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Implications of value based pricing in the UK

What do proposed changes to the UK's drug reimbursement system mean for the industry?

Value based pricing in the UKAs the UK moves towards a value based pricing (VBP) approach to assess the value of drugs and make its pricing and reimbursement decisions, pharmaceutical industry executives and to some extent health authorities are gearing for the upcoming change.

We can look at the introduction of AMNOG reforms in Germany and the uncertainties it has created in the market access environment. From this, there is evidence that the UK will face similar challenges when this new approach of assessing products is introduced, which will have an impact on patients, health authorities, policy makers, executives in the industry, R&D specialists, bio-entrepreneurs, GPs and specialists, although the extent will vary.

The existing Pharmaceutical Price Regulation Scheme (PPRS) could be considered relatively successful, as it encompasses features such as freedom of pricing, the potential to increase price when more evidence is provided, allowances due to R&D investments and lower bureaucratic involvement. There is also a provision for introducing patient access schemes systematically which has allowed the pharmaceutical industry to come up with risk sharing agreements.

The key question is how this approach in practical terms stands up to its expectations. The implications are by far not to be ignored, as this will influence the pharmaceutical industry's long-term interests in the UK.

Areas of contention
In addition to cost-effectiveness, other influences to be considered when assessing the value of a product will be burden of illness (the combination of unmet needs and disease severity), therapeutic innovation and the wider societal benefits a treatment offers. Cost-effectiveness will be the primary driver, although the likely weighting of the other attributes is unknown.

However, some UK health economists believe that the current system of analysis is adequate and need not change. VBP could be the alternative solution that would encourage pharmaceutical companies to invest in severe diseases with higher unmet needs and develop innovative treatments.  This could be achieved either through an objective approach that is modeled through a scoring system or is based on a guidance that could be used by members of the assessing committee to make decisions. However, several questions need to be answered:

  • According to UK Health Secretary, Andrew Lansley, no more than 20 products annually will be assessed in Britain. This will place a big question on what will be the basis of selection of products 
  • How will this be executed?  Will it be through the National Institute for Health and Clinical Excellence (NICE) or new committees that will conduct the assessment within the VBP framework? 
  • Will the price derived using the VBP approach automatically qualify for funding at all levels, whether they are strategic health authorities (SHAs) or newly launched GP consortia?
  • Currently, procurement at regional or local level operate on the basis of additional discounts by the manufacturers, however after a VBP is derived will there be further discounts?
  • If cost/quality-adjusted life years (QALY) is still the dominant factor, what will be the threshold, and will it vary by diseases?

Impact of additional domains
One of the key points to consider is clarity in definition of these decision domains.  Recent research in selected mature markets has globally inferred that there are wide variations in definitions and understanding of these terms across markets and further deviations occur at the regional, local or individual level. This leads to a complex dynamic of how they will be understood and interpreted by various stakeholders in this value assessment chain be it pharmaceutical executives preparing the dossiers or the committees that will assess these products.

Burden of illness
As per the VBP definition, it is a combination of unmet needs and disease severity.  Unmet need in a disease is an important attribute from patients and physicians' perspective. In general, diseases with high prevalence attract investment, however if patient numbers are low even if the unmet need is high, new treatments may not be developed as ROI is low.

Similarly, disease severity should be considered for obvious reasons.  One may argue that economic willingness to pay should be based on an objective to increase survival rates and quality of life. A minor improvement in a severe condition could comfort patients and their families.

Giving weighting to unmet need and disease severity should encourage pharmaceutical companies to invest in products where there are no current treatments. A French cardiomyopathy expert recently commented: “It is a very sad situation when we are able to confirm the disease through genetic testing in a young patient and inform him that we do not have any cure.  That is the biggest challenge for me.”

Therapeutic innovation
We need a common definition of therapeutic innovation and to distinguish it from therapeutic benefit - there is a risk of double counting. For instance, Japan is the only country which formally rewards innovation, using several measurements which are primarily driven by therapeutic gain. As well, recently South Korea introduced innovation as a decision factor.

Societal benefits
Societal benefits are important from an overall productivity perspective and therefore are intended to be included in VBP. Across the globe only a few countries such as Sweden and to some extent the Netherlands have experience in using this.  Although an important measure to consider, it does add to the complexity of decision making, mainly because obtaining data is difficult. There are several facets of societal benefits to consider, including loss in productivity due to absence from work/school, impact on carers, etc. 

Germany introduced AMNOG reforms in 2011 and the outcomes of some of the drugs have created uncertainties in the market. In addition, the contention concerning the choice of comparators has ignited serious debate in Germany, and it is most likely that VBP in the UK will face similar controversies.

Therefore, it is imperative that the implications of VBP assessment should not be limited to international price referencing but will have wider repercussions on health technology assessment (HTA) decisions in markets that use the recommendations of assessments in the UK. Another key aspect to foresee is how and when the VBP system will be adopted by health assessment bodies in Scotland and Wales.

Pharmaceutical companies will have to prioritise their asset investments that cater to the expectations of VBP.  Clinical trials will have to capture data that will inform the selected domains. Patients will hopefully be impacted positively if unmet needs are met. Similarly the health authorities will have to make careful assessments that are thorough, in-depth, objective and easily understandable.

Let us wait and see.

The Author
Shrinivas Rao Mukku is the global director and head, pricing and reimbursement at Double Helix Consulting. He has 18 years of research management, training and consultancy experience in Europe and South East Asia.

He is also appointed as a module leader and examiner for 'Healthcare Economics' at the University of Cambridge and has supervised research of eight master students.

In addition, Mukku is a Gates Scholar, has a PhD in bioprocess technology from the Asian Institute of Technology, Bangkok, Thailand and an M.Phil (2007) in bioscience enterprise from the University of Cambridge, UK. He has co-authored book chapters, edited conference proceedings, and published six international biotechnology journal papers and several technical and consultancy reports.


16th May 2012


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