In recent articles published by Kinapse on new commercial realities, we discussed how pharmaceutical companies should adapt their commercial models to the fast changing healthcare environment. Subsequently they should also provided further thoughts and practical ideas about aligning performance management and measurement systems to those of their stakeholders in order to drive the right behaviours and to enable true partnerships based on mutually beneficial outcomes.
In these times of cost containment and pressure on budgets, joint working is certainly on the agenda for the industry with an increased realisation that all parties coming together is a necessary (and welcomed) pre-condition to deliver on efficiency and outcomes targets, in addition to bringing innovation through leveraging complementary expertise.
However, this is a new way of working and an entirely new mindset. As such, new challenges amongst which a requirement to establish trust and alignment between health authorities and life sciences companies have resulted. In a change to management principles, success will require clarity and alignment on objectives, both joint and individuals.
The recent framework papers issued by the DH, Transparency in outcomes – a framework for the NHS and A new value-based approach to the pricing of branded medicines, provide necessary guidance and clarity on desired benefits and outcomes.
Different types of value
Demonstrating the economic value of treatment to secure market access is the key single success factor for a speciality care product. Whilst negotiations around price do occur in primary care through discounting schemes and contracting, issues relating to cost-effectiveness and risk/benefit are of more fundamental importance for selling in secondary care.
Increasingly, many companies are experiencing to their cost that clinical benefit does not guarantee reimbursement – even in therapy areas with high unmet need, such as oncology, as evidenced by recent past guidance from NICE recommending against reimbursement of Merck KGaA’s Erbitux, Bayer’s Nexavar, Roche/Genentech’s Avastin and Wyeth’s Torisel for treatment of patients with kidney cancer. The need to demonstrate value is becoming an imperative for almost all key pharmaceutical markets.
The two key dimensions of healthcare value is a) the overall cost burden (direct and indirect) to society and b) the overall benefits (clinical and others) expected (Figure 1), and the nature and emphasis of the value proposition for speciality products is likely to differ across therapeutic areas.
Therapy areas with high cost burden and limited scope for differentiation will show similar dynamics to primary care markets with high focus on cost reduction. On the other hand, therapy areas with the greatest potential for innovation, typically high unmet need, are more likely to support premium pricing of products that demonstrate differentiation and expected benefits.
The requirement to demonstrate value won’t end at product launch. Products that are able to demonstrate continued long-term benefits through the accumulation of real world patient data are likely to achieve higher volumes. It is also expected that for many specialist drugs approval for indications will be staggered over time with initial narrow labels becoming expanded as evidence is accrued.
In recent years, risk-sharing schemes designed to link market access and reimbursement to clinical and cost-effectiveness outcomes have been trialled for a number of speciality products. Such schemes represent innovative approaches to the problems of healthcare rationing and illustrate how manufacturers can work in collaboration with payers to demonstrate cost-effectiveness in high cost or controversial health interventions.
The articulation of ‘value’
The NHS outcomes framework outlines the different dimensions the health service is intending to use to measure benefits and outcomes, and for each of them, how the different stakeholders will be accountable and responsible for delivering against them. ‘Value’ dimensions are clearly going beyond clinical benefits to include such areas as prevention, long-term maintenance and patient experience (Figure 2).
Whilst the NHS and the new commission board will be responsible for overall outcomes, healthcare professionals will be measured on their ability to provide adequate structure and processes of care (Figure 3).
This framework is providing necessary guidance for engagement and dialogue with stakeholders, both at national/regional and field-level. However, it doesn’t give clarity on prioritisation for therapy areas and diseases/conditions. The value-based pricing consultation paper is doing just that even if ‘embryonic’ at this stage and laying out principles rather than the details.
This paper is intended as providing a transparent pricing system which “gives clear signals about priority areas, so that efforts are directed to maximum effect”. It will differentiate between drugs with comparable limited benefits, such as line extension and true innovation.
Like in the NHS outcomes framework, the definition of ‘value’ will be extended from the current focus on treatment to include wider and important factors that impact health and quality of life, such as societal value. If the intent is laudable, its measurement will however be a challenge as difficult to measure and encompassing a complex set of drivers.
The basic principle of value-based pricing will be to apply ‘weightings’ to the current QALY basic threshold. These weightings will mirror closely the two axis of Figure 1 (value-based therapy area evaluation):
· Higher thresholds will be applied for medicines that tackle disease where there is a greater ‘burden of illness’. The more the medicine is focused on diseases with unmet need which are particularly severe, the higher the threshold (the Y axis)
· Higher thresholds for medicines that can demonstrate greater therapeutic innovation and improvements compared with other products (the X axis). The paper makes it clear that the scale of adjustment for different levels of improvement will be designed in such a way to give an appropriately increased incentive to companies to focus their resources on achieving genuine step changes in clinical performance
· Higher thresholds for medicines that can demonstrate wider societal benefits (contribution both to X and Y axis).
Interestingly, ‘value’ and ‘benefits’ from a drug could be measured at indication level, therefore, implying that there could be different maximum prices or thresholds for the same medicine depending on indication.
This will beg the question for a company launching a product to consider staggering the launch, focusing initially on indications where there is stronger evidence of value, and as such, can command a higher price. A less targeted approach might result in lower average price achieved.
An important consideration for the above will be to understand which value-based pricing (VBP) model the UK will adopt:
· Ex-post VBP: where there is initial freedom for pharma to price new active substances with post ex reviews on cost effectiveness might impact price when data becomes available
· Ex-ante VBP: where initial pricing freedom is limited but where decisions can be reviewed when data is accumulated.
In the current economic climate and healthcare environment, an ex-ante system is much more likely. The current wording of the consultation paper is also leaning this way. This also means that it is likely that patient access and risk reward schemes keep their current role as facilitating access when there is limited evidence. Principles of the current cancer funds could also be extended to other high priority therapy/disease areas.
The way forward
Whilst the devil is in the detail, the intent and principles for rewarding and measuring value going forward is clear from the two consultation papers.
They provide enough guidance to the industry to start shaping their new commercial models; the way they prioritise their resources and investment; the way they should approach product launches; and, the way they should work with stakeholders towards improving health outcomes.
As all parties have an interest in finding a mutually beneficial way forward, joint working is clearly at the core of the agenda and the industry has a clearly role in ‘influencing’ it.
Doing that will not only put industry at the forefront for reaping the benefits, but will also position pharma as true partners, as opposed to their current position as arm’s length ones.
Jean-Francois Delas is a Vice President at Kinapse Ltd. and leads the Marketing & Sales Consulting Practice. Kinapse provides consulting and outsourcing services to the life sciences industries, globally. More information is available online at www.kinapse.com or by contacting firstname.lastname@example.org.