Yesterday I set out why the PPRS is no longer fit for purpose, and why it is failing to deliver for patients, the NHS and manufacturers. However, the failures are somewhat easier to identify than the solutions. Lifting the lid on the pricing system has the potential to open up a Pandora’s box. How to measure value, when to measure it and how to reflect it in a price are all complex issues. Get them wrong and there could be any number of perverse consequences.
In many ways value-based pricing is a typical Andrew Lansley policy. Both intellectually coherent and fiendishly complex, the policy has the potential to be transformative but could easily be derailed by details, and other people’s inability to capture the nuances of his thinking, which may or may not have been clearly explained in the first place. Having cooked up his particular version of value-based pricing long ago in opposition, his thinking on the issue has changed little over the last couple of years. Sound familiar?
What is value-based pricing?
Pricing according to value can mean almost anything, from a completely free pricing approach where the market determines value and either pays or doesn’t pay accordingly, through to mandatory price cuts. This is even before the impact of post-marketing health technology assessments is taken into account. Indeed, during its study of the PPRS, the Office of Fair Trading undertook an international survey of pricing and reimbursement schemes, examining 11 countries. It found that all 11, despite having radically different systems, contained features aimed at ensuring pricing according to value.
The Department of Health’s concept of basing pricing on value involves a three stage process. First, an assessment of the burden of the disease for which the drug is intended to treat is undertaken, examining both severity and unmet need. An assessment of the extent to which the drug represents an advance on what is already available is also carried out. Then, a health technology assessment is undertaken to generate a cost per quality-adjusted-life-year (much as is done through a NICE technology appraisal). Finally, the first two factors are then used to ‘weight’ the QALY threshold for the drug, producing a maximum price at which the drug will be deemed to be cost effective.
If a manufacturer wants its drug to be used in the NHS, then it has to price it according to this assessment. This is clever politics, as it potentially shifts the blame for a drug not being available from NICE to the manufacturer. However, while this process might seem (relatively) simple, but it is fraught with its own political challenges.
Who determines value?
If value-based pricing is to be a success, then the Department of Health will have to avoid some of the pitfalls of the NHS White Paper. Stakeholders will have to be engaged early and often. The consultation to which the Government has just responded provides a good start in this respect but, alone, will not be enough. In engaging in discussions on value-based pricing, a shift in mindset will be required by both the Department and industry. Traditionally, PPRS negotiations have been just that: a negotiation between the two sides, conducted in private before both sides emerge blinking into the daylight to declare peace in our time. Yet, for value-based pricing, it must be different. At this stage, it is about designing a policy and not negotiating a commercial deal. Both industry and Government are agreed that the way in which society values drugs and progress against disease is important, so let society have a say.
Value-based pricing is about how you monetise the benefits a drug brings. This involves, well, value judgements and it is important that society – and this means patients, clinicians and the public as well as industry and the NHS – has a say in how this is determined. Giving something a value is not a simple or uncontroversial process and, if the new system is to be defensible, then every stakeholders needs to be (and feel to be) involved. Perhaps we need a future forum equivalent for value-based pricing…
Severity is in the eye of the beholder
Weighting prices according to burden of disease intuitively make sense: it is surely right to pay more for drugs which address severe conditions with high levels of unmet need. But severity and unmet need are very much in the eye of the beholder. Try telling someone who is dying from a disease (even though for most people the disease is medically manageable) or who feels that their needs are not being met (despite the fact that existing drugs usually work well) that their burden of disease is relatively modest. Yet the logical conclusion, if this weighting is to mean anything, it makes it likely that this will happen.
The Government’s response acknowledges that “current arrangements for evaluating medicines cost-effectiveness may not always adequately reflect society’s preferences and values in relation to the prioritisation of healthcare resources.” Without proper engagement, this problem could get a whole lot worse.
Can you put a price on innovation?
The assessment of the level of therapeutic improvement is an attempt to incentivise innovation. Some critics have argued that this is essentially double counting, as the therapeutic benefits of a drug are already assessed in the QALY calculation. I have a more fundamental concern about valuing innovation in this way. It is impossible to assess upfront what forms of innovation might be valuable. Take a mini disc player, for example. At the time of launch most people would consider this to have been highly innovative but, several years on, who still owns a mini disc player? Society – or consumers – simply didn’t value the innovation. It is far more straightforward to measure the benefit delivered by a drug to patients and to reward this accordingly. Using the gadget analogy once more, I am prepared to spend far more than I should do on an iphone not because I am rewarding its innovation (tech geeks will tell me that androids are more innovative), but because of the benefit I believe it brings to my life.
When a QALY is not a QALY
Despite the complex proposed system of weightings, the new system will still come down to a cost effectiveness evaluation and here the same challenges will arise as do in the NICE process. Will the correct data be available at the right time to make an evaluation? How should problems in trials such as crossover be handled? Is progression free survival an acceptable proxy for overall survival? How do we overcome the fact that the EQ5D quality of life survey is notoriously insensitive to many factors which matter to patients, such as exhaustion? What is an appropriate ‘standard’ QALY threshold?
The honest answer is that there are no ready solutions to these problems and the system needs to build in sufficient flexibility to reflect this. Health economics is as much an art as it is a science, and it is an evolving one at that. Those conducting appraisals will need to adopt a more flexible approach than in the past. There are no immutable laws of health economics and being overly rigid or dogmatic just risks breaking the system before it begins.
