The United Kingdom for example, uses a value-based pricing system. With this method, a panel of experts place drugs across an incremental scale of cost effectiveness. Their price is determined by assigning a dollar value to each quality adjusted life year (QALY). Drugs will only be bought for a given patient group if the treatment will provide enough QALYs to warrant the price. To determine the value of a drug presents an economic and moral dilemma. Because this process can be expensive, it has been beneficial for some countries to work around setting their own prices.
An alternative method is to adopt an external reference pricing policy. In external reference pricing, a drug's price is set by finding the median price paid by other geographically and economically similar countries. This system is most commonly applied to innovative drugs that leave the factory with high asking prices. In Canada for example, drugs are classified as either breakthrough, substantial, moderate, or slight improvements. For drugs in the top three ranks, the maximum price is set to the median of seven countries' drug prices.
Most recently, Germany has adopted an external reference pricing system. The policy is still young and has only successfully challenged the price of a single drug, but it is promising. The United States should strongly consider adding a provision for external reference pricing to its growing healthcare system. Especially as new biologic drugs enter the market at extremely high prices, having multinational consensus on drug prices may keep spending under control. Because this policy is not appropriate for all countries, additional research would be necessary before making a recommendation.