Update: Value-Based Pricing in the UK

Prof Adrian Towse

Since the late 1950s, prices for medicines in the UK have been guided by a voluntary agreement known as the Pharmaceutical Price Regulation Scheme (PPRS).  Concluded between the government and the pharmaceutical industry, the PPRS has been renewed and revised every five or six years since.  The current agreement expires in December 2013.  Debates about replacing the PPRS with some other approach have a lengthy history.  In 2007, the Office of Fair Trading (OFT) published a report proposing that the PPRS profit-control approach be replaced by a ‘value-based pricing’ (VBP) approach.  The UK Government’s recent consultation document builds on this theme.  OHE’s Prof Adrian Towse shares his thoughts about the initiative in this post.

Introducing VBP, a commitment of the UK Coalition Government, was included in the recent White Paper on health reform, ‘Equity and excellence: Liberating the NHS’.  In December, 2010 the Department of Health (DH) published a consultation document  on VBP -- ‘A new value-based approach to the pricing of branded medicines’ -- that provides a first indication of how VBP may replace the PPRS.  The DH consultation sets out a ‘QALY-plus’ approach for drug pricing for branded drugs that reach the market from 1 January 2014.  The starting point for price evaluation would be calculation of cost per Quality Adjusted Life Year (QALY).  This would assume a ‘basic threshold’ based on the opportunity cost of alternative uses of money within the NHS, currently estimated to be £20,000 - £30,000 per annum.

The ‘plus’ aspect of the pricing calculation would take into account the drug's ability to achieve one or more of the following: tackle a disease that entails a substantial ‘burden of illness’; constitute ‘greater therapeutic innovation’; and demonstrate ‘wider societal benefits’.  NICE will do the basic cost-per-QALY determination; ‘expert groups’ will calculate the ‘plus’ element of the pricing.  The consultation document does not specify who might bring this all together or how that might happen.

Price flexibility and handling uncertainty

The 2009 PPRS introduced Patient Access Schemes (PAS) and Flexible Pricing to enable drug prices to reflect value better, a response to the OFT 2007 Report.  The 2010 DH consultation, however, foresees an end to PAS under the new VBP system.  As reported in an earlier post, a review by Towse[1] indicated that most PAS have been financial – lowering effective NHS transaction prices below list prices.  Ending PAS could create problems: companies usually are not prepared to compromise on the NHS list price because that may affect prices in other countries, via international reference pricing.  The consultation is silent on what would replace this important role of PAS.

PAS also address the inevitable uncertainty about the value of a drug at launch.  Outcome-based schemes, including risk-sharing, can be applied in principle.  In December 2010, NICE  issued the first outcomes-based PAS approval, for GSK’s pazopanib (Votrient®).  The price includes ‘a possible future rebate linked to the outcome of the head to head COMPARZ trial’. The consultation document (clause 5.8) states that ‘one approach might be to set a price that is supported by the evidence available at launch, but to allow prices to be adjusted as better evidence becomes available’.  This implies that the flexibility allowed under the current PPRS will continue.

Flexible Pricing also was introduced in the 2009 PPRS in recognition that different indications have different value – again a principle set out in the OFT Report. 

Clause 4.19 of the consultation retains this, but implementation may be challenging. In clause (5.9), on price assessment timeliness, the consultation document states that ‘companies could make drugs available at a contingent price, which will subsequently be adjusted to reflect evidence of effectiveness’.  This means that a company can set a price effective until the VBP review takes place.  The paper does not set any timelines on how long price assessments will take, but the NICE process could act as a precedent.

NICE mandate

Drugs recommended in NICE Technology Appraisals currently must be funded by the local NHS.  This ‘NICE mandate’ will remain in place during a ‘short term’ interim period until the long term outcomes framework that will drive good practice in the NHS is in place.  Clause 5.12 states that the government ‘will continue to ensure that the NHS in England funds drugs that have been positively appraised by NICE’.

The NICE mandate is very important.  The big danger of VBP is that all the effort goes into determining price and no effort goes into achieving the efficient volume corresponding to the price.  Without the mandate, patients may lack access and companies get no return on innovation.

Replacing the PPRS?

The DH consultation proposes using VBP for new drugs (although questioning whether to exclude orphan drugs) marketed after the current PPRS expires in December 2013.  Drugs launched before that time therefore will be covered by arrangements in addition to VBP  that are  ‘a successor scheme to the PPRS.’  The OFT 2007 Report proposed introducing VBP within a PPRS, recognising the importance of a stable national agreement between government and industry.  The DH consultation talks of moving away from the five-year PPRS renegotiation system to ‘a more stable framework’ offering ‘companies greater certainty for making long term investment decisions.’  The implication is that future change will occur with less frequency than every five years.  This seems rather optimistic.

[1] A. Towse (2010) Value based pricing, research and development, and patient access schemes.  Will the United Kingdom get it right wrong? British Journal of Clinical Pharmacology.  70(3), 360-366.

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