Can we direct research?
The Government’s response states, “For pharmaceutical companies there will be a pricing system that gives clear signals about priority areas, so that research efforts are directed to where there will be the most important improvements in health outcomes.” The new system is meant to send signals to R&D organisations about what sorts of drug will attract a premium, so stimulating research into areas of unmet need. This is a great principle, but will it work in practice? Most drugs launched today are the product of a scientific discovery, usually made by academia, some time ago. Drug companies then spend many years trying to find a practical application for this discovery. In this sense the R&D process is not planned, but instead depends on what turns up. Therefore the scope for direction is limited and, even if it is possible, is unlikely to have an impact for many years to come.
Process: rigorous or over-engineered?
Value-based pricing as a policy is very much Andrew Lansley’s baby and his policy babies tend to be complicated creatures. It would be very easy to bind this process up in red tape and there are those in the health technology assessment business who will wish to do so, fearful that anything less will leave the process open to legal challenges from industry, the NHS or charities. Yet there are real questions about quite how complicated this all needs to be. The Government should use opportunities such as the Cancer Drugs Fund – which after all was introduced as a bridge to value-based pricing – to test out different approaches. If there is a streamlined way of conducting the process which delivers more or less the same outcome then it should be taken.
There are compelling reasons to keep the process as simple as possible. NICE is renowned for the rigour of its work, not its speed. A cynic might say that give it the chance to overcomplicate something and the Institute will definitely take it. NICE ‘blight’ – where commissioners decline to fund a drug before NICE has completed its appraisal – is a common complaint of charities and industry alike. Even though steps have been taken to speed up the process, for some drugs this period stretches on for years. There is a danger that value-based pricing, with an even more elaborate process, could simply extend these delays.
There will also be a need for the system to be flexible enough to deal with exceptions. For example, when a drug has multiple indications, all of which have different effectiveness profiles and address different burdens of illness, it should logically attract different prices for each indication. Yet there are legitimate concerns about whether the NHS (or manufacturers industry for that matter) have the systems to cope with this. It is, however, worth noting that both the Department of Health and industry have already accepted the principle of multiple prices for the same molecule in the current PPRS, which states that a company can seek a revised priced for a new indication but that, “In the event of a price increase [for a new indication], a company must make arrangements to provide the product at the old price for the original indication.”
There are other exceptions too. The new system will need to find a way of pricing the use of drugs in a ‘near-label’ setting where, given the relative paucity of evidence, it will be impossible to make a value-based assessment. The principle that the NHS should pay for the use of such drugs is well established (most recently in the Cancer Drugs Fund). The question is, under the new system, how?
Dealing with the long tail
Value-based pricing is often presented as a big bang solution but its impact will actually be more incremental. The current plan is that the new system should only apply to drugs given marketing authorisation from January 2014 onwards. This will mean that the majority of branded drugs will not be subject to value-based pricing. There will, therefore, need to be a PPRS agreement to run in parallel with the new system.
Negotiating the successor PPRS will be a key test of how serious the Government is about shifting to a value-based system. It could send a signal that it intends to move rapidly by focusing future price adjustments on those drugs that have not already been recommended as being cost-effective for use in the NHS – ie drugs which have either not been recommended by NICE or not appraised at all. This would be a significant symbolic shift away from the current approach and would help to embed the concept of value in pricing. It would also help to address the conundrum of what to do with those drugs which have been provided through the Cancer Drugs Fund, which currently have no obvious reimbursement mechanism post-2014.
What is more important: cost or value, return or price?
Finally, in all the debate about value, the imperative of affordability should not be forgotten. Ultimately, the overall cost to the NHS of new drugs is a more important consideration to the long term viability of the system than an assessment of the value these drugs might bring. A drug could deliver a large amount of value but still have a massive cost impact. This will have bigger implications for the NHS than a drug of more marginal value, with a low cost impact. Equally, for manufacturers the main consideration will be the total return they receive from a drug, rather than the unit price, provided that the headline public price remains unaltered.
In this sense, value-based pricing may encounter the same difficulties in terms of translating approval into uptake that the current system has. Just because a drug is approved for use in the NHS and the NHS is told to make it available, does not ensure that usage will follow. Factors such as service organisation and capacity, clinical culture and local rationing mechanisms all have an impact.
Introducing volume / price agreements, negotiated on a commercially confidential basis so as to avoid impacting on international prices and providing greater cost certainty to the NHS, should be a key part of any new system.
Conclusion: turning complexity into opportunity
Yesterday I outlined why the PPRS was no longer fit for purpose and today I have set out some of the complexities that need to be addressed in moving to a value-based pricing system, as well as offering some thoughts on how these complexities might be navigated. The scale of these complexities should not detract from the size of the opportunity: getting this right could address many of the problems which have bedevilled access to medicines in recent years. Value-based pricing is a policy worth pursuing.
The process of developing value-based pricing will benefit from some of the brightest minds in both the Department of Health and industry. Yet that alone will not be enough. If the complexities are to be navigated then it will require ideas, engagement and support from the wider healthcare community of patients, the public, clinicians, as well as the NHS itself. The Department of Health has made a good start by beginning consultation at an early stage, but more engagement is required. This cannot be treated as a business as usual commercial negotiation, otherwise there is a danger that it will run into similar difficulties to other complex Lansley policies.