There has long been a debate on price transparency in the pharmaceutical industry and whether this would be a fairer and more ethical way to distribute medicines to all countries. This debate is one that has certainly intensified in recent years, with organisations such as the United Nations (UN), the World Health Organization (WHO) and the Organisation for Economic Co-operation and Development (OECD) leading calls for greater transparency in the pharmaceutical sector, specifically focused on prices.

Currently, all pharmaceutical companies act on a private, behind closed doors approach to negotiating prices specific to a country or market. This approach, supportive of a private and tailored approach to medicine sales, allows countries to secure the best possible deal for their citizens, meaning all citizens have the most up-to-date medicine and don’t experience delays in securing them. Not only this, but it also allows pharmaceutical companies to make a profit, which can then in turn be filtered back into research and development for new innovative and potential life-saving medicines.

On the other side of the debate, those pushing for greater net price transparency (NPT) in these negotiations state that it would support good governance, enhanced decision-making and efficiency. There is also the question of ethics and fairness in these negotiations – is it ethical or fair to charge one country a specific price, and then sell the same product to another country for a different price?

Not only are there questions around ethics, fairness and the impact on research and development, but there are also potential economic consequences that could significantly impact patients, payers and the industry.

In order to understand the impact of net price transparency on all these aspects, alongside Professor Massimo Riccaboni from the IMT School for Advanced Studies and colleagues, I conducted research to examine this further. We were keen to understand what the impact may be if all pharmaceutical negotiations switched from the current behind closed doors method to a complete price transparency one.

However, first we were keen to gather experts’ general thoughts on net price transparency. To do so, we surveyed national payers, who negotiate on behalf of public health systems, and payer experts from a range of European markets, and an advisory board consisting of 12 economic and health economic experts representing 12 European countries was also assembled to discuss the potential impacts of greater NPT.

‘Those pushing for greater net price transparency in these negotiations state that it would support good governance, enhanced decision-making and efficiency’

This group were questioned on whether they supported greater NPT and their expectations around the impact it might have. We found that 62.5% of European payers were in support of greater NPT. When exploring why they held this view, most justified their support based on the assumption that transparency was ‘good’ and ‘the right thing to do’.

However, although a majority of payers were in support of greater NPT, their thoughts on the impact it would have were varied, with a majority expecting a negative impact on patient access to medicine. This clearly indicates that though NPT may be deemed the right thing to do, even those who agree with it may not see it as economically viable, showing that politically, it may be difficult to disagree with the concept of increased transparency, as it has such strong positive connotations, even when expecting negative consequences.

There was also a consensus among experts on the advisory board that greater NPT can be expected to result in the convergence of prices across Europe due to an increase in the use of international reference pricing (IRP) mechanisms. IRP refers to when the price in a foreign market is used as a benchmark for an acceptable price in a domestic market. An increase in this would cause price convergence, with prices becoming more uniform across countries.

This led us on to the second part of our study. After gathering the thoughts of experts in this field, we were then keen to understand the actual impact, not just their thoughts. We were keen to put a specific statistic on the exact impact of switching to an NPT policy, for all European countries. To examine how this would occur, we developed a computational model simulating the effect of NPT policy on net pharmaceutical prices. This provided new, empirical evidence for the impact on different European markets.

The results showed that lower-income European countries, such as Greece, Poland and Portugal, would be disproportionately affected as prices in markets currently paying below average like these would increase. At the same time, prices in markets currently paying above average, typically higher-income countries such as Germany, the UK and Sweden, would decrease. At the most extreme levels, some markets could see their prices increase or decrease by as much as 50%.

Price convergence is also likely to have another effect on lower-income markets: access delays to medicine. This arises due to IRP and the influence it has on the strategic behaviour of the national payers. Markets already make use of access delays to reduce prices as drug value decreases the closer it gets to its patent expiry date. However, our analysis makes this more explicit, showing that with NPT limited to the high-income group of countries – which clearly benefit from price transparency – middle- to lower-income countries would only make the rational decision to join this group much later, the earliest being at patent expiry.

Manufacturers may also launch their drugs in an order that will protect their prices. For example, they might launch in the richest countries first as these countries will be able to pay the most. This could then greatly increase access delays and decrease product launches, particularly in lower-income countries, as it may not be possible for them to match a higher price for the medicine.

At the same time, it may not be possible for the industry to offer lower prices due to the impact this would have on selling to richer countries later on – they may not be willing to pay a higher price if they see another country receiving it at a lower price. In this case, it may take several years for pricing agreements in lower-income markets to be reached as they wait for the convergent European price of the medicine to decrease to a value they can afford.

Not only could greater NPT affect patient access to medicines, but it could also impact the development of new medicines in the first place. If we consider the global breakdown of sales in the pharmaceutical market in 2019, European sales accounted for 22.9% of global sales, 48.7% came from the US and Canada, 7.2% came from Japan and the remainder from the rest of the world. Many markets, such as Australia, Canada and Japan, already reference European list prices when setting their own medicine prices, while others such as the US are considering implementing such rules.

‘There is also the question of ethics and fairness in these negotiations – is it ethical or fair to charge one country a specific price, and then sell the same product to another country for a different price?’

With greater NPT, the prices agreed in European markets could then have a greater impact on global pharmaceutical sales. If prices in Europe influence the prices in other markets, particularly the US, this could have a significant impact on willingness to negotiate prices in Europe and affect access to medicines. This could then increase the risk of reducing the funds available for research and development in new medicines. In order to maintain private sector R&D investment levels, European markets could subsequently face higher prices, harming payers and reducing patient access to treatment.

Although some theorise prices will decrease with greater NPT, our research shows that the picture is more complex, potentially having the opposite impact in lower-income markets. Only by bringing together a range of stakeholders to discuss the political and technical consequences of transparency will we be able to develop policy proposals that improve trust while maintaining efficiency in healthcare decision-making and patient access. The potential consequences of greater NPT in Europe show how important it is that policy regarding NPT is based on the economics of pharmaceutical pricing and is evidence-based.

This research makes it clear that greater NPT will not have the same impact across countries. If implemented without measures to mitigate against risks, it has the potential to cause negative consequences for patients, payers’ budgets and the functioning of the market for innovative biopharmaceuticals. If pharmaceutical price negotiations were completely transparent, revealing precisely what each country pays, low-income countries like Greece and others could see their prices increase by up to 50% and their patients would have to wait longer for vital medicines.

Walter Van Dyck is Director of the Healthcare Management Center at Vlerick Business School