A major change in the pharmaceutical market place is the increasing importance of third-party payment for new drugs, mainly through public health insurance. Drugs have been included in public financing systems for healthcare recently, and the patient co-payment for drugs is generally still higher than for other healthcare services. The introduction of reimbursement of pharmaceuticals changed the market, and in the early 1990s, cost-effectiveness analysis was introduced to guide pricing and reimbursement decisions. Lately, new drugs have been introduced at prices that put treatment costs at €40,000 per year or more (mainly cancer and orphan drugs). This has rendered co-payments redundant as an instrument to control use and expenditure . Access to the market is thus determined by payers’ decisions, which must balance available budgets against expected outcomes for different uses of resources.
We have explained how, in this new situation, both payers and manufacturers of new drugs are incentivised to enter into agreements that give more patients access to the drug, and at the same time increase the revenue for the manufacturer. We are thus returning to the old model of price discrimination that existed before the establishment of the common market in Europe. At that time, prices were lower in low-income countries, which was made possible by restrictions on parallel importing. A new feature of the price discrimination model is that discussions are opened to allow different prices for different indications for a drug. This is possible in a situation where both parties in the market can control what is used for which group of patients.
In a situation where price discrimination with non-disclosed rebates or market access agreements is the norm, which makes it difficult to identify the price, the basis for IRP is eroded. An example of this is the suggested IRP for Sweden, which only includes a handful of countries that still have official prices. In a few years, some of these countries may also have to change their pricing and reimbursing system, making it necessary to exclude them from the comparison. We predict the death of IRP, simply because there would be no countries to reference, either because the prices are not disclosed, or because several different prices are paid for different indications and payers. This will not eliminate the interest in comparing prices, but it will eliminate the use of publicly recorded prices as an instrument for a simple cost-containment policy.
The Zytiga® case in Sweden illustrates the new trend whereby manufacturers and public payers have started to negotiate risk-sharing agreements and special pricing agreements. When indications were initially not recommended for reimbursement, they were often subsequently approved with risk-sharing agreements or special pricing agreements . Price–volume agreements, free drugs or discounts, volume and price caps, and schemes involving performance- or outcome-based payments are all examples of risk-sharing agreements. It is likely that pressure from patients and physicians to fund costly new treatments has contributed to the development of new innovative risk-sharing agreements between manufacturers and public and private payers.
Price is important for the uptake of effective drug treatments. The introduction of new cancer drugs provides many examples. For countries with lower incomes, the relative price of the drug is higher, both in terms of affordability and in relative terms in relation to other resources used in the healthcare system. We can observe that a significant number of EU countries have very low rates of use of new innovative cancer drugs [14, 15]. An opportunity to adjust the price to the ability to pay in different markets, and for different groups of patients, would create greater value from the treatment. Parallel trade also restricts opportunities for price discrimination, and our arguments therefore also apply to restriction in parallel trade; for example, payment per patient treated rather than number of packages used.
A further question is how IRP for medicines in Europe affects general welfare in the long run, and whether the short-term distributional implications in the form of higher prices in previously low price countries can be defended. From a global perspective, one can argue that, by taking on a greater burden for financing the fixed development costs (by paying a higher price), rich countries—more than the relatively poorer countries (with lower prices)—could contribute to the development of new effective drugs and to those drugs being spread to the poorer countries. Dissemination of new drugs would probably not occur to the same extent as today if price differentiation via different risk-sharing schemes, payback systems and confidential discounts was not possible. IRP (and parallel trade) counteracts this opportunity to price differentiate, and therefore effectively reduces the availability of new drugs in relatively poorer countries.
However, there are also potential gains for both payers and the industry to introduce more flexibility in pricing within a country . The value of the use varies with the number of patients treated, with different indications, and more flexible pricing can increase both value and revenue. We thus see new market access strategies in which payers and producers cooperate to find different solutions to the problem of limited or delayed access to new innovative medicines. Discounts, paybacks and risk-sharing agreements are in fact different strategies to discriminate prices and to increase and accelerate access to novel innovative treatments.
The research and development behind a product is used by all consumers and is a common cost. The cost is the same regardless of the number of people consuming the product. Significant common costs indicates optimal (welfare-maximizing) pricing to set different prices for different users: Ramsey pricing . Significant joint costs can never be covered with pricing based on marginal costs .
Ramsey pricing takes advantage of the fact that different consumers have different price sensitivities: those who are relatively insensitive to the price pay more. This principle is used in many fields, such as when airlines charge more for travellers in rush hour than at other times. Those who pay the higher price would have to pay even more if part of the common expenses had not been covered by discounted tickets.
The cost structure of the drug, with a large shared cost for research and development, is a typical case of Ramsey pricing . Ramsey pricing can be said to fulfil the same function as patent, trademark and copyright, which provides opportunities to cover the common development costs and thus provide incentives for producers to develop new products. Even those countries that pay lower drug prices help to cover some of the common costs, leading to lower prices in high-price countries than if those countries were servicing all the common costs.
IRP, as well as parallel trade and price controls, tend to reduce the scope for price discrimination and the use of different markets’ price sensitivity . Producers must then choose other pricing strategies, such as a uniform price for all users or countries.
Persson et al.  suggest a modification to the current reimbursement system in Sweden, whereby payment for pharmaceuticals is split between regional and national levels. The idea is that the contribution from the national government is a fixed amount based on expected sales, and a lower price is used at the regional level where the county and councils buy the drug from the pharmaceutical companies. The system is expected to make new innovative pharmaceuticals accessible to a larger number of patients and to provide more consumer surplus without reducing the producer surplus (profit to the manufacturer). In short, the county councils pay the marginal cost of production while the state pays for the innovation. Persson et al.  suggest that the higher national price should be the list price included in the IRP, with no impact on the healthcare provider’s lower local price. All this has the purpose of not restricting the uptake of new drugs and at the same time avoiding cross-reference pricing via the IRP system.
The examples of Zytiga® in Sweden could be considered as illustrations of how to reach an agreement between the payer and the manufacturer about the payment without disclosing the real price. Time to approval by regulatory authority is no longer of primary importance for the manufacturer’s revenue and to encourage investment in the development of new pharmaceuticals. Approval for reimbursement by national reimbursement authorities and/or national treatment guidelines is of increasing importance for the manufacturer’s revenues and for the spread and availability of new innovative and effective drug treatments.
We now see payers and manufacturers enter into several types of risk-sharing schemes, price volume negotiations, payback arrangements, confidential discounts, coverage with evidence developments, etc., all with the purpose of returning to the old model of price discrimination. In short, real prices for use in IRP systems will no longer exist and, thus, we expect to soon see the end of IRP and a new system for price discrimination and an increasing demand for value-based pricing.