotiations, payers have not always reimbursed drugs that have been approved as safe and effective: availability of approved drugs in these countries ranges between 83% and 74%, compared to 100% in the U.S. Furthermore, value-based pricing frameworks are used in setting prices in the Netherlands and Denmark, meaning that the public’s willingness-to-pay for health in these countries would inform drug prices in the U.S.
OHE concludes that “If the intent is to use ‘market orientation’ as a sifting criterion for potentially comparable countries, then it requires more intellectual clarity than is arguably given to it…,” and “A central monopsonistic payer negotiating or regulating medication prices is not an obvious component of a ‘market-oriented’ approach to drug pricing in a healthcare system.”
OHE also concludes that the general market orientation of a health system is not in itself a sufficient criterion for inclusion in a market-based price index. Differences in macro-level demographics and health system organisation also means that the proposed countries have limited comparability with the U.S. More generally, any international reference pricing effectively outsources the valuation of drugs and innovation to other countries and is a poor substitute for a US-based approach to valuing drugs that incorporates US preferences around health.
This study was funded by PhRMA through OHE Consulting Ltd, a subsidiary of the Office of Health Economics.
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Notes to Editors:
 The Trump Administration proposal would compare the U.S. to the other G7 countries (Canada, France, Germany, Italy, Japan, UK) plus countries in Germany’s International Reference Pricing basket, excluding Denmark and the Netherlands for lack of data, giving a total of 16 comparator countries. See: Centers for Medicare & Medicaid Services, International Pricing Index Model for Medicare Part B Drugs, 83 Fed. Reg. 54546 (Oct. 30, 2018)
 Roy, A. What Medicare Can Learn From Other Countries on Drug Pricing. Market-based policies from countries like Denmark and Singapore can make medicines more affordable in the U.S. (Jan 18, 2019). Available at: https://freopp.org/what-medicare-can-learn-from-other-countries-on-drug-pricing-bf298d390bc5
 Towse, et al. A Market-based International Reference Price Index: Solution or Contradiction? (Sep 13, 2019). Available at: https://www.ohe.org/news/market-based-international-reference-price-index-solution-or-contradiction
Founded in 1962, the Office of Health Economics (OHE) is the world’s oldest health economics research organisation. A non-profit charity based in London UK but operating globally, OHE’s mission is to support better health care policies by providing insightful economic and statistical analyses of critical issues.
OHE Consulting Ltd., a subsidiary of OHE, was founded in 2002 and provides global, client-focused, specialised expertise on policy and strategic issues affecting the delivery of health care and the future of the pharmaceutical and life sciences industries. OHE Consulting is dedicated to providing objective, independent advice to help our clients achieve their objectives.
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