External or international reference pricing (ERP) refers to using the price of therapies in one or several other markets to set benchmarks for price expectations in your own market.

While this is typically seen in the ex-US markets, there have been ongoing proposals with the current US administration around whether the ERP model can be used to regulate the price of certain therapies in the US, a largely free-pricing market for pharmaceuticals. In addition, the Democrat presidential nominee has proposed establishing an independent review board that will use ERP to assess and recommend limits for launch prices of specialty drugs not facing direct competition and a new public health insurance option that will negotiate prices with providers. Separately, it would also allow importation of drugs from other countries as long as they are considered safe by the U.S. Department of Health and Human services.

The US market for pharmaceuticals is by far the biggest globally compared with the relatively small/fragmented size of many major ex-US markets; e.g., the OECD reported in 2015, US pharmaceutical spend was $373 billion, over six-fold greater than the biggest European market (Germany, $62 billion). Therefore, if ERP pricing was implemented in the US, manufacturers may be incentivised to maximise revenues by strictly demanding US levels of pricing in other markets, rather than reducing US prices. Further, in many markets, companies can give confidential discounts on the list price in certain markets to secure access but not impact other countries prices through ERP. Additionally, the US is often a first-launch market, so there will rarely be any international prices for reference at the time of US. In summary, plans to impose ERP in the US, risk having limited impact on US prices and may actually instead incentivise increased list prices or changes in other markets.