In 2010 the UK Government proposed moving towards a value-based system for assessing and pricing branded drugs available to patients. This page includes a summary of the contributions towards the debate on pharmaceutical pricing. Whilst the current system is not perfect, the value-based pricing mechanism would have been highly unwelcome to both patients and UK R&D. The proposals were dropped in November 2013.
Negotiations with the UK Government over pharmaceutical pricing have achieved a good result for patients, the NHS and the industry. (2020health blog) – December 2013
Proposal: Value-based pricing has at last and rightly been dropped.
Response: A good result for all concerned. Political opposition has been minimal.
Consider alternatives to value-based pricing, says 2020health The Pharmaceutical Journal – 10 May 2013.
“The independent health think tank report "Value-based pricing: the wrong medicine for the nation?" surveyed public concerns about proposed value-based pricing. Barbara Arzymanow, main author of the report, concluded that "patients could mistake value-based pricing for a commitment to make more medicines available, which is not the case".
The report claims that medicines pricing can be improved and urges the Government to consider alternative solutions, including continuing to allow drug companies to fix prices for individual drugs, lowering the price of older drugs to accommodate high enough prices for new products, developing a pricing system to encourage companies not to overlook rarer diseases in search of drugs for more lucrative markets and encouraging more patient access schemes to help make drugs available on the NHS.”
European Pharma Regulation Conference 2013, London, UK
13 November 2013 I chaired and presented the following slides at the European Pharma Regulation Conference, accompanied with a speech
Value-based pricing "not in patient interest" PMLiVE 9 May 2013
“The public have been told that politicians are staying out of the NHS, so this change could seem like hypocritical interference,” said the report's main author, Barbara Arzymanow, who has spent 25 years as an investment analyst specialising in the pharma industry.
Reporting in the BMJ British Medical Journal. BMJ 2013;346:f2965 8 May 2013
"New drug pricing scheme could politicise decisions and reduce access, says think tank"
UK drug pricing plans damage drug access – report Pharma Times (Article by Ben Adams) 8 May 2013
“Barbara Arzymanow, main author of the report said: “The public have been told that politicians are staying out of the NHS, so this change could seem like hypocritical interference. Patients could mistake value-based pricing for a commitment to make more medicines available, which is not the case. One product can have many uses and dosage regimes which are of different ‘value’ to different people.”
“Pricing of medicines can be improved, but not through this entirely new scheme. The confidence of patients and the future of medicine are more important than words.”
Value-based pricing: the wrong medicine for the nation? (2020health blog) – May 2013
Proposal: Value-based pricing is not in the best interests of patients.
Response: Value-based pricing was at last dropped in November 2013.
Waiting for Decisions on UK Pharmaceutical Pricing (2020health blog) – April 2013
Proposal: Hopefully the slow pace of progress reflects a radical rethink of unworkable proposals.
Response: The unworkable proposals were dropped in November 2013.
Medical advisory body “NICE” should not spend too much time valuing drugs (2020health blog) – April 2014
Proposal: NICE is in danger of putting too much effort into assessing the financial value of drugs. The only benefit from NICE finding a drug too expensive is to protect other drug companies from paying a rebate.
Response: On 18 September 2014 the Chief Executive of NICE said, “We’ve been looking in detail at how to change the way we appraise medicines and other technologies on behalf of the NHS. Following an extensive consultation, it’s clear that just changing NICE’s methods will not overcome concerns about how the NHS accesses new treatments.”
Proposal: Rebates received by the Government under the 2014 PPRS should be reflected in the budgets of Clinical Commissioning Groups so that they do not restrict the availability of drugs unnecessarily.
Response: Action has not yet been taken on this front as at 12 December 2014.
Proposal: All QALY methodologies deprive patients and doctors of the freedom to make their own decisions about quality of life.
