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Value-based pricing: a predatory opportunity?

Proving a new drug’s worth in the existing market can give it the lead over its competitors and ensure the best price

Value-based pricing - a predatory opportunityIn 2001, which was over a decade ago, I know, a patient with HIV successfully underwent heart transplant surgery. To the medical world, it was reported as almost the equivalent of a moon landing. This was the march of medical science at its very best. But to many of the un/underinsured population of the US, it was also regarded as scandalous money-wasting.

This single procedure cost almost $200,000; money assigned to one well-insured patient with advanced HIV disease. The view was that this could have been redirected towards countless 'more valued' services, such as staffing rural clinics; providing prenatal care for uninsured women; early detection of cancer among the working poor.

This particular case happened in the US, but the value paradox that this thinking introduces is the same the world over. It is a clear example of access versus excess, with just one lucky winner.

The question it raises is how to assign value to treatments or medicines rationally in a health system that is, almost without exception, a budget and investment-locked, 'zero-sum game'?

This conundrum will be considered later in this article.

An outsider's view
First, a confession: I am not a health economics expert. I come to the challenge of value-based pricing (VBP) very much from an agency/strategic consultancy perspective, and bring a typically 'Tiggerish' point of view to the challenges and opportunities faced by the pharmaceutical industry as VBP is adopted across EU markets.

I was recently invited to be involved in developing a VBP strategy for an emerging orphan product in a very rare condition. I immediately declared my lack of economic expertise, but was nonetheless involved for a while in the strategic processes around the client's approach to VBP. My interest in such engagements is built around helping clients to question their business models, and envision and build new ones. The current challenge for a VBP strategy within healthcare is that there is no model in place.

As a conscientious thinker, I also seek and encourage the exploration of opportunities for positive social and economic change through innovative business models. So an interest in VBP was born, and hopefully sharing these thoughts will serve to stimulate the thinking of marketers in the industry.

The sessions raised a number of interesting and relevant questions that reaffirmed my already strong belief that VBP can be viewed as a predatory process from the perspective of the brand owner.

The first question that needs to be addressed is how to define value in the context of VBP.

The rather more concerning question that immediately follows from this one is who decides if a new treatment is valuable or not? Think here of the differing views of commissioner versus patient, and the 'soup to nuts' continuum of medical professional care that exists in between.

Next to be considered is what the key constituents of value are to each potential target.

For every new product, in every disease/speciality area, the answers to these questions will differ, but a consensus will emerge. Physicians need to see clinical support and outcomes-based value, while patients focus on safety, transparency and equity. 

The aim of a VBP policy is to improve patients' access to effective and innovative drugs across the whole patient population by ensuring that they are available at a price that reflects their value. VBP thus requires a broader assessment of a new medicine's advantages, incorporating health and wider benefits. The additional proposed benefit of VBP is to encourage innovation in areas of greatest clinical need.

Competition
We are experiencing the emergence of more orphan biopharmaceuticals than ever before, alongside the continuous arrival of new, more targeted biologics, and biosimilars, all with hefty development budgets and complex manufacturing processes. Furthermore, all are battling for market shares and 'high-value' pricing that will maximise return on investment, offset against the need to obtain reimbursement by ensuring widest possible access for the majority of patients.

Ahead of the UK's VBP plans, Germany, which is used as a reference for prices in more than a dozen EMEA countries, has implemented a radical law that requires pharma companies to negotiate prices for new drugs with health insurers, which will be based largely on measurable impacts on patients' health. In the new system, the manufacturer's launch price will be valid for one year only.

After that, the amount paid by health insurers will be capped at a nationally determined level, based on a preliminary assessment of the medicine's benefits. If it has no extra therapeutic benefit, reimbursement will be set at the same level as a medicine already on the market.

Instead of taking account of 'outside' views of the academically judged pros and cons of VBP, it is better to start with the assumption that, in Europe, VBP will happen or is happening in one way or another and that the playing field and rules of the game are still largely unwritten and not yet formalised. To a predator thinker, this offers the opportunity to consider creating some of your own.

Health economic assessment
So here is some predatory thinking collateral specific to the context of VBP in the healthcare arena.

At the very core of that context is the abiding truth of almost every business problem, more important in today's global economic climate than at any other time: the zero-sum game.

In a zero-sum environment, there is one abiding rule. If you want people to start doing something different (using your new brand), they must stop doing something else (best practice/standard of care). 

So what we need is a way of thinking that allows us to answer the question: 'If we use this new intervention instead of our current best practice/standard of care, how will the outcomes represent improved value?' The anonymised data and tools to investigate this exist, even at a local hospital/primary care practice level.

This predatory approach demands careful consideration of where the new treatment is going to take its business from or, in other words, who or what is the prey? In a health economic context, this decision can be framed by three simple criteria that will resonate with every commissioning body:

  • Seriousness of the condition/burden of illness despite current treatment. This encompasses current cost of treatment and standard of outcomes
  • Scale of clinical benefit beyond current best practice or existing practice produced by the new intervention. This is a measure of the 'advance' in treatment; the more substantial the health gains, the higher the potential pricing opportunity
  • Non-health benefits that can be quantified as cost. This includes additional health budget-related savings, such as utility costs, follow-up care and so on.

Each validated value proposition that emerges will be acutely focused on the value of improvements to be garnered by the brand over and above that of the clearly identified standard of care that this new brand will replace. Value can be measured not only in clinical improvements, but in all and any quantifiable terms of improved efficiency/cost saving.

For orphan drugs, the prey may be a surgical intervention (for example, Glivec versus bone-marrow transplantation in Ph+ chronic myeloid leukaemia), while for conditions with established medical management, the standard of care/best practice arena for the 'prey' that provides greatest opportunity for business success must be investigated.

This will require a degree of focus through phase II/III, as the key outcomes data that supports a predatory approach will need to be extracted from the clinical outcomes/development programme and aligned with the ongoing label/licence submissions to ensure absolute scientific fidelity.

The upside of this approach to VBP strategy is that this early predatory thinking leads directly into a wider communications strategy and plan for the brand. It does not need to be replicated, but will feed seamlessly into highly focused early brand and content development processes and help to drive the ongoing focus and implementation of marketing, promotional activities and sales. It really is a win-win procedure.

Transplant paradox
The value conflict posed by the HIV heart transplant patient is a real-world example of how the world judges value. So it is worth analysing the data beyond mere cost considerations.

Assuming that the patient gains 20 years at 60 per cent capacity, that original colossal expenditure of $178,000 for a heart transplant procedure turns into a cost per quality-adjusted life year (QALY) of just $14,333. Compare that with the annual cost of a year's worth of AIDS drugs that keep an HIV-infected patient alive, and it appears to have been money very well spent.


Brian Towell, CST The Gate
The Author
Brian Towell
is head of health at CST The Gate Health

22nd February 2012

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