Managing Pharmaceutical Expenditures: Estimating the Effect of Internal Reference Pricing for Three Pharmacological Categories

Internal reference pricing (IRP) is one of the pharmaceutical pricing approaches, which is widely favored by health policymakers in different countries as a cost-containment tool for managing medicine expenditure. Evidence related to the implementation of this method confirms its usefulness in reducing pharmaceutical costs. Accordingly, the purpose of this study was to calculate potential changes in pharmaceutical expenditure using the IRP method for products belonging to three pharmaceutical categories in the pharmaceutical system of Iran.

This routine data study assessed the potential effect of IRP in three pharmaceutical categories including statins, non-steroidal anti-inflammatory drugs, and proton pump inhibitors (PPIs). Two scenarios for reference groups (levels 4 and 5 of the ATC code) and four scenarios for the reference price (i.e., the minimum, median, mean, and the mean of three minimum prices in the reference group) were considered in this regard, and the price and sales data source was the report published by the Iranian Food and Drug Administration. Then, cost changes were calculated with each hypothetical scenario. It was assumed that other intervening factors remain unchanged, including consumers and prescribers’ behavior.

Based on the results, the two largest potential saving effects belonged to the minimum price scenario and the mean of the scenario of the three minimum prices, respectively. However, the results showed that the consequence of using a price scenario other than the minimum price as the reference price is highly related to the details of the distribution of prices in the related reference group. In addition, appropriate decisions regarding outlier products (e.g., imported products) might have extremely important effects on the result, especially for the mean price scenario. The minimum price scenario concomitant with a premium for superior products can also be considered, but part of it is outside the scope of this study and requires independent research.

Thus if an appropriate scenario is selected for the reference price and group, the IRP method has the potential to reduce the costs of medicines. Therefore, pharmaceutical policymakers must pay enough attention to the details of planning this system and the needed procedure for updating the details of this system.