Table 1 Definitions of pricing policies and strategies

Reference pricing

Reference pricing, also known as benchmark pricing, refers to the approach of understanding the appropriateness of prices of medicines based on selected benchmark prices, either from other jurisdictions (e.g. countries or other administrative regions) or a group of comparable medicines in the same system/formulary. For the purpose of this review, reference pricing is stratified as external and internal reference pricing:

External reference pricing (ERP; also known as international reference pricing) refers to the practice of using the price of a pharmaceutical product (generally ex-manufacturer price, or other common point within the distribution chain) in one or several countries to derive a benchmark or reference price for the purposes of setting or negotiating the price of the product in a given country. Reference may be made to single-source or multisource supply products [5]

The practice of using the prices of identical medicines (ATC 5 level) or similar products (ATC 4 level) or even with therapeutic equivalent treatment (not necessarily a medicine) in a country in order to derive a benchmark or reference price for the purposes of setting or negotiating the price or reimbursement of the product in a given country.

Value-based pricing

Countries set prices for new medicines and/or decide on reimbursement based on the therapeutic value the medicines confer, usually assessed through health technology assessment (HTA).

Cost-plus pricing

Pricing policy that takes into account production costs, promotional expenses, research & development, administration costs, overheads and a profit to determine a price.

Setting price and mark-up thresholds across the pharmaceutical supply and distribution chain

Setting price threshold means specifying maximum prices, also referred to as price caps or price ceilings, or specifying maximum mark-up percentage.

A mark-up represents the additional charges and costs that are applied to the price of a commodity in order to cover overhead costs, distribution charges, and profit. In the context of the pharmaceutical supply chain, policies might involve regulation of wholesale and retail mark-ups as well as pharmaceutical remuneration.

Promoting price transparency

The sharing, disclosure and dissemination of information related to medicine prices to the public and relevant parties to ensure accountability. Full price transparency includes the publication of medicine prices at all price types (e.g. ex-factory prices, pharmacy retail prices), the disclosure of the net transaction prices of medicines between the suppliers (e.g. manufacturers, service providers) and the payers/purchasers (governments, consumers), the sharing and publication of the contents of pricing arrangements, such as risk-sharing schemes and other managed-entry agreements, including the actual pricing and input factors that determine a medicines prices (e.g. production costs, R&D costs, added therapeutic value). (adapted from [10])

Price discounts for single source pharmaceuticals

Discount is the general term to describe to a price reduction granted to specified purchasers under specific conditions prior to purchase. Different types of price reductions include a rebate (payment made to the purchaser after the transaction has occurred), or upon meeting certain pre-agreed terms and conditions as specified in so-called managed-entry agreements. The latter arrangements are usually classified into financial-based MEA (e.g. flat discounts, price-volume agreements, capping) and performance-based MEA (e.g. risk-sharing agreement, coverage with evidence development).

Single source pharmaceuticals are pharmaceutical products supplied by a company that holds the patent rights, exclusive marketing rights, or supply agreements in a specific jurisdiction.

Promoting the use of quality assured generic and biosimilar medicines

Strategies directed at patients, prescribers or pharmacists to encourage the use of generic or similar biological medicines.

Competitive pricing based on tendering and negotiation

An approach that determines prices through tendering or negotiation among suppliers of medicines that are identical or comparable in chemical composition, pharmacological mechanisms and therapeutic use, taking into account factors such as quality, supply conditions.

Tendering is any formal and competitive procurement procedure through which tenders (offers) are requested, received and evaluated for the procurement of goods, works or services, and as a consequence of which an award is made to the tenderer whose tender/offer is the most advantageous.

Negotiation refers to “discussion aimed at reaching an agreement” [11]

Pooled procurement

Pooled procurement refers to the arrangement where financial and non-financial resources are combined across various purchasing authorities to create a single entity for purchasing health products (e.g. medicines) on behalf of the individual purchasing authorities [10]

Tax exemptions or tax reductions for pharmaceuticals

Tax is a compulsory transfer of money from private individuals, institutions or groups to the government. It may be levied upon wealth or income (direct taxation) or in the form of surcharges on prices (indirect taxation). It may be paid to the central government (central taxation) or to the local government (local taxation).

There are two main categories of tax: direct taxes, which are levied by governments on the income of individuals and corporations, and indirect taxes, which are added to the prices of goods and services. Direct taxes, along with social security taxes, generally make up about two-thirds of total government revenue in high-income countries. In low-income countries, indirect taxes, on international trade or on the purchase of goods and services, are major sources of government revenue. Policies relevant to pharmaceutical products might involve the reduction of taxes on medicines, or the exemption of medicines from taxes, particularly sales taxes [5]