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Letters

Regulating the pharmaceutical industry

BMJ 1998; 316 doi: https://doi.org/10.1136/bmj.316.7126.226 (Published 17 January 1998) Cite this as: BMJ 1998;316:226

General public does not support value system inherent in cost effectiveness analyses

  1. Jim Furniss, Managing consultanta,
  2. Joe Zammit-Lucia, Directora,
  3. Neil Johnson
  1. aHealth Economics Research Group, Cambridge Pharma Consultancy, European Office, Cambridge CB5 8AB
  2. bAssociation of the British Pharmaceutical Industry, London SW1A 2DY
  3. cOffice of Health Economics, London SW1A 2DY
  4. dNational Economic Research Associates, London W1N 9AF
  5. eAustralian Pharmaceutical Manufacturers’ Association, 77 Berry Street, North Sydney, NSW 2060, Australia
  6. fGlaxoWellcome, London W1X 6BQ
  7. gYork Health Economics Consortium, University of York, York YO1 5DD
  8. hDepartment of Health Sciences and Clinical Evaluation, University of York

    Editor-Some of the recommendations in Maynard and Bloor's editorial on regulating the pharmaceutical industry are reminiscent of the days when the government was generally believed to be the best arbiter of how industry should invest its resources.1

    The authors’ faith in the use of cost effectiveness analysis as a rationing mechanism is perhaps not surprising in view of their professional background. But to our knowledge there is no evidence-for example, from the Australian authorities-that the use of such analysis as a rationing mechanism improves public health. Indeed, some people have argued that it does exactly the opposite. It limits access to new interventions and protects established therapeutic regimens, which are never subjected to the same level of rigorous analysis.

    Moreover, what research there has been suggests that the general public does not support the utilitarian value system inherent in cost effectiveness analyses.2 A rationing system that allocates resources on the basis of probable outcome rather than need does not seem to sit comfortably with current social values. Furthermore, cost effectiveness varies on a patient by patient basis. A system that blocks access to new treatments for the whole population is not reasonable when there are some patients for whom such an intervention is indeed very cost effective.

    In a system constrained by costs, economic efficiency should naturally inform decisions on allocation of resources, but not as a blunt instrument of regulation for limiting access across the whole population. Rather, this is part of the general market in information that will allow healthcare professionals to make sensible decisions on how they treat individual patients.

    The authors’ final suggestion is that there should be government direction of industry's expenditure on research. Financial penalties would siphon funds which could be directed at universities and the Medical Research Council. Again, where is the evidence that research by universities or the Medical Research Council represents a more effective use of funds than industrial research driven by market mechanisms?

    Such recommendations bring us back to where we started; fortunately for all of us prospective patients, there is no possibility of such policies being implemented.

    References

    1. 1.
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    Authors seem to have misunderstood pharmaceutical price regulation scheme

    1. Peter Read, Presidentb
    1. aHealth Economics Research Group, Cambridge Pharma Consultancy, European Office, Cambridge CB5 8AB
    2. bAssociation of the British Pharmaceutical Industry, London SW1A 2DY
    3. cOffice of Health Economics, London SW1A 2DY
    4. dNational Economic Research Associates, London W1N 9AF
    5. eAustralian Pharmaceutical Manufacturers’ Association, 77 Berry Street, North Sydney, NSW 2060, Australia
    6. fGlaxoWellcome, London W1X 6BQ
    7. gYork Health Economics Consortium, University of York, York YO1 5DD
    8. hDepartment of Health Sciences and Clinical Evaluation, University of York

      Editor-Maynard and Bloor put forward several remedies to control the cost and availability of NHS medicines.1 But their premise and proposals are flawed. The pharmaceutical price regulation scheme does not, as they suggest, set a generous target profit on sales of NHS medicines-the rate is based on the average profits of companies in the FT 500. The target represents a maximum level of profits and is not guaranteed.

      The authors claim that medicine prices in Britain are higher than those in other countries. In fact, Britain is about middle of the range across Europe, and in terms of spend per head-a much more realistic figure on which to measure cost to the NHS-it is near the bottom of the league, at £80 per person per year.

      The editorial suggests that the pharmaceutical price regulation scheme may allow companies to increase prices and may reduce companies’ incentives to control research costs. But pharmaceutical companies rarely increase prices of medicines: the pharmaceutical price index has fallen by 3% since 1993 while manufacturing industry prices rose 9%. Companies are under constant commercial pressure to contain the costs of research and development. Much of the recent reorganisation in the industry has been geared to that objective. Any company that ignored those costs would not survive.

