UK Stakeholders Have Their Say on Value-Based Pricing

In December 2010, when launching the UK coalition government's proposal to replace the Pharmaceutical Price Regulation Scheme (PPRS), Health Secretary Andrew Lansley explained that the current drug pricing scheme "does not promote innovation or access in the way this government is looking for." Advocating instead a system that provides a closer link between the price the National Health Service (NHS) pays for a drug and the value it delivers, Lansley wrote: "Pharmaceutical companies need a pricing system that is more stable and transparent, and that gives clear signals about priority areas so that research efforts are directed to greater effect."

The consultation document that followed—"A new value-based approach to the pricing of branded medicines"—set out the UK coalition government's plans to replace PPRS with value-based pricing (VBP), which, among its "broader objectives," aims to "improve outcomes for patients through better access to effective medicines" and "stimulate innovation and the development of high-value treatments."

The proposals remove the National Institute for Health and Clinical Excellence's (NICE) power to determine whether the NHS should adopt a drug or not (although NICE will retain responsibility for an initial cost-effectiveness appraisal). The new system will instead see pricing decisions shift to the Department of Health (DH), with pharma companies then deciding whether to offer products to the NHS at the prices the government set down, and doctors (in hospitals or represented by the new GP Consortia) making a judgement on whether to prescribe them. These decisions will hinge on price thresholds geared to the maximum amount the government is prepared to pay for medicines. The basic threshold accounts for benefits displaced elsewhere in the NHS. Higher thresholds will be put in place for medicines tackling particularly severe diseases or disease with unmet needs; medicines that can demonstrate wider societal benefits; and medicines that can demonstrate greater therapeutic innovation and improvements compared with other products.

The Innovation Problem

In the reports from industry, patient groups, and health associations that rolled in on the consultation document's response deadline of March 17, concerns were inevitably raised about how the government was defining and planning to deal with this 'therapeutic innovation.'

The consultation document defines innovation as a significant improvement relative to existing treatments that reflects "any additional health gain not captured by the normal pharmacoeconomic assessment of the health gain because of measurement difficulties" and provides a large Quality of Life Years (QALY) benefit.

But this, according to the Association of the British Pharmaceutical Industry (ABPI), is too narrow and needs to take account of improvements on any or all of the dimensions of potential benefits of medicines—for example, patient benefits and cost savings within or beyond healthcare and personal social services.

Of equal concern was the DH document's declaration that the current pricing system "may lead companies to focus on incremental improvements that can easily be made, and not to make the significant investments required to achieve breakthroughs in performance through innovation."

In its response, ABPI suggested that this "indicates a misunderstanding of the innovation process." Companies do not aim for incremental innovations at the expense of larger "breakthroughs," it said. Incremental innovations are the result of dynamic competition and are in themselves valuable. Only by rewarding these incremental innovations can developments in science lay the foundations for new therapeutic advances. A pricing approach that leads to increased uncertainty for companies about their future earnings if they fail to launch a first-in-class breakthrough medicine could actually deter a lot of worthwhile R&D, ABPI stated.

These sentiments were strongly echoed in the response of the pro-market UK think tank Stockholm Network, which accused the consultation document of pandering to "the myth that incremental innovation is not real innovation." "Breakthrough" medicines are not created out of thin air, the Network argued; rather, they emerge from a gradual process of discovery. And while it is important to reward the most innovative medicines, "it is wrong to treat all other new products as worthless and assume that they offer no value for money." Distinguishing between "good" and "bad" innovation, it says, is just far too simplistic.

Indeed, Stockholm Network claimed that VBP could serve to discourage innovation altogether. The proposed reforms, it argued, are likely to focus unnecessarily on lowering the price of drugs that the government believes have no value. "In doing so, VBP will reduce revenue for manufacturers and thus counterproductively decrease the amount reinvested in R&D." The reforms would also install a "dangerous concept," the Network said, whereby governments are relied upon to decide what the investment priorities of the pharmaceutical industry should be.

For its part, NICE responded that the case for seeking a price premium, related to the innovative nature of a new treatment, is often based on future value, rather than patient benefit that can be measured now. The Institute agreed with therapeutic innovation and improvement adjustment as a 'step-change' relative to current management, but maintained that the approach NICE is already taking "allows products that demonstrate a high magnitude of QALY gain to be priced more highly than those that do not."

Access to Medicines

On the issue of access to medicines, the responses showed equal concern that VBP could fail to improve on—or indeed worsen—the current situation in the UK.

Tackling the consultation document's announcement that "we would not anticipate the need to continue the 2009 PPRS Patient Access Scheme arrangements for new medicines assessed under value-based pricing," ABPI pointed out that, in allowing for freedom of pricing at launch for new medicines, PPRS already enables early introduction and thus quicker access to (new) medicines. Maintaining that patient outcomes will only improve if uptake of medicines follows the granting of access, the Association further warned that the NHS reforms, especially in the "challenging fiscal climate" of the next three years, will negatively impact the uptake of medicines.

For the MS Society, the DH document not only failed to determine how access to drugs will be improved, but gave no provisions for the involvement of patients and patient groups in its development and implementation. To avoid a "postcode lottery" when it comes to access, the MS Society instead recommended a central drugs fund to bankroll the additional price of treatments that have been given a value-based price, taking pressure away from individual health authorities to restrict high-cost treatments.

Stockholm Network stated bluntly that it is empirically unrealistic to expect that a rationale that aims to further decrease UK expenditure on pharmaceuticals—and, specifically, on innovative pharmaceuticals—can lead to improved and more effective access. "The maintenance of pricing ceilings in itself implies that patients will still be denied medicines that are deemed too expensive," the Network said.

If It Ain't Broken ...

The interesting consensus that has emerged from the VBP consultation process—especially from the more vociferous responses from ABPI and Stockholm Network—is that the UK's current pricing system, for all its faults, is preferable to VBP.

PPRS has, over many years, provided a stable and predictable environment for the regulation of branded medicines, enabling improvements to be made to it at each successive renegotiation, ABPI says. "This stability and predictability must stay in place for companies with existing medicines and with those that undergo value-based pricing."

Stockholm Network, while also praising PPRS's "stability and flexibility," pointed out that it has also "opened a regular dialogue between the government and the pharmaceutical industry" that has engendered pharma's willingness to agree to voluntary price cuts for the NHS and in the government's acceptance of a greater number of patient access schemes. "Certain merits of the PPRS deserve to be considered, given that this system has existed now for 54 years," the Network added.

UK Reforms in Crisis?

The debate surrounding value-based pricing has been less newsworthy in the UK of late than other controversies dogging Andrew Lansley and the Department of Health. Last month he was humiliated at a Royal College of Nursing conference when 96 percent of delegates passed a motion of no confidence in the planned NHS upheaval. Lansley was forced to accept the rebuke, and the government has since promised to undertake a 'listening exercise' to take on board concerns from healthcare providers and other stakeholders.

With high-profile issues—such as the establishment of GP Consortia and the abolition of Primary Care Trusts—set to dominate the UK healthcare agenda in the coming weeks, whether the government will extend its listening exercise to VBP remains to be seen. But value-based pricing takes its place in an atmosphere of dissatisfaction and dissent among the various stakeholders, who see themselves on the receiving end of an increasingly faltering policy of reform.

By Julian Upton, European and News & Online Editor