What International Reference Pricing Could Mean for U.S. Drug Costs and Healthcare Transparency
Summary
Discussion around international reference pricing (IRP) is intensifying as policymakers search for ways to address persistently high prescription drug costs in the United States. With news of the Trump administration’s recently signed executive order to tie U.S. drug prices to lower international benchmarks1, the debate over balancing affordability, innovation, and transparency has intensified.- Author Company: careviso
- Author Name: Andrew
- Author Email: jbaronoff@meritmile.com
- Author Telephone: +14073402247
- Author Website: https://www.careviso.com/
Discussion around international reference pricing (IRP) is intensifying as policymakers search for ways to address persistently high prescription drug costs in the United States. With news of the Trump administration’s recently signed executive order to tie U.S. drug prices to lower international benchmarks1, the debate over balancing affordability, innovation, and transparency has intensified.
As the founder of a company deeply embedded in healthcare price transparency, I’ve witnessed firsthand how opaque pricing mechanisms strain patients and providers alike. Here’s how IRP could reshape the landscape-and what it means for stakeholders.
The Double-Edged Sword of International Reference Pricing
International reference pricing (IRP), which would benchmark U.S. drug prices to those in other developed countries, has re-emerged as a major talking point in the ongoing debate over U.S. drug costs. The news of President Trump signing an executive order to lower drug prices by tying them to international benchmarks has brought renewed urgency to the discussion.
On the surface, IRP seems like a straightforward way to provide relief to Americans facing high out-of-pocket prescription costs. For instance, the price of Merck’s Keytruda, a leading cancer drug, is over $100,000 higher in the U.S. than in Germany2. Aligning U.S. prices with those in peer countries could narrow these disparities and ease the financial burden on patients, especially as out-of-pocket spending on prescription drugs in the U.S. rose by 8.6% between 2020 and 20233.
However, the potential consequences of IRP are complex. The U.S. currently accounts for nearly 60% of global pharmaceutical research and development (R&D) spending, with industry investments exceeding $96 billion in 20234.
Lowering drug prices through IRP could threaten this investment, particularly in the high-risk biotech sector, where investors rely on the prospect of strong U.S. returns to justify funding innovation. If the financial incentives that drive new drug development are diminished, the pace of medical breakthroughs could slow, ultimately impacting patient care.
Furthermore, IRP could distort global market dynamics. In countries that already employ reference pricing, such as Germany and the UK, pharmaceutical companies sometimes delay launching new drugs to avoid setting lower international price benchmarks. If the U.S. were to adopt IRP, it could lead to similar delays or even prompt companies to raise prices abroad to protect their margins in the U.S. market.
Transparency as a Catalyst for Sustainable Reform
While IRP addresses the symptom of high drug prices, it does not resolve the underlying opacity in the U.S. drug pricing system. The reality is that list prices for drugs often differ dramatically from the net prices after rebates and negotiations, yet patients are typically exposed to the higher list prices through coinsurance and deductibles.
This lack of transparency leaves consumers in the dark about their true costs and undermines their ability to make informed healthcare decisions. Recent regulatory measures, such as the No Surprises Act, have started to address this by requiring real-time cost tools that clarify out-of-pocket expenses and prior authorization requirements. These tools empower patients to anticipate costs and avoid unexpected bills.
However, more must be done to shine a light on the rebate system that drives a wedge between what insurers pay and what patients owe. In 2024, for example, net drug prices in the U.S. actually decreased slightly, yet patients continued to face rising deductibles and coinsurance5.
Policymakers should consider pairing IRP with additional transparency reforms, such as requiring drug manufacturers to justify significant price increases or mandating disclosure of net prices to insurers and consumers. Without these measures, IRP could simply perpetuate inequities by referencing international list prices that are themselves opaque and subject to negotiation.
Implementation Challenges and Lessons from Abroad
Implementing IRP in the U.S. would be a formidable challenge, given the complexity of the American healthcare system. Medicare, for example, is not a monolithic program; it is split between traditional fee-for-service, Medicare Advantage, and regional administrators, each with their own pricing mechanisms.
Applying a uniform international benchmark across such a fragmented system would be difficult. Other countries offer instructive examples. Germany’s experience with reference pricing has shown that it can encourage “launch sequencing,” where drug companies delay introducing new products in lower-priced markets to avoid setting a precedent for lower prices elsewhere. The U.S. would need to guard against similar unintended consequences.
Additionally, many countries that use IRP also employ value-based pricing frameworks that consider the clinical benefits of a drug, a model that the U.S. has not fully embraced. Rather than adopting IRP wholesale, targeted negotiation strategies-such as Medicare’s new authority to negotiate prices for high-cost drugs-may offer a more balanced approach. This is evident in recent efforts to address the high cost of insulin, where focused negotiations have yielded tangible savings without broadly undermining innovation.
Innovation-Friendly Solutions
While international reference pricing is drawing attention, there are other strategies that could help lower drug costs without undermining innovation. Reforming the patent system-particularly by addressing practices like “evergreening” that delay generic competition-could foster more market competition and bring down prices. Additionally, encouraging greater global investment in research and development would help distribute the financial burden more fairly, rather than relying so heavily on the U.S. market to fund pharmaceutical innovation.
Ultimately, IRF may offer some relief, but it is not a silver bullet. Real progress will require a combination of transparency, targeted negotiation, and thoughtful policy reforms that protect both affordability and the incentives for breakthrough medical advances. As the debate continues, it’s essential that solutions address the root causes of high drug costs while preserving the U.S. role as a leader in healthcare innovation.
About The Author: Andrew Mignatti is the Co-Founder and CEO of careviso, a leader in healthcare technology solutions. Since founding careviso in 2017, Mignatti has built a fully functioning proprietary automated software system and the company has partnered with over 300,000 healthcare providers and 60 laboratories and service providers. For more information, please visit www.careviso.com.
2: https://www.npr.org/sections/health-shots/2024/02/08/1230174586/high-us-drug-prices
3: https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/
5: https://www.drugchannels.net/2025/01/inflation-adjusted-us-brand-name-drug.html
