A NEW VALUE-BASED APPROACH TO THE PRICING OF BRANDED MEDICINES

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1 A NEW VALUE-BASED APPROACH TO THE PRICING OF BRANDED MEDICINES NHS Confederation response Introduction The NHS Confederation is the only independent membership body for the full range of organisations that make up today s NHS. We represent 95 per cent of NHS organisations as well as a growing number of independent healthcare providers. In writing this response, we have consulted with our members. General points The current approach to assessing and valuing NHS treatments is not perfect. In particular, the process whereby the National Institute for Health and Clinical Excellence (NICE) assesses interventions at the margin of cost effectiveness, whose use is then mandated through statutory directions, leads to disinvestment from more cost effective interventions which have not been NICE assessed or mandated. With this in mind, the NHS Confederation supports the principle of introducing a pricing system for drugs which takes into account their value and operates in the context of the overall NHS budget. However we are unable to support the approach to value based pricing set out in this consultation as we do not believe it will achieve this in practice. In particular, we are concerned that these proposals may drive up the cost of drugs to the NHS without increasing access to treatments, resulting in less investment in treatments that have been objectively judged to be more cost effective, simply because they do not meet certain narrowly defined criteria around innovation. The consultation impact assessment itself predicts a large net effect on pharmaceutical spend (p.26) and also acknowledges higher prices would be likely for some products (p.21). In a system where the amount of available cash is fixed, a logical consequence of increased spend on pharmaceuticals would be disinvestment elsewhere in the NHS. There is a risk that non-pharmaceutical interventions with higher benefit to patients are not funded because they are outside the scope of the scheme while pharmaceutical interventions of lower benefit are funded.

2 There is also a risk that perverse incentives might be introduced as a result of a switch to a societal perspective, depending on how broadly societal costs are defined. For instance, allocating resources in a way designed to minimise the cost to the economy of people of working age being off sick would bias health service spending away from children and pensioners, who are not economically active. Whilst we understand the government s desire to incentivise pharmaceutical companies to invest in breaking new ground, we do not believe that the amount of money the NHS spends on pharmaceuticals is of a sufficient scale to affect the behaviour of a sector populated by multinational organisations with annual turnovers of tens of billions of US dollars. We are concerned that the effect of these proposals will be to weaken the internationally renowned work of NICE and make NHS spending decisions less efficient and transparent, whilst delivering little in terms of promoting innovative practice within the pharmaceutical sector. We believe instead NICE should itself be tasked with designing an approach to value based pricing. A separate, transparent and publicly accountable process for setting a cost effectiveness threshold range for evaluation decisions should be established separately from NICE, taking into account the NHS commissioning budget. Question by question response Q1, Q4, Q7, Q16 We support the objective of more effectively linking the price of medicines with the value they provide, but we believe that the proposals, as they stand, do not achieve this objective. Using weightings to encourage pharmaceutical companies to target research and development activity at areas of greatest need is fraught with difficulty because of the complexity of the economic task and the potential for unforeseen consequences. We are unclear how the different thresholds to achieve this goal would operate in practice for instance would these be disease specific, and how many would there be? We note that, in common with the previous PPRS approach, Value Based Pricing does not attempt to place decisions about the cost effectiveness of drugs within the context of a cash limited system such as the NHS. As the consultation s Impact Assessment acknowledges (p.21), there is a significant risk that this policy will increase the amount the health service pays for some medicines. We question whether a change in policy which risks increasing the price of interventions is wise at a time of constrained public finances. There is a related issue that if paying more for certain drugs in an era of limited or no real growth, less of the NHS budget will be available for other 2