      Industry has long supported the case for evidence based treatment in the NHS. Yet medicines remain the only form of NHS treatment that have proved their safety, quality, and efficacy before they are available to patients. Industry continually develops, and publishes, information on the cost effectiveness of its products. The proposal that the NHS should pay only for medicines that have cleared a “fourth hurdle” of cost effectiveness assumes that cost effectiveness data can be derived at the time of licensing, without the benefit of information from the widespread use of new treatment. To implement such a system would risk denying patients access to advances in medical science. Readers will be well aware of previous attempts to introduce a fourth hurdle through the now discredited limited list. Bureaucratic government committees have failed time and again to produce definitive agreed judgments on the medicines to be on the blacklist.

      It should be the government's role to consider the funding of the NHS and the doctor's role (in consultation with each individual patient) to decide on the best treatment, based on the best evidence and best practice.

      References

      1. 1.

      Having rationing rules for new pharmaceuticals but not other treatments is senseless

      1. Adrian Towse, Directorc
      1. aHealth Economics Research Group, Cambridge Pharma Consultancy, European Office, Cambridge CB5 8AB
      2. bAssociation of the British Pharmaceutical Industry, London SW1A 2DY
      3. cOffice of Health Economics, London SW1A 2DY
      4. dNational Economic Research Associates, London W1N 9AF
      5. eAustralian Pharmaceutical Manufacturers’ Association, 77 Berry Street, North Sydney, NSW 2060, Australia
      6. fGlaxoWellcome, London W1X 6BQ
      7. gYork Health Economics Consortium, University of York, York YO1 5DD
      8. hDepartment of Health Sciences and Clinical Evaluation, University of York

        Editor-Maynard and Bloor argue the case for a “fourth hurdle” of cost effectiveness for new pharmaceuticals, with a national list of prescribable pharmaceuticals-presumably using an explicit threshold of cost per quality adjusted life year (QALY) for use in the NHS.1

        There is a case for the explicit rationing of NHS treatment-and also arguments against. The BMJ has been at the forefront of stimulating debate on rationing health care.2 Explicit rationing could use a cost effectiveness ranking based on the cost per QALY or could take account of the preferences of the public and medical professionals, as in the case of the Oregon experiment. An NHS yardstick based on cost per QALY has the advantage of providing an effective direction for innovation. Products that were unlikely to meet it would not be developed for NHS patients, and, as the authors suggest, the most effective drugs would get higher prices.

        What does not make sense is to have a cost per QALY rule or another rationing rule for new pharmaceuticals but not for other NHS treatments. There are also important questions as to how good we are at valuing health effects and when we know enough about a new technology to assess it.3 We need more pragmatic trials4 and data collection rather than “sudden death” committee decisions.

        We should also understand that national rules for price setting eliminate price competition. The authors note that, in Australia, products “with no advantage over existing products are offered at the same price.” Recent data from Britain indicate that many products competing in the same therapeutic class now enter the market at lower prices than the market leader.5

        Maynard and Bloor propose a radical central rationing scheme that may well lead to higher (not lower) pharmaceutical prices for the NHS. In doing so they confuse rationing with technology assessment and establishing value for money. A move to the explicit rationing of NHS services does not require an “all or nothing” assessment of new innovation before the NHS uses it. “Does it work?” and “Can we afford it?” are different questions and require different approaches to getting answers.

        References

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        5. 5.

        Regulation may no longer be necessary

        1. Penelope Rowlatt, Directord (Penelope_Rowlatt{at}nera.co.uk)
        1. aHealth Economics Research Group, Cambridge Pharma Consultancy, European Office, Cambridge CB5 8AB
        2. bAssociation of the British Pharmaceutical Industry, London SW1A 2DY
        3. cOffice of Health Economics, London SW1A 2DY
        4. dNational Economic Research Associates, London W1N 9AF
        5. eAustralian Pharmaceutical Manufacturers’ Association, 77 Berry Street, North Sydney, NSW 2060, Australia
        6. fGlaxoWellcome, London W1X 6BQ
        7. gYork Health Economics Consortium, University of York, York YO1 5DD
        8. hDepartment of Health Sciences and Clinical Evaluation, University of York

          Editor-The pharmaceutical price regulation scheme, which is broadly unchanged since its inception in 1967, is due for an overhaul in 1998. Should it be abolished?

          Maynard and Bloor have published their “wish list” of changes that might be made this year to the economic regulation of pharmaceutical companies in Britain.1 Their suggestions are predicated on the continuing need for economic regulation. But so much has happened to the pharmaceutical industry, the British healthcare sector, and the approach to regulation since the price regulation scheme was put in place that we should question its relevance before we sign up to another five years of an old fashioned regulatory framework in this important area.