Response: NICE announced a major rethink on 18thSeptember 2014
Think carefully about value-based drug pricing in the UK and let common sense prevail (2020health blog) – September 2012
Proposal: No VBP system can possibly take into account all the relevant facts affecting the likely benefit of a drug to every patient because individual circumstances differ too much. Some patients are bound to be the victims of decisions that appear unfair.
Response: VBP was finally abandoned by the Government in November 2013 some three years after my campaign began.
The Pharmaceutical Industry – Friend or Foe? (2020health blog) – July 2012
Proposal: The pharmaceutical industry is one of the major drivers behind the progress of mankind. We must not allow the shame of wrongdoing in the industry to distract us from seeing the big picture.
Response: The pricing agreement in November 2013 demonstrates the ability of the industry and Government to work together with mutual respect.
A wrong decision on UK drug pricing could seriously undermine all the good work that HM Treasury and the Department for Business, Innovation and Skills have done to encourage the UK pharmaceutical industry (2020health blog) – May 2012
Proposal: The Treasury, the Department for Business, Innovation & Skills and the Department of Health should work closely together. They should be asked to advise ministers on whether value-based drug pricing is an unacceptable risk.
Response: The November 2013 pricing agreement is so different from the original Dept. Of Health proposals that an input from other departments seems likely.
Parallel importing and exporting of pharmaceuticals severely limits the options in designing an effective UK drug pricing scheme. (2020health blog) – November 2011
Proposal: A pure value-based pricing system that excludes the transfer of revenue between products, outlaws patient access schemes and disallows the negotiation of direct arrangements with pharmaceutical companies is not the way forward.
Response: The November 2013 agreement keeps patient access schemes allows transfer of revenues between products and permits direct arrangements with companies.
The UK Government's Latest Thinking on the Value-Based Pricing of Medicines (2020health blog) – July 2011
Proposal: The Government has learned a lot but further careful thought is needed in the light of the UK's limited flexibility in fixing drug prices and the current pressures on the drug industry. Drug pricing anomalies must also be avoided.
Response: The issues of international pricing, pressures on the industry and unwanted anomalies are fully taken into account in the November 2013 agreement.
Dept. of Health Consultation on Drug Pricing: “A new value-based approach to the pricing of branded medicines” (2020health blog) – March 2011
Proposal: Satisfying unmet healthcare needs is the goal of commercial, pharmaceutical R&D. Innovation is always a part of R&D but is not an end in itself.
Response: The Department of Health response to the first drug pricing consultation that closed in March has clearly indicated that the Government has recognised the importance of understanding this issue.
Proposal: More attention needs to be paid to pricing policies over the whole commercial lives of drugs rather than just on launch.
Response: The agreement on drug pricing reached between the Government and industry in November 2013 focused on total drug sales of all branded products
Proposal: The risks involved in implementing the new pricing system could be reduced by keeping more of the positive features of the old system (PPRS).
Response: In November 2013 the Government announced that the PPRS would continue for all branded drugs.
Value-based approach to the pricing of branded medicines (Consultation response) – March 2011
Proposal: The Government must recognise that EU law removes a lot of pricing freedom from the UK authorities by permitting parallel imports and exports.
Response: The November 2013 agreement with the Government over drug pricing makes special provision to minimize the consequences of parallel importing and exporting.
Health & Household Investors’ Brief #30, 31 & 32 (Leading UK publication on healthcare in City of London) – November & December 1984
Proposal: Changes to planned Limited List of drugs no longer to be available on the NHS. The Government's original proposals would have led to serious patient suffering.
Response: Following distribution of relevant editions of Health & Household Investors’ Brief to all MPs and other lobbying of the Prime Minister (Margaret Thatcher), the Secretary of State for Health (Kenneth Clarke) implemented all Barbara’s proposals
UK drug pricing plan could trigger ‘avalanche of problems’ Financial Times, Article by Andrew Jack (paywall) 6 May 2013, citing a report I authored
The Delicate Trick The New York Times Article by Philip Crawford - 14th December 1991
But appearances can be deceiving. "Companies can be quite convincing in presenting a new product as the most advanced and effective in the field," said Barbara Arzymanow of Kleinwort-Benson Securities in London, "but a little research can often reveal a competitor to be several years ahead. You have to be careful not to get drawn in by what corporate officers, or anyone else for that matter, might want you to think."
