By 2014, the UK will be changing the way it regulates the price it pays for medicines. Currently the country's National Health Service (NHS) uses the Pharmaceutical Price Regulation Scheme (PPRS), which controls the maximum profit a drug manufacturer can make on the basis of capital investments the manufacturer has made. A review of this system, carried out by the UK Office of Fair Trading in 2007, recommended that, instead, medicines should be priced according to the therapeutic benefits they offer to patients—an idea known as value-based pricing (VBP) that has similarities to systems already used in smaller countries such as Australia and Canada. This pricing scheme has been embraced by the UK government, and negotiations on how the system will work are due to begin this month. A British switch to VBP could have ripple effects throughout the global pharmaceutical industry. Even though the UK's share of the world drug market is relatively small—just 3%—drug prices in the country are important because a quarter of national governments reference British values to determine their own sticker prices. One of the most influential thinkers on the UK's proposed system is health economist Mark Sculpher, director of the Programme on Economic Evaluation and Health Technology Assessment at the University of York. As a regular advisor to the UK National Institute for Health and Clinical Excellence (NICE) and former chair of a task force on methods guidance for economic evaluation at the agency, Sculpher has had an instrumental role in guiding value-based decision-making in the country's healthcare system. Kate Ravilious met with Sculpher at his office in York to discuss the value of VBP.
How is 'value' defined in this system?
Currently NICE defines value based on the health benefits of a treatment. The new VBP system would broaden this definition out to include other measures, such as workplace productivity and impact on carers.
What benefits for patients and the NHS would a switch to VBP provide?
It all depends on the details of how this VBP system works. If it is poorly specified, it could be a disaster. But if it is well specified, it will mean that pharmaceutical products are only introduced into the NHS if they represent good value for money.
Essentially, a value-based pricing system will mean that the benefits generated by patients receiving a new treatment are no less than the benefits that are in effect taken away from other patients in the healthcare system in order to fund the new treatment, given that the budget is fixed. For example, a new cancer drug must bring enough benefit to outweigh the losses incurred by having, say, fewer premature baby incubators or hernia operations. If the new system works as we hope, then we should see gains in overall population health.
You mentioned high-cost cancer drugs. NICE already decides whether to pay for these medicines, so how would the new system differ?
NICE doesn't currently negotiate the price; it decides whether a product is going to be cost-effective based on the manufacturer's list price. The role of NICE in the new system is not clear, but there will be some process where the value-based price is negotiated with the manufacturer. We do have one form of value-based pricing already in place, though, called 'patient access schemes', whereby if NICE says 'no' to a product at its list price, manufacturers may come back and offer a discount price. The new system will be something like this, but the distinction between the list price and what is actually negotiated with the NHS—and how transparent that negotiation is—is going to be critical.
How will VBP affect research and development (R&D) for pharma?
If VBP goes to plan, it should give a clear signal to the pharmaceutical industry as to how the NHS defines value and therefore provide a signal for innovation. The problem is that the UK is only 3% of the world market, so the ultimate impact on global R&D decisions remains to be seen. That said, I don't think we should be afraid of the fact that aggregate R&D might decline. It could be appropriate if what the industry is generating at the moment is drugs that are not valued by health systems. Equally, we may see an increase in aggregate R&D, with a change in focus towards treatments that are valued.
What about for academic researchers like you?
Currently we do quite a lot of work for NICE, reviewing manufacturer submissions and developing analyses to support NICE's decisions. That work is likely to continue, but the methods we use will change. There is going to be a need for methodological research to define and estimate more clearly what 'value' is and then evaluating what particular medicines are worth. Potentially this is something we'd hope to be involved with.
Besides VBP, how else can the UK government nudge the drug industry toward developing more effective medicines?
We could look at whether the right incentives are being put in place for drug manufacturers to develop the next generation of innovative new products. This would mean looking at a range of things including patent duration and the costs imposed on the pharmaceutical industry by the licensing system. However, this doesn't have to be mutually exclusive. It can be done alongside a VBP system.