          Since 1967 the pharmaceutical industry has become global and competitive. A great number of pharmaceutical companies operate in the world now; indeed, there are over 300 in Britain. On the face of it there is plenty of competition. Even where medicines are patented there is generally substantial competition from alternative molecules with similar therapeutic effects within a few years of the launch of a new product.

          There have been fundamental changes in the way the NHS works since the pharmaceutical price regulation scheme was put in place. The market into which medicines are sold now works in a way that is much more similar to the way in which other markets work. Easy access to information on costs and spending combines with the financial constraints imposed by budgets to make prescribers conscious of value for money, just as those choosing between alternative products in other sectors are. This means that pharmaceutical companies now price new products in the light of market conditions, including parallel imports of products destined for lower priced markets.

          Experience has shown that regulation of the rate of return creates a bias towards gold plating. Further, the intrusive nature of the pharmaceutical price regulation scheme leads to distortions in pharmaceutical companies’ decisions. The costs of producing pharmaceuticals in Britain could be lower if the scheme was abolished. And by making it difficult to increase prices, the scheme encourages companies to set launch prices above the level that they might otherwise have chosen. The drugs bill might be smaller if the sector were deregulated.

          The review of the pharmaceutical price regulation scheme should start by asking whether the scheme is still needed.

          References

          1. 1.

          Australian scheme has disadvantages

          1. P R Clear, Chief executive officere,
          2. Mendel Grobler, Health economics managere
          1. aHealth Economics Research Group, Cambridge Pharma Consultancy, European Office, Cambridge CB5 8AB
          2. bAssociation of the British Pharmaceutical Industry, London SW1A 2DY
          3. cOffice of Health Economics, London SW1A 2DY
          4. dNational Economic Research Associates, London W1N 9AF
          5. eAustralian Pharmaceutical Manufacturers’ Association, 77 Berry Street, North Sydney, NSW 2060, Australia
          6. fGlaxoWellcome, London W1X 6BQ
          7. gYork Health Economics Consortium, University of York, York YO1 5DD
          8. hDepartment of Health Sciences and Clinical Evaluation, University of York

            Editor-Maynard and Bloor call for the introduction of a “fourth hurdle” to market in Britain by introducing mandatory cost effectiveness evaluation before reimbursement1; they cite Australia as having implemented such a scheme in 1993. We would call for caution as the experience of Australia is ambiguous and has yet to be empirically tested for efficiency.

            In our experience there have been adverse effects for the community, doctors, and pharmaceutical research, such as delayed access to new medicines,2 restricted prescribing choice,3 and reduced funds for research (as a consequence of reduced returns). However, there has probably been benefit for health economists, particularly in academia, as the demand for trained health economists has risen as a consequence.

            Data (unpublished) gathered by the Australian Pharmaceutical Manufacturers’ Association in 1995 show that the scheme delays the availability of drugs by eight months on average and often by 12-24 months. The pharmaceutical schedule restricts prescribing choice for many listings by permitting use in limited indications and tightly defining eligible patients.

            The costs of mandatory cost effectiveness have been high to industry: consultancy costs alone average about £10 000 per product, rising in some cases to £120 000 (Australian Pharmaceutical Manufacturers’ Association, unpublished data, 1995). Australia is probably able to implement such a scheme only as a consequence of its marginal status, which allows it to hitch a free ride on industry research expenditure in other countries such as Britain.4

            In the light of Britain's low relative expenditure on pharmaceuticals and the lack of success of the scheme in Australia as a cost containment measure, Britain would be well advised to avoid the Australian system. Indeed, the Australian government is now introducing a therapeutic reference pricing system that undermines cost effectiveness by arbitrarily setting the reimbursement price of all pharmaceuticals in a therapeutic class at the same level, irrespective of efficiency gains.

            References

            1. 1.
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            4. 4.

