Value-based pricing: no place to hide from the payer

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As the term “value-based pricing” starts to underpin pharma discussions with the payer, pharmaphorum speaks with market access expert Omar Ali to find out what it really means. The hurdles to ensuring effective market access for new drugs seem to creep ever higher as countries around the world implement stricter cost containment… As the term “value-based pricing” starts to underpin pharma discussions with the payer, pharmaphorum speaks with market access expert Omar Ali to find out what it really means. The hurdles to ensuring effective market access for new drugs seem to creep ever higher as countries around the world implement stricter cost containment… Paul Tunnah interviews Omar Ali

Formulary development pharmacist, Surrey &, Sussex NHS trust

The hurdles to ensuring effective market access for new drugs seem to creep ever higher as countries around the world implement stricter cost containment measures to control healthcare spending. The UK, in particular, has been one of the leaders in putting in place health technology assessment and appraisal processes though its National Institute of Clinical Excellence (NICE) to assess the value a medicine delivers in comparison to its cost to determine whether it should be endorsed for national use.

Now the healthcare environment is evolving further as the subject of value-based pricing comes to the fore, ensuring that the price paid for a medicine reflects the true value it delivers to both the healthcare system and the patient. It’s a potential minefield for pharma, which has to rapidly adapt the research and development process to account for these new payer requirements in addition to the traditional regulatory barriers.

pharmaphorum caught up with Omar Ali, co-producer of the upcoming Joint working &, NHS engagement event in late September and a recognised authority on market access and drug pricing. During our discussion, we explore what value-based pricing really means, how different countries are learning from each other and adapting when it comes to healthcare cost containment and why there’s no place for pharma to hide when it comes to keeping the payer happy.

Note: pharmaphorum has secured some additional tickets for this event with 30% discount for our readers. Visit the event listing on our site for details of how to claim!

To listen to the full interview, please click on the play button below, with a shortened transcript of some edited highlights shown in print below.

Interview summary

PT: Hello Omar and thanks for joining me. Can you start by describing your work in the market access and drug pricing space?

OA: In my day job I work in the NHS as a prescribing advisor to Surrey and Sussex NHS Trust managing the entry of new drugs, looking at implementation of NICE national guidelines, creating subsequent GP shared cared guidelines and commissioning new pathways of care around prescribing and referral for disease management. I also have a role with NICE, where I sit on an external reference group for cost impact modelling looking at new interventions. In addition, I do some university lecturing and work focussing on improving the partnership between pharma and the NHS.

PT: What do you define as value-based pricing?

OA: There’s a lot of debate about that definition, but the whole focus of value-based pricing is on whether the drugs we use all give value to the NHS – are they good value for money. However, the way in which a drug company arrives at a price is not how the NHS calculates value, because if you think about it a pharmaceutical company will be looking at things like patient groups, return on investment and the economic climate for setting a price. But the NHS looks at the potential productivity gain within the health economy for a drug, assessing the evidence base and true innovation. It’s not surprising that we’ve seen pharmaceutical companies offering products that they think are great value, but the NHS turning around and saying they don’t show value for money. The two roadmaps are very different, with little overlap between pricing and value, so pharma then spends a lot of time trying to convince payers that it does show good value.

"…the way in which a drug company arrives at a price is not how the NHS calculates value…"

Value-based pricing has accepted a lot of ideas that could go forward, many of which are around reimbursement. For example, some countries that have already implemented value-based pricing have used a model whereby the value generated by the drug to the patient or healthcare economy is set as the reimbursement price, so pharma can set the price wherever it wants but only a certain amount is reimbursed. However, we know the UK is a price referencing country, so although local sales are not significant the global sales of countries looking at the UK could be more than 30% of total. This means that the banner price set in the UK is critical for pharma, so it may not represent value to the UK economy itself. So with value-based pricing we could see a new inhaler come to the market priced at £70 per month. If the technology appraisal then determines that it is nothing innovative the reimbursement price may be set at £40, so the question becomes who will pay the difference?

PT: So will pharma lose control over drug pricing?

OA: I don’t think pharma will ever lose control, because if this system is implemented then the price referencing aspect is so strong that pharma will take a global view and leave the price elevated. So it’s not about losing control, it’s about who will pay the difference between the price and the reimbursement level – the GP, the new consortia, the provider or do we go to the patient to fill that gap? If patient choice is pushed to its extreme then that’s what it becomes – if you want a nice leather interior, alloys and a sunroof then this is the price to pay!

PT: How does this impact on rare diseases, or other areas where there are small patient populations with potentially expensive treatments?

