Inclusion of cost effectiveness in licensing requirements of new drugs: the fourth hurdle

Introduction

Licensing is the main method of regulating and controlling access to pharmaceuticals. New drugs cannot receive a product licence until manufacturers provide evidence of their quality, safety, and efficacy. In a world of rapidly escalating global healthcare costs, evidence of a drug's quality, safety, and efficacy is no longer sufficient to ensure reimbursement for use in public markets. Increasingly, new drugs must show evidence of cost effectiveness. In other words, does the drug produce a useful health gain (over and above currently available treatments) for its additional cost? In industry circles this value for money requirement has become known as the fourth hurdle. In this article, we examine the international development of fourth hurdle policies, analyse their effect, and identify some of the future challenges and likely directions.

Emergence of the fourth hurdle

The first healthcare system to develop formal regulations governing the use of cost effectiveness evidence in reimbursement decisions was Australia. Since 1993, the Australian Pharmaceutical Benefit Scheme has insisted on appropriate economic evidence before authorising public funding of a new drug.1 Once the Pharmaceutical Benefits Advisory Committee receives a submission from a pharmaceutical company, it is appraised in an explicit process that deconstructs the evidence provided by the manufacturer. The committee considers the evidence on cost effectiveness as one of several potentially important factors when advising the health minister on whether to list the drug for reimbursement. These include:

• The importance of the clinical area

• The availability of alternative treatments

• The likely effect of listing on the healthcare system and other therapeutic activities

• The investment of the sponsor in primary research.

The committee may therefore accept a higher price for a …