For any of the foreign-born applicants in the post-Brexit rush for Irish citizenship who may also be following the international reference pricing (IRP) policy space, Ireland may be looking even more "European" than ever. Indeed, Ireland’s IRP framework underwent a major shake-up in August including an expansion of the basket which will link the country ever-more strongly to the continent.
The changes come in the context of a new price-reduction framework between Ireland’s Health Service Executive and the Irish Pharmaceutical Healthcare Association. A number of the components in the basic mechanics of the IRP system have undergone important changes as a result. The inclusion of two lower-priced pharmaceutical markets – Greece and Portugal – has grabbed the most industry attention.
The policy environment in Ireland is one in which successive governments have pledged to cut pharmaceutical costs and ensure prices remain middle-of-the-road by European standards. The inclusion of countries such as Greece and Portugal is intended to apply downward pressure on the average price which Ireland calculates from its reference basket – even if using Greece for IRP purposes is somewhat problematic since there are well-known risks related to the availability of accurate and up-to-date pricing information.
More importantly, however, given that the actual IRP formula itself relies on the average of the prices in the reference basket, the impact of these lower-priced markets may be expected to be diluted. Previously, Ireland relied on Austria, Belgium, Denmark, Finland, France, Germany, the Netherlands, Spain and the UK. Going forward, the IRP basket will, in addition to Greece and Portugal, now also contain Italy, Sweden and Luxembourg.
The larger impact may come from increased frequency of pricing reviews, as under the terms of the 2006 agreement, IRP-based price revisions were to occur only two and four years after the start of the agreement, whereas under the new system, there will be annual checks.
Within the Life Sciences team, we have conducted an analysis to gauge how IRP changes are set to impact Ireland’s pricing landscape, as well as to examine the possible ripple effects for interlinked reference countries. The scenarios we have developed compare pricing data from our proprietary PharmOnline International (POLI) database across a range of products commonly available in community pharmacy and where there is price availability across all basket countries.
To explore the hypothesis that the real impact of Ireland’s IRP change will manifest itself through increased frequency of IRP application, we compared the percentage difference between product prices in Ireland and the average of the old and newly expanded basket prices. As a note on methodology, in order to account for product presentations of equal strength but with different pack sizes, we computed the most recent average price per unit in each country, given that Ireland’s IRP policy does not specify the exact approach that will be used when such multiple pack sizes exist.
As highlighted for a selection of respiratory medicines in the table below, in the majority of cases, the percentage difference between the average price of the old country basket and the new country basket is minimal. On the other hand, even where this difference is minimal, it can be seen that in many cases, the percentage difference between the price in Ireland and the average prices of the old and new country baskets is more significant – indicating that in the time that has elapsed since last referencing, Ireland has not benefited from price erosion in its basket countries. As an immediate impact of the IRP changes in Ireland, many products are forecast to see significant price cuts, of magnitudes exceeding 25% in some cases.
While these results confirm our hypothesis, it is worth highlighting that we did find some examples where the expansion of the country basket alone is anticipated to have an impact on prices, the average calculation notwithstanding. This is true in the case of indacaterol, an ultra-long acting beta-2 agonist for the treatment of COPD, for example. Interestingly, as shown in the graph below, the downward drag on the average occurs not from the introduction of Greece and Portugal, but from Greece and Italy.
Our analysis shows that the addition of lower-priced markets should have a relatively minor overall impact on drug prices, since drug prices are calculated on the basis of the average of all reference countries. Nonetheless, in certain cases, basket expansion may well exert its own impact, and not only from inclusion of Greece and Portugal.
Prices in Ireland are nonetheless likely to be under greater pressure from the IRP rule changes on price revisions. For the first time, Ireland will conduct annual downward-only price re-alignment. Previous agreements meant that price decreases only took place at the start and mid-term of multi-annual agreements. This meant that there were no immediate price decreases when prices fell in Ireland’s IRP basket. The change could have some impact on achievable drug launch prices. Moreover, it may affect pharmaceutical companies’ strategy for optimal pricing and revenue generation in Ireland.
Post written by: Eoin Ryan, Moez Katet, Floriane Reinaud, and Cameron Lockwood, IHS Life Science analysts
Posted 9 September 2016