OA: At the moment the system seems to be set up such that technology appraisal and evaluation is not going to lower the threshold for orphan drugs. Although we accept there may not be massive clinical trials the value story still needs to be there, but concessions are being made at a higher level. For example, the government might give a tax break at the R&,D stage, or additional concessions around the patent. Having said that, under value-based pricing there will be some added incentives brought into the mix for true innovation, with additional premium price brackets. So if you’re first to market with a new class for treating a rare disease with high unmet need there could be some premium allowed on price.

"…phase II/III trials need to include features so they don’t just meet regulatory requirements, but also payer outcomes and their demands."

PT: What does pharma need to do structurally and organisationally to ensure it can demonstrate effective value for its medicines?

OA: A lot of work needs to be done earlier in the programme development. When a representative comes to see me for a new pain product and it’s a six week placebo study, I’m not really that interested as I don’t routinely treat pain with placebo. The defence will often be that this is what the regulators ask for, but I want to see something head to head, with validated pain scores or a QALY [quality-adjusted life years calculation] based on validated quality of life. So these phase II/III trials need to include features so they don’t just meet regulatory requirements, but also payer outcomes and their demands.

PT: Coming back to who will pay the difference between a drug price and the reimbursement level, do you think the UK healthcare system is moving more towards the US?

OA: I believe in some form or other my children, and their children, will be co-paying at the front door for things we don’t currently pay for, it’s inevitable. The alternative is that you put a stop on all new technologies, NICE says no to everything new and you give everything for free, but you’re not really giving anything. I think people are getting tired of that and are saying “in other European countries you can co-pay, what if I want to co-pay to top up?” For example, to do a cataract operation in the UK to save blindness costs about £700, but the cost of the actual lens starts at about £50 and can be much more for top end lenses. Some patients are saying “I want to co-pay, I want to top up. If I’m going to go through the process of having eye surgery, and you just want to put in a £50 lens, I want the £300 lens. If the NHS doesn’t want to pay for a £300 lens why can’t I pay for it?” But the current system doesn’t really allow us to do that, it just says the £50 lens is cost-effective. Medicine has moved on so much that patients want more choice and if some of them want to co-pay for higher priced treatments we should let them.

"Pharma can’t hide from this, they’ve either got to get in the game with the payer, or they might as well say ‘we’ll pull the plug on the whole EU’."

PT: Looking outside the UK, what other healthcare systems do you see as effective models for adoption by other countries?

OA: There are a number of different healthcare systems and it’s sometimes hard as an observer to say which one is better or worse. But I think it’s more important for pharma to know the direction the UK is travelling in. There are about five countries in the EU that are moving to a technology based approach for new interventions and NICE plus the SMC are very influential in here and in the US. I know some companies have said, “we could just pull the plug from the UK, pull out the R&,D and not market there, so you’ll be left with cheap generics and no new brands”. It’s true that companies could do that, but what happens when the other EU countries adopt the same approach? The whole of the EU is moving this way and by 2014 there could be seven states using value-based pricing, with the rest probably modelling on it. The other day I saw a drug decision made by the SMC and within less than 30 days seven European countries, half of which didn’t actually have a technology appraisal process, quoted verbatim the SMC decision, which subsequently affected their reimbursement policy. Pharma can’t hide from this, they’ve either got to get in the game with the payer, or they might as well say “we’ll pull the plug on the whole EU”.

About the interviewee:

Qualified with a hospital pharmacy background and currently working as a Formulary Advisor to Surrey &, Sussex Healthcare NHS Trust, Omar is also Prescribing Consultant Pharmacist to Primary Care and is an Advisor to 3 Drugs &, Therapeutics Committees in the South of England. He is a writer of MRCP Part I &, MRCGP MCQs &, active locally in the GP Vocational Training Scheme.

Omar is an Executive Board Member for the National Obesity Forum and has over 18 publications to date (obesity, diabetes &, hypertension). He is also a lecturer on the MSc Pharmacy Practice at the University of Portsmouth, and more recently, the Respiratory Module lecturer on Nurse Prescribing. He has spoken at various Medical Conferences within the UK, Europe and most recently Singapore.

Most recently, he has been appointed to the NHS Advisory Board for Pharmaceutical Field Magazine, writes a monthly medicines management supplement ‘Formulary Facts’ for Chemist &, Druggist and is an Editor for Primary Care Partnerships. Omar Ali has just been commissioned to author a book for healthcare professionals on the subject of obesity.

eyeforpharma have also produced two free of charge podcasts discussing topics around the NHS. The first of which covers how value-based pricing will affect pharma on a global scale and how this will affect your product's chance of reimbursement. The second looks at how different therapies will be assessed in order to increase the chances of approval.

Download both here now: http://www.eyeforpharma.com/uk/podcast.shtml

Note: pharmaphorum has procured some additional tickets for the upcoming Joint Working &, NHS Engagement event at which Omar is speaking, with 30% discount for our readers. Visit the event listing on our site for details of how to claim!

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