Drug regulatory agencies have traditionally assessed the quality, safety and efficacy of drugs, and the current paradigm dictates that a new drug should be licensed when the benefits outweigh the risks. By contrast, third-party payers base their reimbursement decisions predominantly on the health benefits of the drug relative to existing treatment options (termed relative efficacy; RE). Over the past decade, the role of payers has become more prominent, and time-to-market no longer means time-to-licensing but time-to-reimbursement. Companies now have to satisfy the sometimes divergent needs of both regulators and payers, and to address RE during the pre-marketing stages. This article describes the current political background to the RE debate and presents the scientific and methodological challenges as they relate to RE assessment. In addition, we explain the impact of RE on drug development, and speculate on future developments and actions that are likely to be required from key players.