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Value-based pricing must account for service displacement effect

By News team

Estimates of cost-effectiveness for new healthcare interventions must take into account the costs of displacing services from patients not receiving the intervention, health economists have told the Department of Health as it plans a new system of value-based pricing for NHS medicines.

Researchers from the University of York say that current National Institute for Health and Clinical Effectiveness approval methodologies will become unaffordable as NHS funding decreases. They have devised a new measure that they say more accurately takes into account the effect of introducing a new technology on non-recipients.

When deciding whether the NHS should pay for a new technology, NICE assesses whether the benefits are greater than the costs, including the costs of the health likely to be lost by other NHS patients whose treatments become unaffordable. To make this assessment, NICE uses a ‘threshold’, which represents how much additional NHS cost would displace an amount of health; measured by quality-adjusted life years (QALY).

Threshold should be lowered

Since 2004, NICE has used a threshold range of £20,000 to £30,000 per QALY to inform approval decisions. However, researchers say that based on 2008 expenditure £18,317 per QALY is a more accurate threshold. This figure is likely to be an overestimate that will probably need to fall as the NHS comes under greater financial pressure, they warn.

Mark Sculpher, a co-author of the research project, said: "It is crucial that the cost effectiveness threshold is seen as representing health forgone as the additional costs of new technologies are imposed on the fixed budgets of local commissioners. For decisions made by NICE and many policy options considered by the NHS and Department Health, this is the key to establishing the value for money of new services."

Co-author Karl Claxton added: "The work demonstrates that the threshold to gauge cost-effectiveness and how much the NHS can afford to pay for benefits offered by new drugs is a scientific question that can be informed by evidence and analysis."

ABPI dismisses research

However, the research was dismissed by Stephen Whitehead, chief executive of the Association of the British Pharmaceutical Industry. He said: "Lowering the current cost effectiveness threshold that is used to assess innovative new medicines would deny thousands, if not millions, of UK patients access to these medicines. This in turn would inevitably lead to a decline in healthcare standards in the UK which is simply unacceptable considering we already trail our European counterparts on health outcomes for diseases such as cancer. Despite huge increases in living costs the threshold applied to medicines costs is the same now as it was 13 years ago. If we are serious about gaining ground on our European neighbours on getting the newest medicines to patients, the threshold should be raised, not lowered."

He added that the research uses just one way of assessing the costs of healthcare, and has yet to undergo the normal peer review process. "There is no consensus among economists about the ‘best’ methods to calculate cost effectiveness thresholds and there are many other conceptual bases that could be used to determine the threshold. More importantly if every part of the health service was assessed for cost- effectiveness in this way, patients would be deprived of many of the valuable services they benefit from today.

"The irony is, medicines in the UK are not expensive. We spend less on our medicines than continental countries, we have among the lowest prices in Western Europe and new medicines account for less than 5 per cent of the entire medicines budget, which itself is only around 10 per cent total NHS expenditure. We need to start seeing medicines for what they are – an investment that keeps people healthier for longer and helps reduce the need for expensive hospital care in the NHS."

See also: Formula used by NICE is flawed and should be abandoned, say researchers

Citation: The Pharmaceutical Journal DOI: 10.1211/PJ.2013.11116069

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