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The cat’s out of the bag — this is the real agenda on value-based pricing

The Government has come clean about the purpose of VBP — and threatened innovation

By Stephen Goundrey-Smith

The Government has come clean about the purpose of VBP  — and threatened innovation

When value-based pricing (VBP) for medicines was first proposed, as part of the Government’s programme of NHS reforms in 2010, many stakeholders in healthcare were in broad agreement with the principle of pricing a medicine in accordance with its value to the health service, patients and society as a whole. In the White Paper “Equity and excellence: liberating the NHS”, the Department of Health stated that, as well as ensuring value for money on NHS medicines, VBP would ensure better patient access to effective drugs.

However, the devil is in the detail and, in December 2010, a consultation was subsequently launched by the DoH to gain an understanding of what exactly VBP might entail and how exactly the value of a medicine could be assessed. Since VBP has not been implemented in any other health economy, there is no experience with which to answer some of these questions, and the fairness and workability of the system will depend very much on the detail of its design.

The consultation proposed four main determinants of medicine value for discussion:

  • A basic pricing threshold, which reflects therapeutic benefits provided by the medicine, over and against any other therapeutic strategy
  • A weighting to reflect the “burden of illness” and any unmet need in a particular disease area
  • A weighting to reflect a measure of innovation greater than existing medicines in the therapeutic area (especially “step change” approaches to treatment, as opposed to incremental benefits)
  • A weighting to reflect societal benefits of a medicine — for example, improved quality of life, reduced carer input etc

On considering these determinants of medicine value, however, it is easy to see a number of difficulties in establishing a system of VBP. For example, it is hard to place a price on the less tangible aspects of a medicine’s value, as the fourth weighting above requires, and this might require complex algorithms that might be bureaucratic to implement. It is hard to place a fair value on a drug for a very rare disease when there are few population research data.

For this reason, it could be argued that rare/orphan drugs should be exempt from any VBP scheme. It also seems unfair that the system values “step changes” in therapy more highly than incremental improvements, which may provide equally valid — and valuable — patient benefits.

But also there were a number of unanswered questions about how the system would be administered. How would the system cope with different prices and value dossiers for different indications of the same drug? What safeguards would be in place to prevent industry being asked to disclose commercially sensitive information on price negotiations? What measures would be in place to ensure that VBP did not have any unintended consequences as far as international reference pricing was concerned? With a bureacratic system that favours the larger pharmaceutical companies, what safeguards are in place to ensure continued research and innovation by small to medium-sized pharmaceutical companies? And the key question that many had was: who would administer the system and assign value to medicines?

The DoH reviewed all the responses to the consultation and in July 2011 published its summary, which did little more than acknowledge that there are many complexities with VBP, that all responses to the consultation would be taken into account and that the DoH would continue to engage with relevant stakeholders.

There was then a profound silence about the VBP plans — until just recently, when the DoH released a press statement. This stated that the DoH was moving forward with three steps on medicine pricing:

  • The National Institute for Health and Care Excellence would be dealing with the evaluation of benefits of new drugs in the implementation of VBP, and this would be in place by January 2014
  • A consultation has been launched to strengthen the statutory pharmaceutical pricing scheme; the consultation is seeking views on a price cut of between 10 and 20 per cent
  • Negotiations with industry will continue on the voluntary Pharmaceutical Price Regulation Scheme, with an update expected later in the year

Reactions to this press statement have ranged from bemusement to dismay. Pharmaceutical industry managers are assessing the impact of this proposed price cut on their revenue, and how the system can be implemented in a way that does not impact on either international reference pricing of their products, or indeed revenue models as a result of the many commercial schemes and arrangements that are in place (rebate schemes etc).

The involvement of NICE is no surprise: most recognise that NICE is the agency most likely to have the expertise and capacity to implement VBP. However, stakeholders in both the NHS and the pharmaceutical industry are struggling to understand how NICE can possibly implement VBP by January 2014, given the obvious methodological complexities of the proposed scheme, about which there has been limited discussion since the consultation.

Yet the cat is out of the bag as far as the Government’s stated objective for VBP is concerned. VBP is not being implemented to improve patient access to medicines. As the value arbiter, NICE will remain a “medicines watchdog”, pilloried by the lay press and by patient groups, much as it was before, albeit with a new set of selection criteria. VBP is not even being implemented as an equitable means of assigning value to a medicine. VBP, it would appear, is being implemented purely as a means by which the Government can apply downward pressure on NHS spending on medicines.

Given all the hard work that has been done by the NHS and other professional stakeholders to establish the medicines optimisation agenda over the former cost-focused medicines management approach, and the effort that has been made on both sides to build partnerships between NHS and industry, it is a shame that the Government has publicly reverted to form with a blatant cost-containment message about the value of medicines.

Value for money with use of medicines is of mutual importance to the NHS and the pharmaceutical industry, and a clearly defined value assessment system has the potential to be of benefit to all stakeholders — to enable valuable medicines to be developed by the industry, procured by the NHS and ultimately to be available to the patient.

The innovation process is highly dependent on the relationship between the industry and the NHS and, by coming clean about the real purpose of VBP, the Government has put this relationship in jeopardy.


Stephen Goundrey-Smith is a consultant pharmacist at PDC Healthcare Ltd.

Citation: The Pharmaceutical Journal DOI: 10.1211/PJ.2013.11126317

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