Implementing value-based pricing in the UK
pharmafile | June 14, 2010 | Feature | Sales and Marketing | hta, pricing, value
The UK has a strong history of innovation in medicines and it is vital to the economy that this continues to be the case.
During the lifetime of the NHS, the British research-based pharmaceutical industry has enjoyed considerable success. NHS spending on medicines at manufacturers’ prices has remained relatively modest as a proportion of both total health costs and the gross national product, at about 10% and 1% respectively. At the same time the UK has been a major pharmaceutical exporter, and domestic research spending has been about double that on promotional and allied activities. In much of the rest of the world more is spent on medicines promotion than research.
The NHS’ Pharmaceutical Price Regulation Scheme (PPRS) has played a significant part in the achievement of this healthy record.
However, critics of the PPRS argue that on occasion it has allowed companies to charge unduly high prices for some individual products, even though their overall profits have been kept within defined limits.
Other commentators argue that in today’s globalised economy national level profit and cost controls are outmoded, and that a more objective way of setting fair price limits for patented medicines is required. Value-based pricing (VBP), based on setting a maximum affordable cost per Quality Adjusted Life Year (QALY) generated by the use of new medicines, seeks to provide the solution to this challenge.
Although in principle the prices of goods like patented medicines should reflect their overall value to individuals and communities, this cannot simply be achieved in practice.
Despite the enthusiasm of some VBP advocates, the health economic techniques used by health technology assessment (HTA) agencies currently only cover a relatively narrow spectrum of factors relating to the overall value of health and allied technologies. For example, in the case of dementia treatments, the well-being of carers is not included in current NICE calculations relating to the benefits generated by medicines use.
Nor, at a more general level, are the long- term returns associated with investing in research programmes that – if sustained through less productive periods – will ultimately open the way to fundamental new ways of treating conditions like cancer and neurological diseases, and which will also contribute to building a stronger knowledge-based UK economy capable of earning its future in a changing world.
This new 2020health report is based on an acceptance of the fact that many stakeholders in health and pharmaceutical care believe that introducing VBP as a concept is a desirable way forward. It explores both the strengths and weakness of VBP as applied to innovative medicines pricing, and seeks to identify the barriers to be overcome if it is to be introduced in ways which genuinely enhance the UK’s overall approach to patented medicines pricing and spending. Principal author, Panos Kanavos, senior lecturer at the LSE says that acknowledging the value of research “will ultimately open the way to fundamental new ways of treating conditions like cancer and neurological diseases, and which will also contribute to building a stronger knowledge based UK economy capable of earning its future living in a changing world”.
The report’s key message is that – although there are important elements of the established PPRS that should be retained to protect public interests – within a reformed structure VBP techniques could and should play a useful part in determining the reasonableness of individual pharmaceutical product prices.
It is apparent that the British economy will not be able to recover from its current crisis without fostering a vigorous and financially viable science-based industry, and that monopsonist state purchasers should not be in a position to artificially depress the prices of valued innovations of any sort. But politicians and the public they serve must also be confident that companies are not in a position to unfairly exploit the public purse. It is with respect to the latter that VPB could if intelligently utilised have an important strategic role to play.
Against this background our detailed observations can be summarised as follows:
1) The current agreement (PPRS together with elements of VBP) balances UK health and industrial policy in the pharmaceutical sector; abandoning that agreement altogether could have an adverse impact on pharmaceutical and biomedical R&D investment and is in itself unlikely to have a sizeable effect on the level of NHS spending on medicines. Building on it, by enhancing the VBP component while also developing and strengthening other strategic elements could have a welfare-enhancing effect.
2) Should the PPRS cease to exist in its current form, its replacement should be a constructive agreement between government and industry that builds positively on the spirit in UK pharmaceutical policy over the past half century.
A pricing committee would need to be established in the Department of Health to negotiate prices and finalise pricing arrangements with manufacturers. If a manufacturer requests a premium over existing treatments then the product will undergo a ‘health technology assessment’ (HTA), though this process will have to be reviewed to ensure the different components of ‘value’ (economic plus patient, carer and society) are acknowledged and appropriately rewarded.
3) VBP, as it is currently applied, contains limitations that will need to be addressed such as: a) the arbitrary basis for affordability; b) relative lack of evaluation of other health benefits, e.g. to carers or/and to society; c) how to consider long term benefits; d) meeting humanely the needs of people who can reasonably be regarded as ‘exceptional cases’ and e) catering for treatment that has shown to benefit end-stage disease, but could also be used at an earlier stage.
4) NICE uses a fixed threshold with occasional deviations from it. Greater representation of factors such as unmet medical need, severity of disease, clinical judgement, prevalence of the condition, patient preference, public health impact and societal impact would imply that the QALY threshold of £20-30,000 may need to be raised for areas of high unmet clinical need (e.g. cancer) and reduced for low areas of unmet clinical need (e.g. treatment of dyslipidemia).
