The Pharmaceutical Price Regulation Scheme (PPRS) is the current UK-wide price regulation scheme for branded prescription medicines supplied to the NHS. It applies across the four nations of the UK. The PPRS covers all branded NHS medicines. For this purpose, a branded NHS medicine is defined as a human pharmaceutical product for which a marketing authorisation has been granted and to which the owner applies a brand name that enables the product to be identified without reference to its generic name.
Nice’s guidance on specific new drugs and treatments is based on a review of clinical and economic evidence, assessed through the technology appraisal process (HTA). The purpose of a technology appraisal is to provide clear recommendations to the NHS on the circumstances in which the use of a drug is both clinically and cost effective. The NHS in England is legally obliged to fund medicines and treatments recommended by Nice’s technology appraisals. Nice does not have a direct role in relation to the pricing of medicines, though the scrutiny of its appraisal process encourages drug companies to set prices which satisfy its cost-effectiveness criteria.
In the current practice, Nice’s assessment of value is almost exclusively driven by cost per Quality Adjusted Life Year (QALY) analysis, although other factors should be considered in the assessment. From this perspective, the Pharmaceutical industry has often requested that a more comprehensive approach was used which encompasses the wider benefits of treatment, the longer term value of innovation.
A pragmatic way of achieving this is to assign scores/points to each type of ‘value’ and assess medicines using multiple criteria decision analysis (MCDA) approaches. Some types of benefits are best expressed financially: time and cost savings to patients and carers; cost savings to other parts of public spending (e.g. social care, education, the criminal justice system); and productivity effects on the wider economy. These are best combined with the costs of treatment to provide a net cost measure (which can of course be negative). In 2011, ABPI recommended that a range of approaches to valuing medicines are explored, including MCDA type approaches for combining the different elements of value during assessments prior to any decisions being made.
In 2009, after a period of price volatility and great turbulence in pricing and reimbursement, a new approach was introduced to allow for more flexibility and reflect evidence-based (Real World) data and access to medicines. There are currently two different mechanisms aimed at better reflecting value in the Pharmaceutical Price Regulation Scheme (PPRS):
- Flexible pricing – where a company can increase or decrease its original list price in light of new evidence or a different indication being developed.
- Patient access schemes – which facilitate earlier patient access for medicines that are not in the first instance found to be cost and clinically effective by Nice, within a framework that preserves the independence of Nice.
Flexible pricing recognises that the initial launch indication of a medicine may not fully reflect its longer-term value to patients in the NHS. It therefore allows a company to propose an initial price for a medicine that reflects value at launch, while retaining the freedom to increase or decrease this original list price either as further evidence or as new indications for the medicine emerge and change the effective value that the medicine offers to NHS patients. The Department and ABPI acknowledged that this more flexible approach is a natural consequence of taking a more value-based approach to pricing. The process of flexible pricing was initiated in 2009 and has produced good results both for the Industry and Patients, but NHS lamented that procedures relating to Patient Access Schemes were too burdensome. Patient access schemes are schemes proposed by a pharmaceutical company and agreed between the Department (with input from Nice) and the pharmaceutical company in order to improve the cost-effectiveness of a drug and enable patients to receive access to cost-effective innovative medicines.
Ongoing Discussion on Change
On 16 Dec 2010, the Department of Health published a document called: ‘A new value-based approach to the pricing of branded medicines: a consultation on proposals for a new value-based system of pricing medicines which aims to recognise and reward innovation.’ The document sets out the principles that would underpin the move to value-based pricing, outlines how the new system could work across the UK and seeks views on a number of key issues. In the forward of the document the Government specifies: ‘We are determined to create a system that gives patients access to the most effective medicines. There must be a much closer link between the price the NHS pays and the value that a medicine delivers’. But what is value and how can it be defined and assessed? This is in our opinion a key question which even ABPI could not provide a definitive answer to. It is difficult, if not impossible, to envision how exactly the changes are going to impact (and they most likely will). The consultation initiated by the Department of Health was concluded in 17 March 2011. The Department of Health raised 20 open questions for every stakeholder to understand stakeholder priorities. The discussion started from an agreed platform of positive features from the old pricing model (PPRS) with recognises the following:
- Freedom of pricing at launch for new medicines at launch enables quick introduction and patient access
- New flexible pricing provisions enable supply of medicines at lower initial prices to promote uptake with the option of higher prices later, upon new evidence or new indications
- R&D allowances to reward innovation
- Low bureaucracy
On 14 March 2011 the ABPI released a document called: ‘Value Based Approach to the Pricing of Branded Medicines: Consultation Response from the Association of the British Pharmaceutical Industry’. The ABPI states: ‘at the completion of this consultation exercise, ABPI on behalf of the pharmaceutical industry, stands ready to work with Government on the co-creation of a new environment for the pricing, reimbursement and use of new medicines which will be fit for the future and which will deliver against jointly agreed objectives. And in particular: ‘for medicines which do go through VBP, key to success will be ensuring that value medicines with a value-based price are used optimally within the NHS without the need for any further local re-evaluation or appraisal’. ABPI suggests that VBP is applied to drugs already on the market before Jan 2014, but on an individual basis (case-by-case) basis. This would be a crucial point for Pharma companies with an established portfolio of well known and performing branded products.
In conclusion, the general view on Value Based Pricing is positive from an industry perspective, but ‘The Devil is in the Detail’. Methods and processes still are a long way from being defined and there is concern that the consultation is unclear about how value based prices will be agreed. The consultation produced so far focuses primarily and in detail on how a new system to assess value might work. It does not address or provide any detail on the proposed processes for the agreement of a value based price based on the utilisation of the outputs from a value assessment process, i.e. the process for linkage of value to price.
It is important to understand that medicines prices are set in a global context and by the global headquarters of pharmaceutical companies. Further questions which will need to be answered include the following:
- What should the process be for linking assessed value to price?
- How should the process of value based price negotiation and agreement work?
- Which organisation(s) should be involved in the process, alongside the company?
- How should agreement on value based price be reached when company estimates of cost effectiveness or overall value differ from those of Nice?
- How can the system ensure that value based prices or agreements remain non-disclosed and commercial-in-confidence when necessary?
- What alternative courses of action could be open, in those cases where initial negotiations fail to reach agreement on a value based price?
- What arbitration or appeal processes will be required to support value based pricing?
- How long should the value assessment and pricing discussions take respectively? For example, SMC currently aims to provide guidance within three months of launch – whereas NICE presently takes longer
- How much organisational infrastructure, staffing and resourcing levels will be needed to operate the value assessment and pricing process respectively?
- At what stage should discussions on value assessment and on pricing begin – part way through the regulatory process, at EMEA/MHRA positive opinion or at EU licensing?
- What would be the indicative transaction costs for a full value assessment and pricing process based on the criteria for the selection of medicines to be subject to value based pricing (for Government, NICE and the pharmaceutical industry)?
- How will the processes accommodate consideration of commercial proposals from manufacturers including: risk share agreements; coverage with evidence development; commercial propositions utilising approaches other than discounts; patient access schemes or flexible pricing arrangements?
All these questions and possibly others remain unanswered at present and will need to be discussed within a short time to allow for modelling of future scenarios, especially from a financial perspective.