Pharmaceutical Price Regulation Scheme


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Detailed report available on NICE's proposals for value based assessment of health technologies

Value Based Assessment
The Department of Health have issued the 2014 PPRS. The headlines were about NHS spending remaining flat for two years followed by increases of less than 2% for the following three years.

However, what about Value Based Pricing?  Value Based Pricing (VBP)seems to have gone from the core pricing mechanism to a slightly wider NICE appraisal taking into account burden of illness and wider societal benefits.  This is a very different beast from the original VBP heralded by Andrew Lansley.

What does the new PPRS agreement tell us about VBP?

As previously announced, NICE will undertake ALL elements of the assessment of value. 

  • The cost-effectiveness threshold used by NICE will not change for the life of the PPRS agreement (5 years).
  • The Terms of Reference the Department of Health set NICE for the value assessment remain unchanged.
  • Companies will be able to request a value based appraisal of their new medicine.
  • The timing of a value assessment will be similar to a Single Technology Appraisal.
  • Patient Access Schemes will remain but rebates paid to commissioners for medicines with a positive NICE approval will be done away with.

NICE is talking about VBP having evolved into "value assessments".  In other words, VBP has become an amended Technology Appraisal with an attempt to capture burden of illness and wider societal benefits.  

Implications for the pharmaceutical industry

The significance of this announcement is two-fold.  

First, it makes it clear that value based pricing has "evolved" into value assessments using a modified NICE technology appraisal methodology.  

Second, the cost-effectiveness threshold used by NICE will remain unchanged, but it will take into account burden of illness and wider societal benefits.  This means that there are potential additional benefits that NICE will include in its assessment.  If a condition is associated with significant burden of illness, it should be able to offset this against a higher price and still remain under the NICE threshold. 

The extent of the value of the burden of illness and wider societal benefits and how they are to be measured is still to be revealed. However, pharmaceutical companies should be thinking about how they could collect data on wider societal benefits before 2015.

The problems with value based pricing

Value Based Pricing sounds like a great idea.  Who can disagree with the principle that the NHS should pay for medicines based on the value they provide?  It is only when you get into the practicalities of defining this value and putting a price on it that VBP begins to unravel.  

NICE already finds it difficult to evaluate new medicines at an early stage in their life cycle, especially for new medicines that have received conditional approval from the EMA to accelerate their route to market.  The data is often immature and there is considerable uncertainty about the extent of the clinical effectiveness.  This makes estimates of cost effectiveness even more uncertain and difficult to calculate.

If we cannot accurately quantify the clinical benefits, how on earth do we quantify the “burden of illness and wider societal benefits”?  NICE are rightly taking their time on defining them.   They will have the difficulty of applying disease burden to sub-sets of patients with specific gene mutations who may be atypical of a disease.

The fear, from the payers’ perspective, was that VBP would drive inflation in the drugs budget.  The government appear to have stepped back from the unknown and stuck with a system which gives them certainty about the overall shape of the drugs budget. 

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