The British Department of Health has notified drug companies that it is ending the current Pharmaceutical Pricing Regulation Scheme as of Aug. 31 and will examine other approaches, such as "value-based" drug pricing.

The current pricing scheme, which governs drugs sold through the country's National Health System, had been scheduled to run through Dec. 31, 2009. The department informed the industry of the early termination on Feb. 29.

The pricing scheme, negotiated with manufacturers, now relies on a system of price cuts and profit limits for drug manufacturers. A key factor in the Department of Health's decision to renegotiate the scheme is an Office of Fair Trading report issued earlier this year. The report contends that value-based pricing would provide the NHS with more value for its money, better investment incentives for industry and a more sustainable, stable system. The department opened new negotiations in August based on ideas in the report.

The pricing system should relate "the prices of products to their clinical value relative to existing treatments," OFT concluded. It estimated that about £500 million of the National Health System's drug expenditures could be used more effectively if prices were based on value. The pharmaceutical budget accounts for more than £10 billion per year of NHS spending.

Unsettling Environment For Industry

Renegotiation of the PPRS mid-way through its term is among factors causing unease among British drug companies, the Association of the British Pharmaceutical Industry says.

A survey of more than 100 U.K.-based drug firms found 97 percent believe there is "an increasing level of uncertainty" with the U.K. drug market environment, ABPI and the Confederation of British Industry reported March 20.

"Stability is essential for business confidence and investment," noted Nigel Brooksby, ABPI President and head of Sanofi-Aventis, U.K. PPRS provided the "very stability on which our success largely depends," he said.

Calling the pharmaceutical industry a bellwether for the U.K.'s ability to thrive in the global economy, CBI Deputy Director General John Cridland said any lack of confidence in the U.K. business climate "should be of deep concern to the government."

Neither the Department of Health nor ABPI are commenting on the negotiations, but the two sides have agreed their talks will focus on achieving value for money, reward for innovation, accelerated uptake of new medicines, and sustainability.

OFT suggested that companies retain freedom to set prices up-front. But instead of profit controls and price cuts established by the PPRS scheme, the report says drugs should be reviewed at certain points to determine a maximum price in accordance with clinical benefits relative to a comparator.

If sufficient cost-effectiveness information is available at product launch, a maximum price could be set quickly, OFT said. Product value would then be re-evaluated periodically.

Value-based Pricing Has Not Been Tried

The OFT report has given prominence to value-based pricing, Jens Grueger, head of global pricing and reimbursement for Novartis, told "The Pink Sheet." It has been a topic of discussion in the drug field, but "to my knowledge," is not yet being used anywhere, he said.

During the Drug Information Association's EuroMeeting in Barcelona March 4, Grueger discussed value-based pricing and reimbursement for therapies that have a broad indication, but provide different levels of benefit to different patient subgroups.

Rather than restrict the product to those who would likely receive the most benefit, value-based pricing or reimbursement allows payers to pay more for patients whose likely benefit is greatest, and less for indications where there is less potential benefit, he explained. The patient pays the same co-payment regardless of indication.

Grueger also discussed the concept of conditional reimbursement for drugs that are conditionally approved for marketing. The reimbursement is warranted because there is a potential for significant benefit even though there is insufficient information to demonstrate efficacy fully, he said.

If scientists or policymakers have enough data for conditional approval, that should be sufficient for reimbursement based on "a first, very initial, very crude, price and reimbursement assessment," he said.

Reimbursement would be adjusted up or down if subsequent data shows the benefit is greater than expected or less than expected, he added.

Conditional reimbursement also could be used in situations where full approval is granted but long-term benefits of a therapy remain uncertain, he said.

The benefit of pricing and reimbursement schemes that permit price adjustments based on later data is that both the drug maker and payer share the risks, according to Grueger.

Risk sharing is useful "in situations where responses to therapy are not predictable," he said, and "may be the next frontier" of reimbursement.

Grueger sees little future for "money-back guarantees," such as the U.K. agreement with Johnson & Johnson under which the company will rebate the cost of using Velcade (bortezomib) in patients who have a minimal response to the drug (¹ Also see "Velcade Rebate Scheme In U.K. Sets Up Broader Cost-Effectiveness Review" - Pink Sheet, 15 October, 2007. p. 5).

These "are just rebate schemes in disguise," he contended.

In the case of Velcade, "it is quite clear what proportions of patients will benefit from therapy and what proportion of the overall drug costs has to be refunded by the manufacturer," he explained to "The Pink Sheet."

"So the price could have been lowered to reflect this."

The U.K. is not the only country seeking better value in the drug market. The German Institute for Quality and Efficiency in Health Care has proposed that evaluations be conducted to set a ceiling reimbursement level for drugs and medical devices under Germany's government-based health insurance system (² Also see "Germany Drug Cost-Benefit Proposal Departs From U.K., Other Approaches" - Pink Sheet, 3 March, 2008., p. 28). Germany currently does not take drug pricing into account when adopting new therapies.

- Cathy Dombrowski (c.dombrowski@elsevier.com)

U.K. May Turn To “Value-Based” Drug Pricing In Place Of Price Limits

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