Value-based pricing – what it means

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 It’s been more than 50 years since the government agreed a pricing scheme for medicines on the NHS. Pf reports on how the transformation to a value-based system will work.

The Government has outlined its plans for value-based pricing (VBP) which will be introduced when the current PPRS agreement expires at the end of 2013.

A new value-based approach to the pricing of branded medicines was issued for consultation in mid-December explaining why the Government has decided to overhaul the way that medicines are paid for by the NHS.

In the report Health Secretary Andrew Lansley says the current scheme “does not promote innovation” and has often seen the NHS “pay high prices that are not always justified by the benefits of a new medicine”.

Since 1957 the Pharmaceutical Price Regulation Scheme (PPRS) has been used by governments and the pharmaceutical industry to agree a fair price for medicines, and a fair return for pharma to enable it to research, develop and market new and improved medicines.

However, with the NHS aiming to make £20 billion of efficiency savings the report says value-based pricing is now seen as a way to “provide NHS patients with better access to effective and innovative medicines at a price that secures value for the NHS”.

The DH states that the new system needs to address a number of important objectives. VBP must strike a balance between delivering affordable prices and providing pharma with an incentive for innovation. Although this rhetoric is similar to the existing PPRS, the report says that currently there is no encouragement for innovation in the areas of greatest unmet needs.

Therefore, VBP aims to address a broader set of objectives including improving outcomes for patients through better access to effective medicines, stimulating innovation and ensuring value for money and the best use of NHS resources.

Under the new system the Government is to set introduce a range of thresholds or maximum prices that reflect the different values medicines offer. The ‘value’ of a product will then be assessed and its benefits compared against other benefits that could be gained if the funds were used to help patients in other areas of the NHS. One way of measuring this would be to use Quality Adjusted Life Years (QALYs) as NICE currently does in its technology appraisals – although the report stresses this is not the only option.

In the existing price scheme a standard threshold is applied to all new drugs. Although a certain amount of flexibility can be added for additional relevant factors, the report says the mechanism for taking wider factors into account is not “completely transparent”. But under the new system the Government would be able to apply four different price thresholds which could be adjusted to reflect a broader range of relevant factors to calculate the full value of a new product.

The thresholds include a basic option, then a higher threshold for medicines that tackle diseases where there is greater “burden of illness”. The threshold increases again for medicines that can demonstrate greater therapeutic innovation and improvements and finally a threshold that demonstrates wider societal benefits.

The Government says that by designing and implementing the new “stable and transparent” system it will allow pharma to predict in advance how products may fare and give them greater certainty when making long term investment decisions.

Industry response:

“We welcome the publication of the Government’s consultation on value-based pricing and look forward to representing the pharmaceutical industry in co-creating the new system with Government,” said Dr Richard Barker, Director General of the Association of the British Pharmaceutical Industry.

“As Government has said, the priority in any new system must be rapid and consistent patient access to new medicines – value is meaningless without consistent access. Any new system must also fairly recognise and reward innovation and investment in research and development. The UK continues to lag behind Europe in the uptake of innovative medicines despite having amongst the lowest prices, so price alone is clearly not the main driver of access in the NHS. But we agree fully that the Government and the NHS should seek value for money from medicines, and expect NICE to continue to play a key part in the process. Our industry must demonstrate the full value of its medicines, it is for Government to put in place processes which assess that full value, and then secure access to that value for NHS patients.”