U.K. Government Initiates VBP Consultations

The government has reiterated that value-based pricing (VBP) will replace the current Pharmaceutical Price Regulation Scheme (PPRS) for branded drugs, which is set to expire at the end of 2013. The government proposed that VBP should only apply to drugs launched after 1 January 2014. Drugs currently covered by the PPRS will be exempt from VBP, but given that the PPRS agreement currently in place will have expired by 2014, a separate pricing scheme may be required to regulate these prices.

The main detail of the proposed model for VBP centres around how the government should go about the task of determining a range of thresholds or maximum prices that reflect the value of drugs.

The government has outlined four principles that will guide this process:

• A basic threshold would exist under which the value of a drug will be assessed based on its benefits compared with potential benefits that would be gained from funds being allocated elsewhere in the National Health Service (NHS). This threshold will be applied to drugs that offer no additional value over current alternatives.
• For drugs that treat diseases for which there is a "greater burden of illness", higher thresholds will apply. This will be used to correct the limitations of the existing system, which does not recognise the additional value that stems from drugs that treat severe, critical conditions and areas of unmet need. As such, the extent of the additional threshold will depend on the severity of the condition and the degree of unmet need.
• Drugs that offer "greater therapeutic innovation and improvements" would also be allocated higher thresholds. This is yet another means of correcting flaws in the current system, as its failure to reward adequately drugs with therapeutic innovation and improvements remains one of the most criticised aspects of the PPRS and the National Institute of Health and Clinical Excellence (NICE) appraisal process. Under this provision, drugs that represent significant breakthroughs will be eligible for a therapeutic innovation and improvement score that would translate into a higher quality-adjusted life year (QALY) benefit.
• Drugs that confer "wider societal benefits" would also be eligible for higher thresholds.

These thresholds or maximum prices could be determined via cost-effectiveness analysis based on the current measure of cost per QALY, as currently used in appraisals conducted by NICE. However, QALYs are only one of many options that may be considered. A team of experts will advise the government on how the QALY weightings would be defined for drugs that fall into the latter three categories, and how this will translate into threshold and price ranges.

Health Technology Assessment

As expected, health technology assessment (HTA) will be an important part of VBP, and this will be used to determine the cost effectiveness of treatments, which will in turn determine the maximum prices for drugs. The new HTA that will emerge will seek to address additional societal benefits that the current NICE process does not address, such as the effect of treatment on those caring for patients. As per NICE's role and that of the devolved HTA agencies in the new system, the government said that NICE will act as an advisor to Ministers and manufacturers on regarding the cost and benefits of drugs relative to other options. NICE will also be responsible for advising clinicians on quality standards and how best to use the most effective treatments in the NHS.

Price Setting

In terms of price setting, the government favours an ex-post VBP system, whereby manufacturers would still be free to propose a price for their drugs. However, drugs will be subject to economic evaluation to asses their cost effectiveness in comparison with relevant comparators. If the price determined by this process is less that that proposed by the manufacturer, it would need to provide further evidence that the drug is eligible for a higher weighting due to greater burden of illness treated, greater therapeutic innovation and improvements, or wider societal benefits. If the government is not satisfied by the higher price proposed, then the manufacturer will asked to lower its price. In the case that it fails to provide sufficient evidence for the higher price but still refuses to adhere to calls for a lower price, the manufacturer will be required to "explain to the public" the reasons for this.

Outlook and Implications

The consultation paper on VBP should provide a clearer picture on what the new system will look like. Although the additional thresholds that will be allocated for specific drugs will be welcomed, whether on not this will achieve the intended goals will largely depend on how these thresholds will be defined. It will take some while before the public is informed on this, as the government will seek expert advice on how best to go about it. There are no surprises in this consultation document, and it appears as if the government has essentially taken on board the recommendations made by the Office of Fair Trading in 2007. The government is hoping that VBP will not only ensure better value for the NHS, but at the same time ensure price stability beyond the current five-year stability offered by the PPRS, as well as encouraging manufacturers to make important long-term investment decisions regarding drugs that address unmet need and provide increased societal benefits, thereby promoting innovation as opposed to me-too behaviour. Whether or not companies will realign their investment decisions in response to VBP remains to be seen. On the NICE front, it appears that it will still have an important role in the HTA process, although it will act more as an advisor on cost-effectiveness matters rather than as an outright cost watchdog. However, depending on the outcome of the consultations, NICE could potentially be in line for a wider role.