3 interventions, meaning resources could be diverted away from more costeffective non-pharmaceutical interventions. In practice, operating a range for drugs at the margin of cost-effectiveness rather than a single threshold, as NICE does at present, would provide most of the benefits which would be derived from operating a series of multiple different thresholds, without the complexity and risk. Applying greater weightings to conditions with a higher burden of illness, such as through a rule of rescue approach, is a contentious and politicised act. For instance, applying such weightings can have the effect of skewing resource allocation away from preventative treatments such as vaccination programmes. To claim that the proposed approach will in reality protect GP commissioners from being in the invidious position of having to balance limited clinical benefit on the one hand, with disproportionate cost, and opportunity cost, on the other (5.11) is unrealistic. Responsibility for investment decisions will presumably still rest with GPs as commissioners who will have a greater decision making responsibility if, as has been suggested elsewhere, NICE guidance is no longer mandated by the Secretary of State. Q8, Q9, Q11 It is unclear how the process of applying weightings to assess the potential contribution of new interventions, is compatible with the use of a single basic threshold. In particular the suggestion that opportunity cost should be factored in is likely to be problematic as the opportunity cost will vary significantly on a case basis and depending on how it is calculated. We would welcome further detail about this aspect of the proposals. Introducing separate assessments of innovation and societal impact in addition to the existing cost effectiveness analysis mechanisms already deployed by NICE risks double counting some attributes we believe it would be better to incorporate any such weightings into the cost effectiveness analysis process rather than using them to set different thresholds We question whether the fact that a drug is innovative is a sufficiently important criterion in itself to necessitate a premium the crucial attribute of any drug is its clinical and cost-effectiveness. In any case we are unsure how in practice it will be possible to define differing levels of innovation. A better approach would be to task NICE with designing an approach for delivering value based pricing which is more in harmony with the Institute s existing responsibilities. 3

4 The value judgements required to define a single cost effectiveness threshold could then be made elsewhere in the system, separately from the NICE process, in a more transparent way. Q2, Q5, Q12, Q13, Q14 It should be reasonable to set an initial price based on the evidence available and revisit this when further evidence is presented, as suggested in the proposals. In theory, this should achieve a good balance between sensitivity and speed, however some restrictions may be necessary to avoid continuous reevaluations of drugs. We consider that to retrospectively assess every drug currently in use in the NHS would be extremely burdensome. That said, we consider risks will exist in operating two different pricing systems concurrently. Q3 It is not clear that the proposed approach would work with orphan drugs, so alternatives should be considered, as is the case at present. Q15 As this approach is predicated on ensuring the NHS pays a fair price for effective drugs, we hope that any drugs being prescribed under the Cancer Drugs Fund would achieve a price that was acceptable to the NHS. We would also hope that the new approach will be robust enough to stand up to public scrutiny, should this not be the case. Q5, Q6, Q10, Q17, Q18, Q19, Q20 We agree that in a system such as the NHS, there is a need for an external decision-maker role in designing policy for the allocation of resources. However, we believe that in common with the Coalition Government s principles of openness and democracy, this process should be as transparent and accessible as possible. We are concerned that the proposal that the Secretary of State should decide upon the approach for the weighting categories on the basis of expert advice (4.31) is a step in the opposite direction, in contrast with the transparency of NICE s approach. Decisions about the allocation of NHS resources should be transparent and open. Any expert advice should be provided in a transparent manner, such as by an independently appointed panel which conducts its business in public. Advisers should be drawn from representatives of the NHS, clinicians, the pharmaceutical industry and health economists. All sectors should be equally represented so that no one interest group has a disproportionate influence. As the proposals are framed, we cannot see how they would improve access to services, but should a panel as described above be established, ensuring equality of access could be one of its responsibilities. 4

5 We also query the decision to give the Secretary of State the deciding role in this process. It would be preferable if decisions were reached through consensus. Should it be necessary for such a role to exist, we suggest that a senior member of the NHS Commissioning Board should occupy this role as a way of linking decisions about resource allocation back to the overarching NHS resource allocation infrastructure. However, we would much prefer an alternative approach whereby NICE is tasked with developing a methodology for a value based approach to pricing. In parallel, a process for setting the cost effectiveness threshold should be developed which is transparent and located outside NICE s control. As part of this work, NICE should carry out further research into using multiple prices for drugs when used for different indications and consider the relevance of the QALY to the new approach, however we believe most commissioners would be likely to support the retention of the QALY. It is important to note that NICE already works with different recommendations for the same drug when used for different conditions or for different stages of the same condition (for example when assessing a drug for use at different stages of cancer treatment). Value based pricing would require multiple prices for the same drug in some cases, depending on what it is being used for. 5