Pharmaceutical industry braces itself for government changes to drug pricing

BMJ 2010; 340 doi: (Published 01 June 2010) Cite this as: BMJ 2010;340:c2933
  1. Nigel Hawkes
  1. 1London

    Government plans to alter the way in which the prices of drugs are set could leave patients waiting longer, drug companies and analysts have warned.

    In place of the existing system, in which companies can set their own prices at launch, subject only to a limit on the overall profits they can make, drugs will be subject to value based pricing, the new government has indicated. Health secretary Andrew Lansley says it would be “a much more rational system.”

    But in countries that already negotiate drug prices there is often a delay as the terms of reimbursement are worked out. In the United Kingdom a drug can be marketed as soon as it has a licence, and at a price the company chooses. This has made the UK an attractive market in which to launch drugs, especially as the NHS price can then be used as a guide to pricing in other markets. Adrian Towse, director of the Office of Health Economics, says he fears that the change will lead to “administered prices and substantial delays.”

    The UK market already has a measure of value: the assessments made by the National Institute for Health and Clinical Excellence (NICE), which rejects new drugs if they are not cost effective. But although NICE can at present only say yes or no, under value based pricing it would have a third option: “Yes, but only if it costs less than £X per treatment.” Value based pricing could make NICE even more powerful.

    Critics of the present system, the Pharmaceutical Price Regulation Scheme, include the Office of Fair Trading, which concluded in a report in 2007 that the NHS could save £500m (€574m; $721m) a year by moving to value based pricing. The government believes lower prices will enable life prolonging drugs to be provided to cancer patients at the end of life, because companies would have to price the drugs appropriate to their benefit. To free market economists the Pharmaceutical Price Regulation Scheme is a stitch up between producers and purchasers that keeps drug prices higher in the UK than elsewhere, though the figures show that has not been true for several years. But even its critics have to acknowledge that the system, through its capacity to allow companies to offset research costs, has kept the drug industry healthy. Value based pricing will have to include similar incentives.

    A recent report by 2020health, a centre right think tank for health and technology, warned that abandoning the current pricing scheme altogether “could have an adverse impact on pharmaceutical and biomedical R&D [research and development] investment and is in itself unlikely to have a sizeable effect on the level of NHS spending on medicines.” Off patent medicines already represent 80% in volume terms of the drugs prescribed by GPs.

    Richard Barker, director general of the Association of the British Pharmaceutical Industry acknowledges that resistance would be in vain. “Personally I don’t think it’s worthwhile to oppose VBP [value based pricing]; we’re past that point,” he told a conference last year. “Now it should be about discussing how VBP could work, recognising practical barriers, like limited cost effectiveness data. Industry needs to think about how a value system could look.”

    Two possible models for value based pricing exist: ex-post, in which companies set initial prices that are reviewed as evidence of effectiveness emerges; or ex-ante, in which prices are controlled from the start, but may be changed later. The industry would prefer the first model: the NHS the second.

    Value based pricing would apply only to drugs that cost more than those already on the market for the same indication. Whichever model was chosen would depend on NICE, or a similar body, to measure value. But ex-ante pricing would need NICE to carry out the assessment while the medicine was in phase III trials to avoid delays. A risk sharing mechanism might be negotiated between the Department of Health and drug companies while data on value were being collected.

    Prices would be determined by negotiation between the Department of Health and the companies on the basis of the NICE data. Technically it would be possible for prices to start low and be raised later if a drug is more effective than expected. But the industry is sceptical that the NHS would ever allow price increases, however good the treatment.

    Problems surround what constitutes value. NICE uses quality adjusted life years (QALYs) to assess value, but takes no account of the value of a medicine to carers, or to patient preferences. QALYs are a blunt instrument in dealing with the end of life where a drug may provide only a month or two of extra life, but denying it to patients causes a public furore.

    Mr Lansley will therefore want to broaden NICE’s approach, while negotiating a value based pricing scheme with the companies that could be introduced in 2014. The government’s £200m a year scheme to provide cancer drugs that have failed NICE assessments is intended to bridge the gap until value based pricing is in place.


    Cite this as: BMJ 2010;340:c2933

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