Feature / Added Value

The government has confirmed changes in the way the NHS will pay for branded medicines, but what impact will it have on the service’s drugs bill? Seamus Ward reports

A deal governing the price of new branded medicines will be struck from 2014 between the NHS across the UK and pharmaceutical companies.

After staff costs, medicines is one of the biggest areas of NHS expenditure – the service spends about £9bn a year on branded drugs. So it is natural the government will try to obtain better value for money.

However, not only will the new value-based pricing system seek to balance cost, clinical effectiveness and benefits to the patient, but also incentives to the industry to innovate and bring forward drugs to tackle unmet need.

Value-based pricing will succeed the pharmaceutical price regulation scheme (PPRS), which ends in 2013. Although governments claim they have been able to save the NHS millions through PPRS, an Office of Fair Trading report in 2007 recommended it be replaced with a system that reflected the value of medicines to patients.

Following a consultation on the new system, the Department of Health confirmed that value-based pricing will apply only to new medicines that come on the market from

1 January 2014. Most branded medicines on the market before that date will be covered by the successor to the current PPRS.

Capacity constraints mean it would not be feasible to assess all existing drugs under the value-based pricing regime. However, a small number could be reviewed that way. These could include existing drugs that are being used to treat conditions other than their original indication; drugs considered but not recommended by the National Institute for Health and Clinical Excellence (NICE); and some medicines currently funded by the cancer drugs fund. ?

NICE work

NICE – together with the bodies responsible for technology appraisals in the devolved administrations – will play a central role in the new system. It will assess the costs and benefits of drugs put on the market after 1 January 2014.

At the moment, a standard cost-effectiveness threshold is applied to all new products, with some flexibility to account for additional factors such as societal preferences.

However, the Department believes this is not completely transparent. So under value-based pricing, weightings will be applied to the benefits provided by new medicines, giving a range of price thresholds that would be paid.

Higher thresholds will apply to medicines that tackle diseases with a greater ‘burden of illness’ (measured largely by severity of illness and the level of unmet need); those that demonstrate greater therapeutic innovation; and those that demonstrate wider societal benefits. There will be a basic price threshold – the maximum the government will pay for drugs that offer none of these extra benefits.

The assessment, known as the pharmaco-economic evaluation, will be similar to NICE’s current technology appraisals – calculating patient health benefits and reflecting all costs and benefits. However, it will be expanded to explicitly reflect wider benefits, such as a reduced reliance on carers.

Manufacturers will be free to propose a price for a new medicine. If this is equal to or less than the basic threshold, the NHS will accept that price. If the company believes its product merits a higher price, it must provide evidence that the drug should have a higher weighting in terms of burden of illness, therapeutic innovation or wider societal benefits. The evidence will be reviewed by expert panels, alongside the pharmaco-economic evaluation, to arrive at the maximum price for the drug.

Under the original plans, NICE would have assessed the clinical and cost-effectiveness of new drugs, but ministers’ funding direction, which ensures commissioners must fund drugs recommended by NICE, would be removed. Instead, the decision to fund new drugs would have been made by GPs and commissioning groups.

BMA warning

While the move to value-based pricing has been welcomed by most parties, the proposal to give GPs the final decision over funding alarmed many in the clinical, financial and managerial communities. The British Medical Association warned it was a prescription for rationing by postcode, while the NHS Confederation was concerned about the potential for rising costs.

The Department has heeded the warnings, confirming the NHS will be required to fund drugs already recommended by NICE, as well as drug treatments subject to the value-based pricing regime. ‘Patients will continue to have the legal right to clinically appropriate, cost-effective drugs and treatments as set out in the NHS Constitution,’ it says.

It accepts that higher costs are possible, stating: ‘Value-based pricing is not as simple as achieving the lowest price possible. If we succeed in improving NHS patients’ access to effective treatments, it is possible that the total expenditure on medicines could rise under the new arrangements. However, this will depend on the overall package, and on pharmaceutical companies continuing to develop innovative medicines that deliver real benefits for patients.

‘We will, of course, need to ensure that the new arrangements are affordable within the health budget and sustainable in the long term. So the prices we pay for drugs must reflect their health and wider social benefits.’

In particular, medicines’ prices must be commensurate with the benefits the NHS could deliver for patients if it used the same resources in a different way – for example, to pay for extra nurses or in programmes helping people to stay healthy.

NHS Confederation chief executive Mike Farrar commends the government for addressing concerns about costs, but warns that the timetable for implementing the new system could be unrealistic, given the amount of research and testing required.

He adds: ‘We welcome the fact that the government has acknowledged NICE should be given a central role in implementing the new value-based pricing system. We still believe NICE should also play a central role in designing the new system, given its internationally renowned expertise in this area.’

NICE chief executive Sir Andrew Dillon supports the principle behind value-based pricing. And insists the current NICE process can be adapted to suit value-based pricing. ‘The UK led the world in the appraisal of new health technologies when it set up NICE in 1999. It can do the same in 2014 with a new approach to managing the entry of effective treatments into the NHS, in a way that meets the needs and expectations of patients and which uses the health service’s resources effectively,’ he says.

In the consultation, views were split on the relative weightings to be given to each of the elements of the assessment. While many believed issues considered in the pharmaco-economic evaluation (quality and length of life) were most important, there was wide support for giving weight to treatments offering wider societal benefits.

Opinion on the therapeutic and innovation weighting was split, some insisting innovation should only be rewarded if it improved outcomes – in any case, this would be captured by other elements of the assessment.

This led to concern the mechanism may double-count benefits. The government says it has not determined the relative weightings and plans research to ensure they reflected the ‘full value of new products to society’.

Innovation call

The ABPI, which represents the pharmaceutical industry, is concerned innovation may not be adequately reflected. But chief executive Stephen Whitehead is confident the industry and government can reach an agreement.

‘There is much work to be done on the new system. The goal is to achieve a scheme under which patients have the best possible health outcomes. This will be achieved by a system that ensures access to new and innovative medicines and creates the best environment for the research-based pharmaceutical industry in the UK to develop them,’ he adds.

Mr Farrar also has concerns about innovation. ‘We remain concerned about the difficulty in defining what innovation is and whether commissioners should pay a premium for innovation,’ he says.

Despite the many wrinkles to be ironed out, the government is determined to push through the changes. Drug prices will reflect their value to patients and society at large, but finance managers will be keen to see at what cost.