Intended for healthcare professionals

Observations Briefing

NICE and value based pricing: what do we know?

BMJ 2010; 341 doi: (Published 10 November 2010) Cite this as: BMJ 2010;341:c6390
  1. Rebecca Coombes, features editor, BMJ
  1. rcoombes{at}

What precise powers does NICE have now, and how does the coalition government want to change them?

The UK National Institute for Health and Clinical Excellence (NICE) currently issues guidance about the use of both old and new medicines and procedures. It is perhaps best known for its technology appraisals, of which it issues about 25 a year. Not all new drugs approved by the Medicines and Healthcare products Regulatory Agency (MHRA) are subsequently scrutinised by NICE, in fact only a minority are.

An advisory body assembles the evidence based on data supplied by the drug industry. NICE then issues guidance—an assessment of therapeutic benefit and economic impact of a drug—along with a recommendation for use. NICE rulings are mandatory for primary care trusts (PCTs): if NICE says a patient should have this drug—and, crucially, if their GP agrees—then the PCT has to pay.

The government is now set to strip NICE of its role to make a judgment on the cost of new drugs and on whether the NHS can afford them. Instead it wants to move to a system of value based pricing, where the government takes a central role in deciding on price and GP commissioners decide if the local NHS can afford the drugs.

It seems that NICE will still retain a key role in advising the government on the clinical value of individual drugs.

On what basis will the government decide on a drug’s value?

In some senses it is likely to be business as usual. The information on which decisions are based will essentially be the same as that used in current NICE judgments. Quality adjusted life years (QALYs) are still a popular measure of the therapeutic benefits derived from drugs and are likely to remain a key tool.

Questions remain about the current data and models used by NICE, and about issues such as whether the impact of new drugs on carers should be taken into consideration when they are appraised. But there is no indication as yet as to how the quality of evidence provided by drug companies to support its claims for new drugs might be boosted.

Whether this evidence is initially collected and appraised by NICE or from some other supplier is a key question. One suggestion is that the work will be carved up between NICE and its national equivalents elsewhere in the UK.

What is likely to change is the timing and frequency of cost effectiveness reviews. Instead of a single cost effectiveness review taking place, reviews would be timed to coincide with major events, such as new drugs entering the market, comparators going off market, or the results of phase 4 trials providing new clinical information—so there would be a facility to adjust the price over time. Some decisions on new drugs could be fast tracked during the licensing process.

One of the benefits of this approach is that assessment happens quickly. The scheme should also allow new “wonder” drugs to be sold more cheaply until the evidence of their effectiveness grows. Currently, NICE restricts their use until the evidence that they work is sufficient, which can cause delays; so called “NICE blight”.

But if NICE won’t be making pricing decisions on drugs, who will?

There is likely to be a new national pricing commission, including members of NICE and its national equivalents. This might be called the Commission on Value of Medicines. Health technology assessments carried out by NICE would be submitted privately to the commission, which would in turn make a recommendation on price to a Department of Health pricing unit.

Will NICE survive the next three years?

Earl Howe’s comments last month that NICE would become “somewhat redundant” after the introduction of value based pricing for drugs in 2014 did ruffle feathers. The government has since claimed his remarks were taken out of context.

But NICE chief executive Andrew Dillon is emphatic that his organisation won’t become a dead duck.

There has been a show of support in some sections of the UK press. The Financial Times on 8 November ran an editorial calling on the government to “Be nice when tackling NICE”. OK, NICE has been an irritant on drug companies and patients seeking new therapies, said the FT, but “the principle is justified: a centralised body is needed systematically to assess whether a drug offers therapeutic advantages and is cost-effective.”

There are opposing views, of course. On 1 November, the Daily Mail splashed with the headline: “Drug victory for patients: ‘Penny-pinching’ NICE stripped of power to ban life-saving drugs” (

But NICE’s legacy is arguably strong: it has approved the vast majority of treatments it has reviewed, has helped boost the volume of innovative medicines in the UK, and has improved the consistency of prescribing around the country.

A strong argument for NICE having an ongoing role after 2014, when value based pricing will be introduced, is the need to have a competent group of experts to make sense of the evidence for each new drug.

