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All things Pharma

The future of drug pricing in the NHS – Part II

 Following on from last month’s article, Omar Ali continues to analyse the Government’s statements in its recent consultation paper on value-based pricing and explains the details of the proposed system.

In December last year, the DH published A new value-based approach to the pricing of branded medicines outlining a new proposed payment method. Statements of interest include:

“…under the new system of value-based pricing, the Government would apply weightings to the benefits provided by new medicines”
One of the criticisms of NICE has been the £20,000-£30,000 cost per QALY threshold – where does this come from? Who decided it? Why is there no flexibility? Most agents that exceed this cost/QALY will not be recommended – unless end-of-life criteria applied, which has facilitated higher thresholds. Another criticism is that NICE does not take into account patient carer perspectives, costs and burden, as well as the societal economic impact. The new value-based pricing system will see higher thresholds applied to three different categories. So, there will be a basic threshold of maximum price, followed by higher thresholds for drugs that are deemed to have demonstrated one of the three following categories: i) greater burden of illness ii) therapeutic innovation iii) wider societal benefit.

“…higher thresholds for medicines that tackle diseases where there is a greater burden of illness, with particularly severe disease or high unmet need”
The two most important facets that would be considered for a new drug to gain a higher price threshold would be the severity of the condition and the level of unmet need. Severity of illness would be measured using standard NICE/SMC of patients under current treatments and then with new treatment being assessed under value-based pricing. Health loss, disutility and morbidity would be measured using standard QALYs. The unmet need would be reflected by the degree to which current treatments either exist or are ineffective. Those conditions that are already well served by current treatments would therefore not attract higher thresholds for pricing, as they would reflect lower level of unmet need. It is thought this weighting would drive pharmaceutical companies to research those areas with higher unmet need as they would reward higher reimbursement prices.

“…higher thresholds for medicines that demonstrate greater therapeutic innovation and improvements compared with other products”
Novel agents that have sourced new treatment targets and potentially revolutionary disease treatments will attract higher thresholds for pricing. Bringing the seventh statin or the fifteenth ACE inhibitor will not attract the same price that would have been provided to the first that was launched. This is significant.

“…higher thresholds for medicines that demonstrate wider societal benefits”
This is a considerable change from current systems used. Certainly current day D&T Committees will rarely consider indirect costs such as ‘carer burden’ – but it seems that both value-based pricing, as well as the new White Paper, does indeed come down on the side of economic wellbeing of the population, as well as pure, direct healthcare costs. Indeed, carers are often described as ‘saving’ the NHS considerable costs –where nursing or care homes instead would have to be employed.

“…as part of value-based pricing, there would be a basic cost effectiveness threshold directly reflecting health gains displaced when new treatments are funded. This would set the maximum that the government was prepared to pay for that medicine”
Here the Government is being quite firm. “The maximum that the government was prepared to pay for that medicine” is quite clear. Unless one of the three categories are expressed for higher thresholds, the basic cost-effectiveness price will apply. It is clear value-based pricing is saying to the pharmaceutical industry, “we are prepared to pay for real patient benefit that is demonstrated.” Not for the fifteenth ACE inhibitor to have been launched. Not for six-week placebo controlled studies. Not for an XL, MR or extended licence to prevent loss of exclusivity. So the challenge is two-fold. Whether or not true benefit is indeed within the new product profile and, if it is, what is the value-based price the government is willing to pay for it.

Operation of value-based pricing
On first appearance we seem to be back to where we are now: an expensive cancer drug is launched, the government uses a QALY based system to set the maximum price it is prepared to pay, but what if the drug company does not agree with that price. Then what will happen?

“…if however the manufacturer considered that a higher price was warranted, they would need to provide robust evidence demonstrating that the new medicine merited a higher weighting in terms of burden of illness, therapeutic innovation and improvement, or clinical/wider societal benefits”


It is not infrequent we see NICE/SMC and formulary committees critical of pharmaceutical companies who ‘extrapolating data’ or make ‘assumptions’ in various cost-models that NICE/SMC invariably either throw out or disregard as part of their evaluation. If companies try to claim a higher price under any or all of the domains, they will clearly need evidence and not marketing to achieve this. This brings a whole new inflection on clinical trial design, especially pre-launch, to obtain the price at launch. All too often we see new products launched, with little evidence but a lot of hope built into ongoing trials yet to be published claiming/asking for a price that warrants the evidence first and not later. In fact under value-based pricing, the proposal that a drug at launch is set a “contingent price”, whereby the approach would be to “set a price that is supported by the best evidence available at launch, but to allow prices to be adjusted as better evidence becomes available”. This could produce further instability, as prices may then go up, and down, after each clinical trial is published – and would certainly raise the stakes (higher than they already are) when scrutinising details of these studies.

“…if a company’s price was higher than that justified by the value-based pricing assessment, the government would ask the company to lower their price, or produce further verifiable evidence to justify its claim about the value of the new medicine”


This process is exactly mirrored by other countries that have gone down the value-based pricing line. A number of EU states, including France, Italy, German, Spain and the Netherlands, have started value-based pricing to various extents. Germany has certainly surprised a number of agencies with its strict adherence to process and firm, robust stance against large pharmaceutical companies on pricing of drugs. One example of this was the infamous atorvastatin/Lipitor (Pfizer) case versus the German government.

