Should Drug Prices Differ by Indication? The Debate on Indication-based Pricing

Article by: Amanda Cole
OHE Consulting has produced a report summarising the literature on indication-based pricing and how it has been applied in the U.S. and 5 European countries. In this blog post, Amanda Cole summarises the findings.
The notion that the price of a medicine should be linked in some way to the value it generates for patients and the health system is generally accepted. Yet, how can this be achieved, when increasingly medicines are being developed that derive patient benefit across many different indications? Indication-based pricing (IBP) has been proposed as a way to tackle this issue, permitting price to vary according to indication and – critically – according to value.
OHE Consulting has today published a report, funded by AstraZeneca, outlining the debate on IBP. It provides an overview of the key literature that has contributed to this debate, and of how IBP has been implemented to date – in its various forms –in the U.S., France, Germany, Italy, Spain and the UK.
The “debate” around IBP centres on i) who benefits and who loses? and ii) how and whether it can be implemented in practice and at an affordable cost. 
IBP increases the potential number of patients who can benefit from a medicine and thus most economists regard it as efficient. It also sends the right signals for R&D investment. Differences of opinion remain, however, as to whether IBP is in the interests of payers. IBP may lead to some prices being higher than with a uniform price, as well as some prices being lower. The value at which prices are currently set in a single-price system will impact on the consequences of a move to a multiple-price system. A number of US payers see the potential for IBP to increase price competition in some indications, and NHS England has used contracting by genotype in hepatitis C drug procurement to increase competition and help it achieve lower prices.
The literature evaluated as part of this report demonstrates that most of the debate is in the realms of theory, with little evidence in practice. The barriers are numerous. These include legal or regulatory hurdles, data collection problems, as well as contractual or financial flow issues.
In France and Germany an average, blended or mixed price can be set ex-ante, but there are challenges in collecting data that can support a reassessment of the price, and enabling differential discounts by indication. In Spain, only one national price can be set, but more flexibility is possible at the level of the autonomous regions. Here, however, data collection and availability are similarly problematic. In the UK, NHS England has generally resisted moves towards complex pricing arrangements because of the potential burden on hospitals and clinicians in managing data collection, so simple discounts which do not differentiate by indication predominate. In Italy de facto IBP arrangements are in place through managed entry agreements using the national registries, but questions have been raised about cost and about ensuring rebates and discounts are claimed. In the US the legislative barriers are of concern, notably “anti-kickback” provisions and the Medicaid “best price rule”, but private payers are experimenting with IBP.

Posted in OHE Consulting | Tagged Consulting Reports