The Move to Value-Based Pricing for Prescription Drugs

12/21/11

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regulators will assess the product’s value based on a five-point scale. During the three-month time, price can be negotiated and the company has the option of commissioning additional research.

This “back end” component raises the importance of late-phase, patient-focused or “real-world” research done by companies like OptumInsight Life Sciences to better understand and position products for payers, providers and consumers.

The U.K. will introduce compulsory, value-based pricing on all newly licensed drugs starting in 2014. That system will replace the current Pharmaceutical Price Regulation Scheme (PPRS), as well as the current guidance on the use of new drugs issued by the National Institute for Health and Clinical Excellence (NICE), although NICE will continue to evaluate treatments as at present. The U.K. will negotiate with companies on price to make new drugs more available based on four key factors: treatment value, innovation, societal impact, and meeting an unmet need in dealing with the burden of disease.

In contrast to Germany, the value-based price in the U.K. will be based on a detailed cost-effectiveness assessment on the front end, at approval and launch, and the company and regulators can revisit the price based on further real-world evidence—once again reinforcing the importance of late-phase research, including patient-reported outcomes.

Already there is talk about other European countries moving to similar value-based pricing models—not unlike the U.S. system. U.S. payers seek to hold down health care costs by encouraging providers and patients to use less-expensive, higher-value drugs—often generics —that are in a tier with the lowest or no co-payments. Branded and more costly medicines are in tiers with much higher co-pays, or no reimbursement.

As the European Union moves to value-based pricing, and potentially changes in how government health systems reimburse patients, it’s quite possible, I believe, that Europe and US could have similar systems within the next five years. In the still-evolving world of health care reform in the U.S., there is mounting pressure to hold the line on ever-more-costly medicines, including demonstrating measurable value to patients over existing therapies.

Clearly there are questions about how the new systems will work. Will pricing decisions depend on evidence, as opposed to negotiation? How will companies be rewarded for innovation, and if not, will that adversely affect new drug development?

Regardless, the growing move to value-based pricing places a much stronger incentive to focus research and clinical development on new pharmaceuticals that have a clear, measurable impact on patient health. The moves to tie pricing to value should also have an effect on reducing the power of drug marketing. Ultimately, patients and the health care system will hopefully benefit from the changes.

Michael Drummond is a member of the Guidelines Review Panels of the National Institute for Health and Clinical Excellence (NICE) in the UK, and is a principal consultant for OptumInsight. Follow @

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  • Tom

    Sounds like socialized medicine where there is no free market and innovation gets crushed as there is no reward for improvemnts. Thats what generics are for.

  • Stwart Jenssen

    This man needs in-patient drug treatment. This is his very first try at it. of course he doesn’t get it. he is still using. he is still thinking the wrong way. he is thinking he can fool the system. he doesn’t get it. Yet. But he will. The drug he is addicted to is the most powerful drug out there. IT’s wont be easy at all. he may take 10 years to get it. And if may take him one year. But the system has to allow him the opportunity of an in-patient. Judge Vigil has been the drug court judge for 15+ years. In my opinion it was HE who should have known this particular drug treatment was not going to work for him until and unless Block completed a 6 month or MORE in-patient program. Then and only then should he have been able to do the 9 month out-patient drug court program.

    ControlledSubstances.net