Value based pricing: requirements, implications and prospects

Transcription

1 Value based pricing: requirements, implications and prospects Karl Claxton Department of Economics and Related Studies, Centre for Health Economics, University of York.

2 Price and value? Price > P* 60,000 Cost 30,000 per QALY Cost-effectiveness Threshold 20,000 per QALY Price = P* 40,000 20,000 per QALY Price < P* 20,000 10,000 per QALY Heath gained (QALYs) Net Health Benefit 1 QALY Net Health Benefit -1 QALY

3 Other aspects of value Value of health gained (and health forgone) Burden and severity QALYs lost as consequence of the condition with current treatment Therapeutic improvement Scale of gain (some threshold below which it is less valuable) Wider social benefits Cost of care born by patients and carers External consumption effects Need to reflect the value of health and WSB forgone A lower weighted QALY threshold P* may go down as well as up when account is taken of other aspects of value

4 Price How is value shared P* = Maximum HCS can pay for Q* P* Value of the innovation = P*.Q* All value is appropriated by manufacturer Q* Quantity

5 200,000, ,000, ,000,000 When do we get a share? Patent expires and generic entry at t=15 Generic prices are 25% of the brand All prescribing switches to generic Discounted at 3.5% Total value Cumulative present value at t 140,000, ,000, ,000,000 80,000,000 60,000,000 40,000,000 Manufacturers share HCS share 20,000, Time since launch (t)

6 How should we share? Should manufacturers get all the value? We don t care who gets it No constraints on public expenditure No subsidies or publicly funded research and development Should we give more or less? (change patent or P>P* or P<P*) Encourage more R+D but is it socially valuable? Returns from success is matched by the cost of failures Value maybe wasted parallel R+D How should we be behave? Manners maketh man Pay your share but not more than your share Don't expect others to pay more than their share So how is value distributed globally (and federally)?

7 How is it distributed? US market share >> others P* for US is much higher than others Invest up to P* in the US market Many of the innovations will not be worthwhile (others perspective) If single global (federal) price (reference pricing or parallel trade) Say no or damage HCS (more likely) Some future benefit if worthwhile at generic prices But large molecules from cell lines High production cost and no true generics Not distributed equitably domestically either Where are investments made Who owns the equity? Where (and do) they pay their taxes? Rest of the world has been the victim not the ungrateful beneficiary of US incentives for innovation

8 Who gets the value? We should pay our fair share (a share of the total value) It is legitimate to care how things are distributed HCS should get some of the value now (marginal VBPs) Some incentives for early uptake How to share? Rules that mirror other markets with innovation and patent protection A free choice of price but with associated coverage (some value now) Respects intellectual property Avoid games (commitment, hold up and politicisation) International (federal) price discrimination Don't need to say no unless local P* < production cost No value for HCS until generic entry (unless marginal VBPs) No value at all if P*<production costs)

9 Price Global (federal) prices and returns P* = VBP on average for Q* P* P0 Q* Quantity

10 Price Global (federal) prices and returns P* P0 HCS1 HCS2 HCS3 Q1 Q* Q2 Quantity

11 Price Global (federal) prices and returns P1 P2 P* P3 P0 HCS1 HCS2 HCS3 Q1 Q* Q2 Quantity

12 Price Global (federal) prices and returns P1 P2 P* P3 P0 HCS1 HCS2 HCS3 Q1 Q* Q2 Quantity

13 Price Global (federal) prices and returns P1 P2 P* P3 P0 HCS1 HCS2 HCS3 Q1 Q* Q2 Quantity

14 How is it distributed? US market share >> others P* for US is much higher than others Invest up to P* in the US market Many of the innovations will not be worthwhile (others perspective) If single global price (reference pricing or parallel trade) Say no or damage HCS Some benefits if worthwhile at generic prices But large molecules from cell lines High production cost and no true generics Not distributed equitably domestically Where are investments made Who owns the equity? Where (and do) they pay their taxes? Rest of the world has been the victim not the ungrateful beneficiary of US incentives for innovation

15 What can and should we do? A predictable demand side Accountable process for assessment (costs and effects) Independent and empirically based threshold Price negotiation rules reflective of other markets Avoid capture and politicisation National HTA body supporting a DH (with provinces) Negotiate provincial value based rebates at federal level Provide incentives for uptake (when agreement in place) Protect citizens from catastrophic financial risks Ensure (only) valuable technologies are used Clinicians free to practice the art of medicine Don't pay premium prices for drugs (p > p*) Don't pay premium prices for other stuff (P>MC) either!

16 Rome is burning HTA based rational prices? What's the alternative? Downward reference pricing Competitive tendering within the patent? Arbitrary rules of evidence Generics within the patent Still have global sticks and carrots? Unique coincidence of interests Rational science based pricing With incentives for volume if HCS gets some value Global price discrimination through national rebates If not its the Visigoths (which might not be that bad)