Published online 1 November 2010 | Nature | doi:10.1038/news.2010.574


UK drug-price overhaul set to shake up pharmaceutical industry

A bad value-based pricing system could threaten innovation.

a picture of pills in a bottleThe UK government is looking again at how the prices of drugs are set.Getty

Britain's much-envied drug-assessment agency faces an uncertain future.

The pioneering and influential National Institute for Health and Clinical Excellence (NICE) in London currently assesses drugs and decides whether they are cost-effective and should be available through the country's National Health Service (NHS). But the coalition government is making plans to pay drug companies only what a medicine is worth, promising to shake up the industry — and it is not yet clear what part NICE will play in the new system.

Prices for drugs in the United Kingdom are governed by the Pharmaceutical Price Regulation Scheme, which allows companies to set prices when they launch products. But this agreement expires in 2013, and the government plans to introduce a system of 'value-based pricing' (VBP), in which fees are negotiated with companies on the basis of a scientific assessment of the drug's clinical value.

Countries such as Canada and Australia already use versions of VBP, but Britain has an enormous influence on the rest of the world, says Karl Claxton, a health economist at the University of York, UK. Other countries, for instance, use NICE guidance to help make healthcare decisions.

"Across Europe, there are lots of economies that are trying to do crude price cuts because of the current fiscal situation," he says. "If VBP in the United Kingdom is shown to work, and work well, then it has huge application across the world in many different health-care systems."

Claxton adds, "It is fairly obvious to most people that prices are out of line with value and that something has to be done to address that."

Innovation unfriendly

Details of how Britain would implement VBP have not yet been announced. Claxton suggests that once an independent body such as NICE has decided on the value of a drug, manufacturers could be presented with options. Choose a high price, and the drug would be limited to restricted groups of patients; a lower price could mean the drug is more widely available.

Some though have already warned of adverse consequences if industry does not feel the prices offered adequately reward the development of new drugs.

exterior shot of NICE building in Holborn, LondonWhat role the National Institute for Health and Clinical Excellence will play in future is uncertain.

Richard Barker, director general of the Association of the British Pharmaceutical Industry in London, says if Britain is perceived as unfriendly to innovation, the pharmaceutical industry could move funding for research elsewhere. "Investment decisions are made by people — they look to invest in markets where they are welcome," he says.

Research investment in the UK is reckoned by the ABPI to be worth around £4 billion (US$6.4 billion) a year, and Adrian Towse, director of the Office of Health Economics – a London-based pharmaceutical research and consultancy group, agrees that "VBP will impact on R&D decisions if companies want to access the UK market."

Companies could even delay launching products on the UK market in order to preserve prices elsewhere, he says.

But if VBP catches on, it could fundamentally reshape the operation of the industry.

A new approach

Under VBP, companies will be forced to think not only of obtaining licences for their drugs, but also of proving their value. The probable value of a product will be a factor in the decision to continue to develop a drug that has reached phase III trials, for example.

Nigel Gregson, co-founder of PriceSpective — a consulting firm in Philadelphia, Pennsylvania, that specializes in valuing pharmaceuticals — says this has already been happening to some extent and he has seen a "huge increase in the number of companies looking at this area" of determining value. Companies have already been reducing sales forces, and to some extent moving away from so-called 'me too' products that are closely related to existing treatments — neither of which are necessarily useful investments in a value-based system.

Claxton suggests that widespread adoption of VBP could end up pushing the pharmaceutical industry towards narrower pipelines, with fewer drugs making it through to the end stages of clinical trials. Others say that a more radical shake-up could be in store.

Alan Maynard, another health economist at the University of York, notes that effective implementation of VBP may require more clinical trial data than is needed in the current system. But gaining such information can become problematic with moves towards personalizing medicine and targeting small, specific patient groups, because there are fewer patients to enrol into trials.

Eventually we may need more, and more organized, directly government-funded drug discovery, with promising therapies auctioned off to pharmaceutical companies, says Maynard.

Barker takes a different view, noting that the industry has already made major changes in the past two decades, moving away from research into conditions with many available treatments and towards what are perceived as un-met medical needs.

"Already there is a pretty dramatic wave of change that I think will help tackle the research and development productivity problems we've had in the past," he says. "If all of this works out well in 20 years' time, it will be hard to disentangle the impact of value-based reimbursement from the impact of all these other changes, but clearly the industry wants to work on what society values and will pay for."

Sidelining science

In future, closer relationships are likely to develop between industry and 'value regulators' who determine prices. NICE already offers a consultancy service for companies that may wish to gain NHS approval for products in development. But little is known so far about what will happen after the current price regulation scheme ends in 2013.


The Department of Health has backed away from comments that NICE will become redundant, apparently made by under-secretary of state Frederick Curzon (Lord Howe) last week. But news reports are already claiming that the institute will be stripped of its powers, and there are fears that it will be sidelined into a purely advisory role. The potential for politics to influence the science of determining the value of a medicine has also raised concerns.

NICE has already been subject to some ad hoc modifications of its work. Under the previous government, for example, the institute effectively developed a higher cost threshold for treatments that extend the life of patients who are very close to death. And the coalition government's introduction of a multi-million-pound fund to pay for cancer drugs is "essentially running a coach and horses through NICE", says Maynard.

The success of any VBP scheme depends on the existence of a transparent and independent body to determine drug value.

Press reports of government suggestions that views from industry, patients and science will be taken into account in the valuation process give Maynard pause. "Who has the casting vote?" he asks. 

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