External reference pricing: The drug-pricing reform America needs?

Date: May 27, 2021
Journal: The Commonwealth Fund Issues Brief
Citation: Ollendorf DA, Synnott PG, Neumann PJ. "External reference pricing: The drug-pricing reform America needs?," The Commonwealth Fund Issues Brief, May 27, 2021.



To control prescription drug costs, some U.S. policymakers have proposed external reference pricing (ERP), which would tie prices for high-cost drugs to those in other countries.


To examine ERP programs internationally, assess their impacts, and explore prospects for U.S. adoption of ERP.


Review of published literature and technical reports.

Key Findings

ERP features vary, including the drugs targeted, reference countries used, and pricing calculations. The impacts of ERP are difficult to isolate from those of concurrent pricing policies, and evidence on the durability of savings is mixed. Industry strategies to “game” ERP, such as delaying the launch of drugs in particular markets, are intended to keep prices high. While initial ERP savings in the United States could be substantial, pharmaceutical companies may employ similar tactics that could erode savings. Most countries proposed for inclusion in the U.S. reference price “basket” favor a value-based approach that ties the price of drugs to their benefits; using their prices as references would mean importing their valuations.


While short-term savings from a U.S. ERP program may be substantial, they will be difficult to sustain. Over the longer term, U.S. pricing policy could develop its own value-based approach, and any role for ERP would be limited.

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