BACKGROUND AND OBJECTIVES: External reference pricing (ERP) is a price regulation tool widely used by policy makers in the European Union (EU) Member States (MS) to contain drug cost, although in theory, it may contribute to modulate prices up and down. The objective of this article was to summarise and discuss the main findings of part of a large project conducted for the European Commission (‘External reference pricing of medicinal products: simulation-based considerations for cross-country coordination’; see www.ec.europa.eu/health/healthcare/docs/erp_reimbursement_medicinal_products_en.p df) that aimed to provide an overview of ERP systems, both on processes and potential issues in 31 European countries (28 EU MS, Iceland, Norway, and Switzerland). METHODS: A systematic structured literature review was conducted to identify and characterise the use of ERP in the selected countries, to describe its impact on the prices of pharmaceuticals, and to discuss the possible cross-country coordination issues in EU MS. This research was complemented with a consultation of competent authorities’ and international organisations’ representatives to address the main issues or uncertainties identified through the literature review. RESULTS: All selected countries applied ERP, except the United Kingdom and Sweden. Twenty-three countries used ERP as the main systematic criterion for pricing. In the majority of European countries, ERP was based on legislated pricing rules with different levels of accuracy. ERP was applied either for all marketed drugs or for specific categories of medicines; it was mainly used for publicly reimbursed medicines. The number of reference countries included in the basket varied from 1 to 31. There was a great variation in the calculation methods used to compute the price; 15 countries used the average price, 7 countries used the lowest price, and 7 countries used other calculation methods. Reported limitations of ERP application included the lack of reliable sources of price information, price heterogeneity, exchange rate volatility, and hidden discounts. Spill-over effect and downward price convergence have often been mentioned as ERP’s consequences leading to pricing strategies from pharmaceutical companies. CONCLUSION: While ERP is widely used in Europe, processes and availability of price information vary from one country to another, thus limiting ERP implementation. Furthermore, ERP spill-over effect is a major concern of pharmaceutical firms leading to implementation of the so-called ‘launch sequence strategies’.