Analysis

Value based pricing for NHS drugs: an opportunity not to be missed?

BMJ 2008; 336 doi: http://dx.doi.org/10.1136/bmj.39434.500185.25 (Published 31 January 2008) Cite this as: BMJ 2008;336:251
  1. Karl Claxton, professor of economics12,
  2. Andrew Briggs, Lindsay professor of economic evaluation and health policy3,
  3. Martin J Buxton, professor of health economics4,
  4. Anthony J Culyer, professor of economics26,
  5. Christopher McCabe, professor of health economics 5,
  6. Simon Walker, research fellow 1,
  7. Mark J Sculpher, professor of health economics 1
  1. 1Centre for Health Economics, University of York, York
  2. 2Department of Economics and Related Studies, University of York, York
  3. 3Public Health and Health Policy, University of Glasgow, Glasgow
  4. 4Health Economics Research Group, Brunel University, Middlesex
  5. 5Institute of Health Sciences, University of Leeds, Leeds
  6. 6Department of Health Policy, Management and Evaluation, University of Toronto, Toronto, Canada
  1. Correspondence to: M Sculpher mjs23{at}york.ac.uk
  • Accepted 18 November 2007

The policy debate about price, value, and innovation in pharmaceuticals is at a critical stage for the NHS. Claxton and colleagues describe the key principles of value based pricing and consider some of the concerns about such a scheme

Policy background

The NHS spends about £11bn (€15bn, $22bn) annually on pharmaceuticals, of which £8bn is on branded drugs, representing about 13% and 10% respectively of available resources.1 As growth in NHS funding is expected to slow, access to innovative technologies will depend on savings found elsewhere. The UK Department of Health uses the pharmaceutical price regulation scheme to control expenditure on branded drugs. This 50 year old scheme is intended to control the profits companies can earn through periodic and general price cuts. A report by the Office of Fair Trading recommended reform, basing a drug’s price on its health benefits.1 2 The government has confirmed its intention to renegotiate the existing scheme,3 and a recent House of Commons Health Committee report has also welcomed reform.4 5 The policy debate about price, value, and innovation is at a critical stage for the NHS.

The principles of value based pricing

Establishing the value of a drug requires an assessment of whether the additional health expected to be gained from its use exceeds the health forgone as other NHS treatments are displaced by its additional cost—a comparison of the incremental cost effectiveness ratio (ICER, the ratio of the additional health gained to the additional costs) with a threshold for cost effectiveness (see box 1). The National Institute for Health and Clinical Excellence (NICE) uses a threshold of £20 000 to £30 000 per QALY, representing an estimate of the health forgone based on the estimated productivity of other NHS activities.6 This range maybe too high.7 8 Critically, this key determinant of value ought to be removed …

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