In its influential 2007 report on the Pharmaceutical Price Regulation Scheme, the Office of Fair Trading said that NICE, and its equivalents in Scotland and Wales, were “natural candidates” to carry out “cost effectiveness analysis required to implement value based pricing.”

But NICE will need to actively negotiate to have its role evolved. Commentators say the sensible approach would be to focus on guidelines, which will inform clinicians’ decisions about who can have these new drugs.

Jackie Knowles, a partner at the law firm Eversheds, which has NHS clients, commented: “The problem with any value based pricing system though is getting the information needed to measure that value. Sir Michael Rawlins, Chairman of NICE, has already said that some value based pricing schemes are complicated to implement. The doctors’ consortia would inevitably rely to a degree on NICE’s judgments on drugs to inform their own decisions.”

Will patients have more or fewer rights under the new system?

Hard to say. The likelihood is fewer. NICE rulings are mandatory on PCTs: if NICE says a patient should have this drug, and their GP agrees, then the PCT has to pay. The suggestion is that the government won’t make it compulsory for a GP consortium to make a drug available, they will simply agree a price at which the NHS is willing to pay for a drug.

David Phizackerley, deputy editor of Drug and Therapeutics Bulletin and a pharmacist who has had PCT responsibility for prescribing and medicines management, commented:

“NICE was not a perfect situation but it did give a standard and consistency across the country. In the future you will get different areas weighing up their different priorities.”

He counsels that the NHS could come a “full circle” from pre-NICE days, giving the example of when donepezil was first launched in 1997 for Alzheimer’s disease. “The health authority based area prescribing committees spent a long time considering the place of this drug and criteria for its use. The NHS was criticised for the differing levels of provision of this drug, and it was one of the first technology appraisals covered by NICE (in 2001). It seems we could be heading back to that position, with commissioning groups being asked to take on that role and ‘postcode decision making’.

“In the 1990s health authorities covered reasonably large populations (100 HAs in England) but commissioning groups will cover smaller populations which makes population based prioritisation much more difficult.”

Patient lobbying campaigns can work in the UK. NICE originally turned down the breast cancer drug trastuzumab (Herceptin), blindness drugs pegaptanib (Macugen) and ranibizumab (Lucentis), and three drugs for dementia, but backed down after high profile campaigns.

People with cancers also now have access to the new £200m Cancer Fund, which pays for cancer medicines recommended by a hospital doctor.

Might the changes lead to clashes between primary and secondary care doctors?

This could happen, as secondary care doctors will be the ones who tell a patient that he or she needs a certain drug, and the GP consortium might say they cannot afford it.

One thing is clear: GPs will hate being in the position of having to say no, says the BMA. It is at odds with their patient advocate role and they will struggle. It is much easier to blame a third party, such as NICE.

Richard Vautrey, deputy chairman of the BMA’s GP committee, said: “The concern is this will lead to postcode prescribing and treatment variation around the country. From the patient’s point of view, this will be hard to understand. Some decisions will need to be made by GP groups, very difficult decisions about giving priority to expensive new drugs at the expense of other treatments.

“The assumption is that NICE will still provide the same level of information, based on the trial data, the difference is they will not be giving a judgment.

“With the removal of patient boundaries you can imagine a scenario whereby the patients move around different practices in the hope of accessing a particular drug.” He said it would lead to local consortiums banding together to make their own decisions on particular drugs. “But having GPs developing guidance is fraught with problems. We would not want to be seen as anti-competitive,” he said.

What does value based pricing mean in terms of demand and capacity?

Will the scheme just set a reimbursement price or will it limit demand as well, asked David Phizackerley.

“Value based pricing will determine a price that the NHS is willing to pay for a drug. But, unlike NICE, it won’t set out categories of patient who should or shouldn’t have the drug. So although you have a reasonable price there is no limit on the number of patients who may access that drug.”

The New Zealand model sets a price at which the health service will reimburse a drug, but it doesn’t limit demand.

Phizackerley said it is also difficult to predict demand for a drug because of “indication drift” where a drug is used outside its licensed indication in new clinical situations.

What’s next?

A description of how the new process will work will be released in the form of a government consultation document, probably before the end of November.


Cite this as: BMJ 2010;341:c6390

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