A recent discussion with a Spanish oncology opinion leader truly highlighted this. He regaled a recent situation where he was called into his Chief Executive's office together with the hospital's Head of Emergency Care. He was asked to justify his significant drug expenditure on treatments that extend life for only a few short months, in comparison to his colleague's significantly smaller expenditure, on life-saving interventions such as antibiotic treatments.
So, what does create the perceived level of value given to a therapy area? We set out to explore perceptions of the value of medicines in more detail. As part of our research we attempted to replicate the scenario that the oncologist had faced; we set up a group discussion and asked an oncologist and an infectious disease specialist to make the case for the value of medicine in their respective areas to a Head of Medicines Management who sat in judgement over both arguments.
How do we value medicines?
Firstly, in order to set the scene, let's explore how we, as a society, value medicines. The value of the pharmaceutical industry and the therapies it delivers is surely undeniable; you only have to look at the lives saved and costs avoided in therapy areas such as asthma, oncology and HIV to see that. But when we consider value as a wider society so often the discussions are focused on one simple factor: cost. As such, medicines are often seen as expensive, perhaps without much consideration of whether they provide sufficient value to justify their assigned expense.
One problem lies in the fact that value is a relative concept. If one considers a hierarchy of need, you would expect health to rank very highly and thus drugs to be valued accordingly. However, a recent report from Eli Lilly identified that the average American (if there is such a thing) spends only around $400 per year on medicines – this compares poorly to alcohol and tobacco, with twice as much spend, and telephone bills, with three times as much spend. And yet it is medicines that are perceived as expensive and high cost.
There must be good reason why the value provided by medicines is not truly appreciated. Perhaps it is because within healthcare, the drugs budget dominates? Not the case: across most healthcare systems drug costs account for only around 10 per cent of the total healthcare budget. In fact, the use of innovative medicines has been shown to cut healthcare costs, through a reduction in hospital admission for instance. Maybe then the total drug budgets are increasing? No, this isn't the case either: the proportion of budget attributable to drugs has remained stable for 40 years. In fact, across Europe, austerity measures have forced pharma to reduce drug prices.
On the topic of cost, Sanofi CEO, Chris Viehbacher, recently commented: “Europe is the region of the world where government reimbursement is the highest and unfortunately the pharmaceutical industry is sometimes seen as an easier target, especially compared to more structural reforms which are going to be needed.”
We're trying very hard as an industry to get the European authorities to take particularly the reference pricing issue seriously, but so far nothing has really changed
Sir Andrew Witty, CEO, GSK
In addition, GlaxoSmithKline's medicine prices fell by about 7 per cent in the second quarter of 2012 as consequence of reference pricing, prompting this reaction from CEO Andrew Witty: “We're trying very hard as an industry to get the European authorities to take particularly the reference pricing issue seriously, but so far nothing has really changed.”
The relative perceptions of value vary considerably between different conditions too; cancer, as already referred to, is an interesting therapy area to consider in the value of medicines discussion. Oncology treatments are unarguably some of the most expensive therapies entering the market, and cancer funding has been ring fenced in many markets. But why does this therapy area appear to have a higher level of value attributed to it versus others?
We explored with our experts the major factors that drive the perception of value in therapy areas. In the case of oncology, the significant media attention and subsequent public attention has made it a high-profile disease area, and driven a high-perceived value.
In society, cancer is portrayed as the enemy that strikes down helpless and innocent people, a view compounded by celebrities, happy to share their personal pain with the public. 'Race for life' events to raise money for cancer research have become commonplace, giving a real sense of solidarity within society, of 'fighting cancer' together. It would be unlikely that such gatherings would gain such commitment or enthusiasm in many other therapy areas.
The 'villain' of the piece?
The 'villain' in this media story is all too often the Health Technology Assessment (HTA) bodies, such as the National Institute for Health and Clinical Excellence (NICE) in the UK, which stand accused of withholding treatments from patients. As a recent example of this, a decision by NICE to reject Zelboraf (vemurafenib) – ruling it would not be cost-effective (extending life by 3.5 months at a cost of £50,000 per patient) – received adverse media attention.
The media reported the response of a patient support group that hit back by saying: “This is another truly devastating blow to all melanoma patients and their families, many of whom are very young and with young families.
“I am astonished and deeply worried that NICE has not given approval to yet another drug which will significantly alter the lives of melanoma patients. The patients we represent have vowed that again, they will not take this decision lightly.”
With such emotional arguments being made, so often a rational perspective of what represents value is lost.
