Pharmaceutical Reference Prices: How do They Work in Practice?

Reference pricing systems are reimbursement ceilings set by payers in an effort to constrain pharmaceutical expenditure for a private or public drug benefit. In recent years, many governments have adopted reference pricing either as a replacement or in addition to product specific price controls. Programme administrators should consider whether these policies are providing the intended benefits or whether there may be a more effective method. This article provides a review of reference pricing in Europe, North America and other countries. There are many similarities in the reference price policies but the markets to which they apply are more likely to be different. The European experience gives a `once-for-all' lowering effect on pharmaceutical expenditure, often at the expense of compromises on prescribing. In Germany and The Netherlands, reference pricing has been relatively ineffective in lowering expenditure which has led to a succession of other interventions to achieve expenditure control goals. The US also has reference pricing, but it occurs in a very competitive market which may be responsible (at least in part) for the relatively modest growth in expenditure compared with European countries. The review of countries with reference pricing policies suggests that such policies are less effective than competitive markets in moderating pharmaceutical expenditure. Nonetheless, governments continue to pursue reference pricing strategies.