Nice Public consultation (June 2014)
Independent Consultant / Writer /Think Tank Contributor
True Research Limited (healthcare financial consultants)
1 Does proportional QALY shortfall appropriately reflect burden of illness?
The true burden of illness depends heavily on the personal circumstances of the individual. For example, a concert pianist with Parkinson's Disease causing impaired movement will suffer much more from the illness than a poet, whose work may be unaffected. Professor Hawking, aged 72, with long-standing motor neuron disease, provides an exception to most dogma on quality of life.
Just as every patient needs to be seen individually by a doctor any fair assessment of quality of life must look at each person individually. The assessments made on each person would inevitably involve a high degree of subjectivity and require heavy resources, but a more rigid system would be bound to lead to controversial and unpopular decisions.
The Public and the Press would be more critical of the NICE proposals if they were easier to understand. Many of the key points are cloaked in jargon and hide rather than avoid the fundamental problem that no consensus exists about how to value human lives or how to measure quality of life. Different expert panels from different cultures would come up with very different conclusions. If decisions based on QALYs continue to be made, NICE will be criticised in the Press whenever the outcomes appear heartless.
2 Does absolute QALY shortfall provide a reasonable proxy for wider societal impact of a condition?
Societal impact does not depend purely on the patient's health. It also depends on what the person does when ill and on what would be done without the illness. For example if the bread-winning member of a family cannot work or a young mother cannot look after her children, there may be a much greater cost to society than in the case of a single, childless person. The societal value of a drug to a patient also depends heavily on how the person responds e.g. what dose is required to be effective and what side effects the individual experiences
3 Does a maximum weight of 2.5 in circumstances when all modifiers apply function as a reasonable maximum?
There is no objective reason for choosing any particular limit.
4 Should we allocate specific ‘weights’ to each of the ‘modifiers’ so that they add up to a maximum of 2.5? If so, do you have a view on what weight should be added in each case
Any weights would be largely arbitrary.
5 Will the approach outlined in this document achieve the proposed objectives of improving consistency, predictability and transparency in the judgements made by our independent Appraisal Committees when they consider the clinical and cost effectiveness of health technologies?
The proposals are a hotchpotch of arbitrary measures cobbled together to overcome some of the least popular aspects of previous policies. The ideas regarding end-of-life drugs and the elderly can represent major changes from NICE's original thinking. The differences highlight just how arbitrary many value-based methodologies are. If judgements become more consistent, transparent and predictable, it is only because the rules are becoming inappropriately rigid.
6 Are there any risks which might arise as a result of adopting the value-based assessment approach as outlined above? If so, how might we try to reduce them?
The risk is that patients will see NICE as unfairly rationing drugs and that no money will actually be saved. NICE could contribute much more by concentrating on advising on what is medically best rather than trying to value drugs.
7 Are there any other comments you wish to make?
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NIICE should have regard to the terms of the 2014 PPRS.
The current Terms of Reference on which NICE is operating were issued by the Department of Health in June 2013. The Heads of Agreement for the 2014 PPRS were not concluded until November 2013. The PPRS is a formal five-year agreement between the Department of Health and the pharmaceutical industry. The 2014 PPRS takes precedence over the earlier Terms of Reference given to NICE. The Heads of Agreement stated:
“NICE will not negotiate, publicly set or publicly indicate prices”
This provision is consistent with a view that NICE should reduce its involvement in valuing drugs and focus more on medical advice, as its full name “National Institute for Health and Care Excellence” suggests.
NICE can no longer affect the total NHS drug bill.