Blurred perception of value
It seems that the need for cost containment has further blurred the perception of value in healthcare, often leading to short-term investment decisions that can be ineffective or even counter-productive. They tend to consider line items such as the drugs budget rather than considering the holistic contribution of a therapy. It will be interesting to see the impact of value-based pricing, already used in some European markets, which attempts to consider the overall value of a medicine, when it is introduced in the UK in 2014.
One consequence of increased scrutiny on the value that medicines bring is much talk about increased pharmaceutical price and profit controls without a view of the wider impact such measures might have. What might that be? A loss of capital in the industry – almost certainly; falling R&D budgets and less investment to address areas of remaining health needs at a time when we are also on the edge of the next great innovation age in medicine.
With increased understanding of the science of areas such as genomics and diagnostics, a healthy R&D industry will not only bring new innovative medicines to market but also the ability to identify those at risk of disease to better enable screening and prevention measures.
Continued and significant R&D investment, which is incidentally greater than any other industry, means that there are currently around 2,900 medicines at different stages of the development process in the US alone. But herein lies the rub. Around 1,000 of these are cancer treatments, most harnessing new diagnostic capabilities to target patients and as such, are high value products.
It seems that the need for cost containment has further blurred the perception value …
The high cost of personalised medicine has been accepted when these treatments have been relatively limited in terms of patient numbers, however as the ability for molecular segmentation increases, and there are a greater numbers of eligible patients, can oncology pricing be sustained?
At what cost?
Spending on oncology drugs and their administration is estimated to rise more than 20 per cent annually over the next few years.
All of our experts agreed with the HTA body definition of value as a function of cost versus benefit/outcome. Interestingly, when we posed the value dilemma to our experts they all, including the oncologist, agreed that the ”pendulum had swung too far” towards highly priced oncology treatments and that this would not be sustainable in the future as more oncology treatments request market access.
The oncologist in our debate even went so far as to state that: “If I am honest it is hard for me to justify the high cost of cancer treatments”. She instead attempted to justify her higher expenditure on potentially less effective treatments (compared to infectious disease) by presenting an emotive argument that cancer patients are blameless in their disease and therefore in need of every available treatment to help them.
One of the contributory reasons for the growing cost of cancer care, highlighted by our experts, was the inclination for physicians to avoid the “difficult conversations” of explaining to a patient why they should not receive a treatment; the easier route being to prescribe. These can be hard conversations and difficult decisions to make, both at an individual and population level, but the impact of not doing so can have considerable repercussions. A commission, set up by the King's Fund to debate the issue of rising costs of cancer care, had this to say: 'We are at a crossroads for affordable cancer care where our choices – or refusal to make choices – will affect the lives of millions of people.'
Changing view of end-of-life care
This shift in value perceptions may already be happening particularly for end-of-life treatments where NICE has negatively reviewed nine of the last 10 products aimed at end-of-life care. A senior healthcare commissioner stated: “We need to re-open the ethical debate surrounding end-of-life care. Currently 40 per cent of healthcare costs occur in the last year of life and the system simply cannot afford it”.
It is the first time we have heard this stated so openly by a senior stakeholder in healthcare and it is likely to be the last. The perception that every possible treatment must be given to a patient is perhaps not the most appropriate, it can impact quality of life and is often cost-ineffective. As one of our experts pointed out: “It seems that it is just not okay for anyone to die any more.”
What we can be fairly sure of is that there will almost certainly be a re-evaluation of the value associated with cancer treatments, as the projected increase in funding required to keep pace with new innovations is not sustainable. As a senior pharma company executive asserted: “If you look at the cost to society versus research expenditure of oncology against Alzheimer's disease then the current trends are moving in the wrong direction”.
However, aside from oncology, what is required more generally is careful thought and consideration given to how we assign value to therapy areas and treatment: healthcare systems should be able to provide adequate treatment to patients across all conditions and not serve some areas better than others.
On an individual therapy and product level, what is clear is that we will need to make a strong case to demonstrate value. The good news is that precedents already exist in attributing high value to drug therapies. We will certainly also need to consider value early on in the product development process.
Healthcare systems should be able to provide adequate treatment to patients across all conditions
When we are developing value propositions with our pharma clients, even in the early stages of development there are some key questions that should be considered including: Who is your product or service for? What job is it being 'hired' to do? And what does it replace that is being used now? More than ever answering these questions will be crucial in the delivery of true customer value.
It is perhaps not news that cost-effectiveness of drug therapy is of critical importance, but a shift to outright affordability and sustainability is. It will be essential that the industry fights its corner and make a strong case for the value of medicines.
David Coleiro is a Partner and John Grime and Paula Lashley are Consultants at Strategic North, a healthcare marketing strategy consultancy that works with clients to build