How can fair pricing systems for medicines that balance both access and innovation be designed? This was the question posed by the inaugural OHE Policy Innovation Prize. This Insight looks at how the winning proposal, Professor Aidan Hollis’ Optional Delinked Rewards System (ODRS), responds to this challenge, and discusses potential benefits, as well as what challenges it might face.
At the beginning of his acceptance speech, Professor Hollis invited us to consider innovative drug pricing and reimbursement with a fishing analogy. There are multiple strategies for catching fish, for example, casting with bait, fly fishing, bottom fishing, using nets/traps, etc., and different fish require different strategies and tackle.
Similarly with drug innovation, the same strategy doesn’t work for all medicines. By using new and different strategies, in parallel with existing ones, we should support innovation, increase access, and ‘catch’ more innovative drugs.
At present, innovative drugs are usually reimbursed at an initially high price, necessary to recoup the costs involved in research and development. However, this often presents an issue to payers with budget constraints. This system rewards innovation, but does not achieve access.
How can we achieve both? The Optional Delinked Rewards System proposes a 2-part tariff, with a separate ‘reward’ payment for innovation and health gains afforded, on top of the initial payment for manufacturing and distribution of the product. Being optional, this alternative, flexible, instrument would delink prices, allowing health systems and payers to initially purchase new drugs at prices close to those of generics, facilitating greater patient access and placing less strain on budgets.
Additional reward payments would then be made over the course of a 10-year period, in a transparent, mechanical, and non-negotiable process. Rewards would be performance-based – directly linked to the incremental health gains afforded by the drug, and could be flexible to different contexts.
So how would this novel reward system make a difference?
Potential benefits include:
- Firms would no longer face drawn-out negotiations with opportunistic insurers, therefore expediting patient access.
- Increased usage of new medical innovations because of low initial price per unit.
- Better pricing strategies for multi-indication products; rewards, rather than prices, would be linked to value.
- Solving patent protection problems and rushed clinical trials.
- Promoting innovation on indications currently avoided due to lengthy clinical trial requirements.
- Internationally, the possibility of solving the European pricing problem, as contributions to reward payments can be adjusted for different affordability levels for individual countries.
- Increased innovation in areas where it is currently lacking, such as the production of drugs for diseases that primarily affect poorer populations with a lower ability to pay.
Despite numerous benefits – which are simultaneously ambitious, practical, and impactful – limitations and challenges remain.
- How would drugs on this optional 2-part tariff compete with single-price products?
- What would optionality look like, on an individual drug basis, or for an entire therapeutic class?
- How would differential reward systems work for payers with a fixed budget?
- If the rewards are linked to value, how would the budget impact on payers differ from Value-Based Pricing?
- Might retroactive adjustment be needed?
- How would this be coordinated on a complex international scale?
While questions like these remain, the ODRS proposal holds real potential for the future, so long as it is clear what it is being applied to achieve. Which drugs are we trying to ‘catch’, and which will elude us?
Beyond this, it is worth considering the success of the Policy Innovation Prize in similar terms – what new methods, strategies, and proposals can we develop by generating more innovative research on this important topic?
Although there is no silver bullet to such a fundamental and challenging topic, there have been innovative proposals and the success of the policy prize lies in having more people address this topic from new angles, increasing the corpus of knowledge and quality of debate.