The 2014 PPRS has effectively already determined the NHS drug bill in each of the five years 2014 to 2018. Under the scheme the industry pays rebates to the Government. These pay back the excess over the agreed amount to be paid for drugs in each year. Increased prescribing of expensive new drugs by doctors need not displace funding for other healthcare because the extra cost of the drugs would be cancelled out by an increased rebate. The industry and the Department of Health have in effect agreed a fixed-price deal under which doctors can prescribe whatever they like without affecting the NHS drug bill in the five-year period covered by the agreement. NICE will therefore have no role during the period of the 2014 PPRS in protecting the NHS drug bill from inappropriate prescribing of expensive drugs.
The only benefits from NICE's drug valuing activities over the five years covered by the 2014 PPRS will be
to protect companies with a lack of important, new products to launch during the period from having to pay excessive rebates as a result of other companies launching innovative drugs at overinflated prices. In view of the fact that NICE's drug valuing role will be of benefit only to the drug industry, my view is that these activities should be de-emphasised at NICE in favour of a more educational role in informing doctors, other healthcare professionals, politicians and the Public about what is medically best or most healthy.
Value-based pricing outside the pharmaceutical industry is rare. In most industries prices are determined by supply and demand, applying a mark-up to costs, making comparisons with situations with similar circumstances or applying a formula. There is little reason to believe that a value-based appraisal is the best way to determine what drugs should be available. Drugs are usually (but not always) cheap to manufacture. The main reason for fair prices is to give a return on and encourage R&D in order that mankind can continue to benefit from new drug discoveries. This objective does not relate closely to the value of individual new medicines but it is well covered by the PPRS. NICE would do more to help pharmaceutical investment in the UK if it talked more about the value of innovation and less about arbitrary controls on individual drug prices.
The 2014 PPRS gives excellent value to the NHS by keeping growth in total NHS spending on drugs at a rate well below inflation and below that on other NHS services over the five-year period and avoiding any need to ration drugs. The Government was lucky in concluding the deal at around the time when the economy was weakest and so austerity measures seemed most appropriate. The industry aims to achieve good long-term growth and may in due course reasonably aim for a 2019 PPRS that will allow sales to outstrip inflation.
The attractions of a fixed-price agreement are in my view great enough for both the industry and the Department of Health to wish to continue the arrangement well beyond the 2014 PPRS. If all goes well, the system could last 10 to 20 years. There is nothing unusual about fixed-price contracts. They occur routinely in many industries such as telecommunications, broadband, energy supply, buffet restaurants, subscription services, contract car hire, loans and life assurance.
Some health economists believe that allowing doctors to prescribe what they wish without regard to the value of drugs will distort the market and encourage an unsustainable level of prescribing of expensive drugs. These commentators think that the 2014 PPRS could end in tears with a huge demand being created for excessively costly medicines that cannot be afforded over the long term. They therefore argue that NICE must continue to value and ration drugs even though the industry is willing to pay for five years. I think that these fears will turn out to be mistaken. Drug companies without major new drugs will be unable to gain sales easily because of the rebate. They will therefore reduce marketing and educational expenditure in order to raise profits. Hopefully organisations like NICE can fill the gap by offering good independent advice. Drug companies that do have major new drugs will increase the rebate paid by others because of the way the system works. Everyone will have a vested interest in criticising any company that imposes unreasonable drug prices.
Need for Further Consultation
I have not proposed the abolition of NICE because it does internationally outstanding work outside the arena of drug valuation and because its drug pricing skills may be needed if a future PPRS requires it or becomes unworkable. However, the 2014 PPRS is a game changer. Further consultation and possibly new terms of reference are appropriate. The guarantees under the 2014 PPRS have removed the time pressure.
Please email this form to: 2014VBAmethods@nice.org.uk
Closing date: Friday 20 June 2014 5pm
PLEASE NOTE: NICE reserves the right to summarise and edit comments received during consultations, or not to publish them at all, where in the reasonable opinion of NICE, the comments are voluminous, publication would be unlawful or publication would be otherwise inappropriate.