5) The 2007 OFT report proposed two pricing options: a) Free pricing at launch followed by reviews afterwards to assess the effectiveness of the treatment and an adjustment in pricing over time (known as ex-post assessment); and b) set pricing at launch with data that is already available (known as ex-ante assessment).
Evidence prior to the launch of a new product is not always available and there may be significant data limitations. Ex-post assessments may prove instrumental in many cases in determining product value for the NHS, patients and society. But criteria, methods and processes need to be set up as to which products should undergo these, together with arrangements allowing access to patients in the meantime. An ex-ante price premium in the case of ex-post assessments would provide a signal to the innovator of the willingness by the payer to reward high risk-taking.
6) Varying medicine prices raises the issue of the resistance to raising the price paid by the NHS and other purchasers if a product is shown to be more effective than originally thought. So a high initial price needs to be considered to ensure: a) the public interest is protected by ensuring that high-risk research is incentivised and b) industry is reassured that it is worth taking risks with new research. A provision for reimbursement by industry to repay excess profit can be built in to ensure fairness once the full potential of the product is known.
7) If the PPRS in its current form is abandoned, then VBP should assume a key, but not necessarily dominant, role in informing pricing through HTAs.
Final pricing decisions will rest with the DH: a Pricing Committee may be established within the DH to confirm prices with manufacturers on new products based on evidence submitted; the Committee will be responsible for pricing policy and pricing decisions at national (UK) level. In this new environment, thought will need to be given to how HTA activities will be co-ordinated across all UK-based HTA agencies.
8) If the PPRS in its current form is abandoned all new patented or other single source products that enter the UK market place may need to undergo an HTA if they request a price premium over existing alternatives. If price parity is requested, then the inclination from the Pricing Committee should be to accept the proposed price. As the workload for appraisals is likely to increase, there may be a requirement for an increase in the available resources for HTA.
9) Currently, HTA assessments are undertaken at a country level (NICE in England, SMC in Scotland and AWMSG in Wales). In order for HTAs to inform pricing decisions at national (UK wide) level if the PPRS is abandoned, the three agencies (currently having different protocols) would have to share the burden due to the increased number of product appraisals and co-ordinate their activities.
10) Implementing VBP as defined in the report may require more joint work and greater co-ordination among HTA agencies, consideration should be given to: a) the possibility that workloads and, as a result, funding may need to increase; b) the differences between the three agencies and the way they work; c) the timeliness of appraisals and the implications for access; d) the evaluation of benefit in conditions where insufficient study populations exist and e) returning a verdict on insufficient data in an independent and transparent way.
11) A critical determinant of price is the duration of the intellectual property on the product. To further attract investment in areas of high unmet medical need, rare diseases, personalised medicines or other, we should consider re-defining market exclusivity periods and potentially revisiting the length of supplementary protection certificates. Both these may require international co-ordination.
12) Patient access schemes (PAS) or risk-sharing agreements mean that payers who are looking for increased certainty when funding new medicines are able to obtain new technologies at acceptable prices without disincentivising innovators.
Irrespective of the type of agreement in place (whether coverage with evidence development, conditional coverage, outcome guarantee scheme, or price-volume agreement), PAS arrangements need to ensure that risk-taking is fairly distributed among the stakeholders involved. The administrative burden associated with running such schemes should also be considered and evaluated.
13) Ex-post value assessment, combined with an ex-ante price premium provides an incentive to the innovator to continue investing in high-risk projects, therefore contributing to long-term investment in innovation activities and dynamic efficiency. This type of approach should become practice particularly in areas of high unmet medical need.
14) From a welfare perspective, separating production and pricing from innovation and removing the direct market incentives could have a stagnating, rather than a welfare-enhancing, effect. Continuing to link pricing with investment in innovation through the provision of direct financial incentives imbedded in product prices, as is currently the case under the PPRS, should have a welfare-enhancing effect.
15) To ensure overall R&D incentives are provided to encourage innovation there may need to be: a) a multidisciplinary, cross-departmental ‘innovation commission’, along the lines of the OLS initiative; b) continuation of knowledge transfer and research commercialisation arrangements, including the provision of opportunities to extend market exclusivity periods where warranted and c) as required multi-agency initiatives aimed at setting research priorities and supporting relevant implementation strategies.
16) The Innovation Commission would develop and expand a package of actions to support UK pharmaceutical and biomedical R&D, create vertical links within the life sciences community, invest in disciplines to produce a critical mass of appropriately trained scientists. It would also assist in the diffusion of new treatments in the NHS and continue to form a bridge between research and commercialisation. If judged necessary it might also seek to provide new supra-market incentives to manufacturers to invest in targeted R&D programmes.
The Implementing Value-based Pricing for Pharmaceuticals in the UK report was authored by Panos Kanavos, Julia Manning, David Taylor, Willemien Schurer and Kyle Checchi for 2020health. For more information visit: www.2020health.org
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