Implications of value-based pricing – a case in hand
IQWiG (Institute for Quality & Efficiency in Health Care) is the German equivalent of NICE. Their 2006 report entitled Superiority of atorvastatin not proven stated life-prolonging effect of statins was only demonstrated with simvastatin and pravastatin. They concluded “no such evidence is available for atorvastatin” as a result of a comprehensive evaluation of the benefits and harms of the statin class.

They also cited that although patient-related outcomes were available for atorvastatin in acute coronary syndromes, due to major deficiencies in sponsored study designs, “it can by no means be inferred from these trials that atorvastatin is better in reducing the risk of MI or mortality than other statins”. IQWiQ went on to state they “refute the statements made by the manufacturer of atorvastatin, Pfizer, who made claims that its drug atorvastatin was superior to other statins”. They also stated they reached the opposite result to Pfizer on atorvastatin’s tolerability stating “patients on high dose atorvastatin discontinued therapy more frequently due to adverse effects than patients receiving atorvastatin”.

Needless to say, battle lines have been marked very heavily in the sand, especially as the implications of this evaluation were not advisory per se, but are feeding into the value-based pricing system that the German government will use to set the price it will pay for atorvastatin within its healthcare budget. The story that follows is intriguing. After a yearlong standoff at the German High Court and a request to carry out further head-to-head studies –which were declined by Pfizer – the value-based price for atorvastatin reimbursement was set extremely low – less than a third of the price that Pfizer had originally set.

So what happens now? The German government say they will pay £5 pcm for atorvastatin and Pfizer refuse to budge on £18 pcm. The answer is: nothing happens. Doctors in Germany can still prescribe atorvastatin if they choose. Patients can still ask for it by name if they want it. Any prescriptions in Germany will be reimbursed by the German government for £5pcm. But who pays the difference? The answer lies in co-payment. Insurance companies, healthcare providers, employer health benefits, and the patient themselves.

So what has happened to atorvastatin sales in Germany? Lipitor sales were over 75% of the statin market in 2006, and since value-based pricing has been implemented the sales of Lipitor has collapsed to less than a quarter. The reason? Patients were required to pay the difference. And when given the choice, they chose not to do so.

Value-based pricing and the White Paper
The headline news changes will now all begin to make sense. NICE, which is set to lose its powers in 2014, dovetails very nicely with value-based pricing’s introduction set to start in 2014. Many agencies, including pharmaceutical companies, were relieved to hear NICE was losing its powers as they were seen as rationing new drugs and interfering with a drug’s launch strategy. However, what is clear now is that NICE will be involved in “setting the price of drug reimbursement in the UK” (with the government). This is so logical.

Instead of NICE stating wave after wave of it “does not recommend this drug”, we now have the Institute advising the government of “this is the price at which we would say ‘yes’” for each new drug that is launched. Once the government set the price at one that is deemed cost effective by NICE, it is no longer required to say it “does not recommend this drug”.

So it’s logical: all new drugs under value-based pricing will be cost effective. This payment method acts like a ‘bouncer’ at the door of a nightclub. If you are not cost-effective you’re not allowed in. Those companies who do not reduce their price, or justify their high cost through evidence, will drive insurance liability and co-payments from patients and employers. In essence, the drug will be on the market at an inflated price. NICE will not have the power to say it “does not recommend this drug” but the barrier becomes transactional. It becomes a case of ‘who pays the difference’ between the price the government are willing to pay and the price that the pharmaceutical company are insisting on keeping at a high price.

As the White Paper rolls out, we can see the NHS is becoming transactional. PCTs dissolve, GP clusters are born. They will be cash-transactional companies. NHS Trusts will all become, or be taken over by, Foundation Trusts – also transactional companies – by 2013. The Commissioning Board loses direct-line management from DH, so itself is independent. Healthcare has just become transaction based and co-payment will become the norm for the future generation. In the interim, tough times lay ahead for both healthcare systems and pharmaceutical companies.

The future
Pharmaceutical companies will need new strategies to gear up to the shift towards value-based pricing. Some have already started three ways to do this: shifting away from copy-cat/me-toos; by paying more attention to unmet needs diseases; and, considering additional investments within phase II/III clinical trial programmes instead of weak placebo/comparator agents, often citing ‘regulatory requirements’ for these weak choices.

In tandem, healthcare agencies will, or already have started to, introduce value-based pricing systems for drugs and other healthcare interventions. The role of GP consortia in managing prescribing becomes far more localised with medicines management becoming a provider service already offered by individuals, social enterprises and foreign, mainly US based, companies touting for NHS funds. Finally, the painful issue of co-payment whereby, in the same vain as student fees, we will see the inception of a system where once the flood gates have opened, we will never turn back. For those who get the concept it’s a case of the NHS meets Kaiser Permanente. Welcome to the world of the Matrix.

Omar Ali is the Formulary Development Pharmacist for Surrey & Sussex Healthcare NHS Trust.He sits on the External Reference Group for Cost Impact Modelling for NICE and has recently starting advising the US Embassy on value-based pricing (hosted by the UK Department of Trade & Industry). He may be reached on omar.ali@sash.nhs.uk.

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