            Further controls would discourage companies from investing in research

            1. Sean P Lance, Chief operating officerf
            1. aHealth Economics Research Group, Cambridge Pharma Consultancy, European Office, Cambridge CB5 8AB
            2. bAssociation of the British Pharmaceutical Industry, London SW1A 2DY
            3. cOffice of Health Economics, London SW1A 2DY
            4. dNational Economic Research Associates, London W1N 9AF
            5. eAustralian Pharmaceutical Manufacturers’ Association, 77 Berry Street, North Sydney, NSW 2060, Australia
            6. fGlaxoWellcome, London W1X 6BQ
            7. gYork Health Economics Consortium, University of York, York YO1 5DD
            8. hDepartment of Health Sciences and Clinical Evaluation, University of York

              Editor-The additional bureaucratic controls over the pharmaceutical industry that Maynard and Bloor proposed are totally inappropriate and would serve only to discourage companies from investing in research and development of new medicines in Britain.1 The British pharmaceutical industry has an outstanding record of success in research and development. Although sales of medicines in Britain account for 3% of worldwide sales, nine of the world's top 30 prescribed medicines were discovered or developed here, or both. This shows that the research and development carried out in Britain has been particularly successful in addressing the needs of patients and the NHS. As regards the suggestion that such research and development is subsidised through the pharmaceutical price regulation scheme, the reality is that the scheme results in companies obtaining a lower return on investment in research and development than they could expect to receive under a free market system. There is therefore no need or justification for government direction of research and development by the industry.

              The authors’ proposal that a “fourth hurdle” of comparative cost effectiveness should be overcome before the NHS pays for new drugs is also misguided, because cost effectiveness cannot be established by clinical trials alone. It is only after a new medicine has been introduced and used in a wide variety of situations that its true utility and value can be properly assessed. The prospect of new medicines having to face the uncertainty and delay that would result from introduction of a fourth hurdle would certainly serve to discourage investment in research and development.

              Pharmaceutical companies’ expenditure on research and development in Britain is worth some £2bn a year. At a time when Britain is seeking to maintain this exceptionally large share of the pharmaceutical industry's global spending on research and development in the face of increasingly strong competition from many other countries, the introduction of measures likely to discourage such investment would be perverse indeed.

              References

              1. 1.

              Authors’ reply

              1. Alan Maynard, Professor of economicsg,
              2. Karen Bloor, Research fellow in health economicsh
              1. aHealth Economics Research Group, Cambridge Pharma Consultancy, European Office, Cambridge CB5 8AB
              2. bAssociation of the British Pharmaceutical Industry, London SW1A 2DY
              3. cOffice of Health Economics, London SW1A 2DY
              4. dNational Economic Research Associates, London W1N 9AF
              5. eAustralian Pharmaceutical Manufacturers’ Association, 77 Berry Street, North Sydney, NSW 2060, Australia
              6. fGlaxoWellcome, London W1X 6BQ
              7. gYork Health Economics Consortium, University of York, York YO1 5DD
              8. hDepartment of Health Sciences and Clinical Evaluation, University of York

                Editor-Our critics lament some of the issues raised by our editorial, but they fail to undermine the strong case for the four reforms that we proposed for the better regulation of the pharmaceutical market. The letters come from individuals partly or fully funded by the pharmaceutical industry. Their views may, in the words of Furniss et al, be “not surprising in view of their professional background.”

                Our critics offer no objection to two of our four proposals: an explicit annual report detailing the real cost to the taxpayer of the pharmaceutical price regulation scheme, and registration of drug trials with increased accessibility of data. We look forward to the implementation of these essential policies. Perhaps Read will suggest that the Association of the British Pharmaceutical Industry rapidly implements the latter as a voluntary measure, to avoid the bureaucratic government committees he abhors.

                The pharmaceutical price regulation scheme rewards products that are cost effective and those that are not. It is not in the long term interests of the government, industry, or consumers for companies to market aggressively products that are not demonstrably cost effective. To defend itself against criticisms of waste of scarce resources the industry must develop economic evaluation of its products so that NHS purchasers are better able to use resources efficiently. Development of the “fourth hurdle” will ensure that the quality of studies is improved and appropriate for purchasers’ decisions. Such a mechanism could permit price flexibility (upwards and downwards) in the light of changing economic performance of new drugs. We agree with Towse that economic evaluation should cover not only drugs but all other new techniques in the health service.

                There is little evidence about the relative performance of the industry, universities, and other institutions in producing cost effective innovations. There is evidence that big companies, despite large investments in research and development, often tend to purchase new chemical entities by acquiring small innovative companies. To experiment at the margin with allocating part of the subsidy for research and development to, for instance, universities seems sensible if properly evaluated.

                Rowlatt and overseas drug companies favour deregulation. In fact, market regulation is unavoidable and the optimal policy may combine our four points with radical review of the pharmaceutical price regulation scheme.

                Our goal was not to create concern in the pharmaceutical industry but to ensure that a prosperous industry produces new pharmaceuticals that improve patient health at least cost. To achieve this objective, regulatory controls need to change and the industry become more accountable. All of us-taxpayers and prospective patients-look forward to reform of regulation of the pharmaceutical industry.

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