Value-Based Pricing in 2012 – Is it Still Worth the Trouble?

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As the old aphorism goes, a New Year means a new beginning.  It also provides an opportunity for all of us to make New Year resolutions – promises we make to one or more lasting personal goals, projects, or the reforming of a habit.  In the world of health policy, this has added meaning.  The Government continues to face opposition to its NHS reforms.

A less visible but important policy is the Government’s commitment to introduce a system of value-based pricing (VBP) to replace the current Pharmaceutical Price Regulation Scheme (PPRS).  2011 failed to showcase the Government’s VBP policy in a positive light and has led some to question its practicality and value at a time of significant reform.           

Indeed, the publication of the Government’s much anticipated response to its VBP consultation in July 2011 proved to be a bit of a disappointment, lacking the critical detail to explain away the practicality of what remains a nebulous policy concept.  The consultation itself, which boasted a long list of open questions, invited something of a lukewarm response, striking uncertainty and chastening admonitions.         

The conceptual argument in favour of VBP is, and always was, compelling.  After all, it is difficult to rationally or philosophically argue against a product being priced in line with its “value”.  Yet as 2014 fast approaches, and roughly 4 years on since Andrew Lansley first floated the idea, we remain unclear on what VBP actually means and how it will work.  The two unavoidable, and so far largely unanswered, questions regarding technical and practical implementation continue to hang: 1) what do we really mean by value and how can it be defined?  And 2) how can we measure that definition objectively and fairly overtime?

It is on this fundamental sticking point that the Government has so far struggled to delineate how a conceptually attractive but practically exigent policy pledge will work.  The DH consultation did more to confuse than explain simplistically concluding “…that coming up with a system to define what represents value is not an easy task”.  Hardly quod erat demonstrandum (QED).      

In addition to the various technical challenges, this is concerning for three key policy reasons. 

First, it is a critical time for the industry as major global pharmaceutical companies have sought to scale back research and development investment in the UK.  In his 2011 budget, George Osborne signalled the Government’s commitment to the UK biotechnology and medical science industry byunveiling tax incentives, new funding arrangements, and moves to cut red tape for the life sciences sector.  The Chancellor stressed that science and technology needs to be a primary driver of growth for the economy.  The details of how the VBP scheme will be operated and implemented are therefore crucial from this perspective.  Indeed, a substantial part of the global pharmaceutical market references UK drug prices; estimated at 25% by the OFT. Manufacturers will therefore be unwilling to lower list prices, if it were the case in the UK, to match an NHS VBP due to international “spill-over effects” in other markets.  Ensuring protection of list prices and confidentiality is therefore essential as part of any VBP scheme if inward-investment is to be safeguarded and NHS drug availability optimised.  

Second, it is perhaps rather clumsy to refer to VBP in the context of the UK at a time when devolution is high on the agenda.  This is especially pertinent in the case of Scotland where the independence question looms and will now be decided in a 2014 referendum.  We should all know that healthcare provision has already been devolved, and this raises a series of thorny questions for VBP.  What are the chances that an English VBP policy will be accepted willingly in Scotland or for that matter in Northern Ireland or Wales? And what would be the impact of differential pricing policies across the home nations? Parallel trade across the Scottish and English borders is inconceivable, or is it?  Will VBP deliver its own form of “West Lothian question”?   

Third, the population in the UK is ageing, and therefore by definition a greater proportion of the population can be expected to require pharmaceutical medicines in the future. Pharmaceuticals, both curative and preventative, will clearly become increasingly important in order to alleviate strains on the NHS and the wider economy to ensure people are living healthy lives in their later years. As the rate of increase in funds available for the NHS reduces, cost improvement is inescapable.

Current healthcare strategies and initiatives have called for a health economy built upwards from the individual patient rather than downwards from Government and the NHS.  The expectation – indeed the political and practical requirement – is that this overall drive for greater “localism” will enable the quality of care to be improved with accompanying improvements in productivity.  The drive is to care better for people in their homes and in the community so as to reduce hospital visits and lengths of stay for elective care, and the need to access Accident and Emergency services. For this to happen, new VBP systems need to take account of local needs. It is important that the system aligns incentives for local prescribing, especially in the absence of mandatory NICE guidance after 2014.

Negotiations on a proposed VBP system for new medicines are expected to commence this year.  There are many stakeholders and the impact of VBP is far-reaching.  Given the current lack of detail, 2012 is arguably the make or break for the success of the Government’s VBP policy.  At this rate, VBP will become a fudge – a convenient extension of the existing PPRS with a few headline changes probably around so-called “burden of illness weights” for social value and a change in the notional cost-effectiveness threshold on the back of the important work being sponsored by the Medical Research Council.   

When the clock strikes midnight on New Year’s Eve 2013, the UK will supposedly have a system of VBP implemented.  That is only 327 days to go.  A week might be a long time in politics, but 327 days is a short time in government.  Time is running out.  And soon many may ask was it worth the trouble?     

Disclaimer: The views of the authors are their own and do not necessarily represent the views of the companies they represent.

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Contributor:   Stuart Carroll & Alasdair Williams

Stuart Carroll is a Senior Health Economist specialising in pharmaceuticals and health policy.  He studied a BA (Hons) in Politics and Economics (1^stClass) at the University of Northumbria at Newcastleand an MSc in Health Economics (Distinction) from the University of York.  Stuart currently heads up the health economics, health outcomes and epidemiology functions in the UK for a leading pharmaceutical company specialising in vaccines, and is studying for an MBA at Imperial College.  He has authorship credits in a number of policy papers on topics including military healthcare, the National Institute for Health and Clinical Excellence(NICE), the Quality and Outcomes Framework (QOF), health education, value-based pricing (VBP), public health and obesity, the role of pharmacy, and hospice care.  In 2008, Stuart researched and wrote the Conservative Party’s official policy on NICE, ‘Improving Access to New Drugs: A Plan to Renew the National Institute for Health and Clinical Excellence’.  Stuart is also a Policy Fellow for Health & Education at the centre right think tank, the Bow Group, a guest blogger for 2020health, and a Fellow at the Royal Society of Public Health.  

Alasdair Williams is Head of Grapevine at Creston Health, a specialist local marketing-communications agency for the healthcare industry.  Alasdair joined Grapevine from Sanofi Pasteur MSD where he worked for 13 years in a variety of sales, marketing and commercial roles. Most recently as Associate Director he managed the UK vaccine tender business, supply chain and strategic planning for the company.  Before that he was Marketing Manager for the pre-launch and launch of cervical cancer vaccine Gardasil. Alasdair graduated from Newcastle University, with a BSc (Hons) in Physiological Sciences and holds an advanced diploma for pharmaceutical professionals from Cambridge University.

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