The issues of pricing and reimbursement play an important role in determining the likely commercial success of a pharmaceutical product in the marketplace. Following marketing authorisation, the pharmaceutical industry must successfully navigate national regulatory systems to determine the price at which a product can be sold and whether or not it will be eligible for reimbursement by public or private health insurers.

So how is pharmaceutical pricing established? There is no simple answer to this question. For other consumer goods, pricing may be as simple as the manufacturer setting a price at which their product can reasonably be sold in a particular market. In other words, a competitive price that is both affordable for the customer and allows the manufacturer to make a profit. For pharmaceutical companies, pricing is often far more complicated. Governments and health insurance providers around the world strive to contain costs while providing effective medicines for their patients. Their efforts to do so have resulted in national pricing policies that include various direct and indirect pricing controls. For prescription pharmaceuticals in particular, the issues of pricing and reimbursement are inextricably linked, as one is dependent on the other.

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In the majority of countries surveyed for this report, there is some form of pricing control for pharmaceuticals that are reimbursed under the public health system, whether direct or indirect. National pricing authorities employ various methods of arriving at pharmaceutical prices, such as reference pricing schemes, fixed generic price reductions, fixed wholesale and pharmacy mark-ups, or limitations on company profits. Rather than relying on one method of price control, government agencies generally employ several tactics to minimise reimbursement costs. These may be directly enforced, or the subject of negotiation between government and industry.

Internal reference pricing schemes are often used to calculate the reimbursement rate for a particular therapeutic group of drugs. These may only come into play once generic alternatives are available for a group of drugs with the same active ingredient, or they may include a wider range of patented drugs with a similar therapeutic effect.

External reference pricing, also known as international reference pricing, is often employed for products that are new to the market. Put simply, a pricing authority will compare the manufacturer’s suggested price for the product with the price in a basket of other countries in which it is marketed. There are numerous variations among external reference pricing schemes. A basket of countries may include as few as three neighbouring states with a similar standard of living, or as many as 30 countries from various parts of the world. The reference price may be calculated as the median price among a group of countries; the mean average of a defined number of countries, to which a percentage reduction may or may not be applied; or it may simply be the lowest price among all countries in the basket. In other words, there are almost as many variations of reference pricing schemes as there are countries that operate them.

External pricing schemes in Western Europe have come under particular criticism from industry as a result of austerity measures in countries like Greece and Spain that have dramatically reduced prices in those markets. The continued inclusion of these countries in reference baskets has a knock-on effect in many other markets, causing prices to fall in countries with a higher standard of living. The industry argues that price differentiation between countries should be on the basis of ability to pay, rather then a system of reference pricing that apparently bears little relation to purchasing power parity.

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For manufacturers, even when the issue of price has been successfully concluded, the issue of reimbursement may still remain. For a prescription medication to be used by the widest possible number of patients, it needs to be included in the reimbursement scheme. In some countries, reimbursement and pricing go hand in hand, so that once a price has been arrived at, the product is available for reimbursement. In others, the product will need to be included on a positive reimbursement list, or be recommended by a national body, such as the National Institute of Health and Clinical Excellence (NICE) in the UK.

However it is arrived at, the price and reimbursement status of a medicinal product has a direct impact on everyone involved: manufacturers, wholesalers, hospitals, pharmacies, health insurers and, finally, the patients, who simply want access to the best medicine at a price they can afford.