Value-Based Pricing for

Pharmaceuticals

Abdullah Yusuf

Healthcare spending : US v. OECD

Healthcare Spending

Healthcare Spending

Source: The Commonwealth Fund

Pharmaceutical Spending

Bundled Payments

Comparative Effectiveness

Research

Pay for Performance

Evidence-based

Medicine

Accountable care

Models

Tiered Formularies

for Medicines

Cost control (U.S.)

VALUE COMPONEN

T

PCORI?

Cost-control (E.U.)

Profit ControlUK

Reference pricing

(Generic, Therapeutic,

External)

Prescribing Budgets

(Capitation)

Volume Control Cost Sharing

Lopert, R., & Elshaug, A. G. (2013). Australia’s “fourth hurdle” drug review comparing costs and benefits holds lessons for the United States. Health Affairs (Project Hope), 32(4), 778–787.

Value-Based Pricing for Pharmaceuticals

What is Value-Based Pricing?

Definition

1. Michael E. Porter, “What Is Value in Health Care?,” New England Journal of Medicine 363, no. 26 (2010): 2477–24812. “Value-Based Pricing.” Wikipedia, the Free Encyclopedia, November 8, 20133. Michael Drummond, “Insights from Life Sciences: The Move to Value-Based Pricing,” OPTUMInsight, accessed

November 19, 2013,

“ … , with value defined as the health outcomes achieved per dollar spent”1

“ … sets prices primarily, but not exclusively, on the value, perceived or estimated, … rather than on the cost of the product … ”2

“ … the maximum price allowed for reimbursement of a drug is linked to the value that the drugs adds, over and above existing care … ”3

Value Metrics in Healthcare

• Severity of Illness

UK: Criteria for Valuation

Unmet Need

Novelty

Societal Benefit

PRO CON• Rationing?• Assessment of costs?• Unintended

consequences?• Longer drug

development time• Equity of care issues• Transparency in price

negotiation?• Viability of companies

that do not meet value requirements?

• Encourages True Innovation

• Earlier detection of safety issues during value assertion

• Greater efficiency of resource allocation for payers

• Greater patient satisfaction

Debates on VBP

Drug A B C

Drug cost to NHS £30 000 £30 000 £30 000

QALY gain 1 1 1

Effect on non-NHS care requirements (i)

Reduces Unchanged Increases

Effect on employment (ii) Increases Unchanged Unchanged

Total cost/QALY £30 000−(i+ii)

£30 000 £30 000+i

NICE decision:

 Based on health only Borderline Borderline Borderline

 Including wider costs Recommend Borderline Reject

Scenarios showing how including wider (non-health) costs in calculation of cost per QALY will affect NICE

recommendations, assuming £30 000/QALY is borderline

Raftery, J. (2013). Value based pricing: can it work? BMJ, 347

Barriers to US uptake of VBP?

• Political viability---Rationing; death panels??

• Variations in state healthcare arrangements

• Negotiations with CMS, VHA, Private plans (More complexity)?

• Financial Questions?

Last Words

• A momentous shift in the traditional pricing model for pharmaceuticals is underway in much of the developed world, with this shift comes an opportunity to slow down global expenditure on medicines.

• However, it is largely unclear how effective this strategy will be in the long term, considering how much of healthcare expenditure comes from systemic inefficiencies in care delivery.

References Berndt, Ernst R., and Joseph P. Newhouse. 2010. “Pricing and Reimbursement in

U.S. Pharmaceutical Markets”. Working Paper 16297. National Bureau of Economic Research. http://www.nber.org/papers/w16297.

Deloitte 2012. “Issue Brief: Value-based pricing for pharmaceuticals: Implications of the shift from volume to value”

Chernew, Michael E., and Joseph P. Newhouse. 2008. “What Does the RAND Health Insurance Experiment Tell Us About the Impact of Patient Cost Sharing on Health Outcomes?” American Journal of Managed Care, July. http://search.ebscohost.com/login.aspx?direct=true&db=a2h&AN=35893869&site=ehost-live&scope=site.

Drummond, Michael. 2013. “Insights from Life Sciences:The Move to Value-Based Pricing.” OPTUMInsight. Accessed November 19. http://www.optuminsight.com/life-sciences/expert-insights/articles/the-move-to-value-based-pricing/.

Kanavos, Panos, Alessandra Ferrario, Sotiris Vandoros, and Gerard F. Anderson. 2013. “Higher US Branded Drug Prices And Spending Compared To Other Countries May Stem Partly From Quick Uptake Of New Drugs.” Health Affairs 32 (4) (April 1): 753–761. doi:10.1377/hlthaff.2012.0920. http://content.healthaffairs.org/content/32/4/753.

Lopert, Ruth, and Adam G Elshaug. 2013. “Australia’s ‘Fourth Hurdle’ Drug Review Comparing Costs and Benefits Holds Lessons for the United States.” Health Affairs (Project Hope) 32 (4) (April): 778–787. doi:10.1377/hlthaff.2012.1058.

Porter, Michael E. 2010. “What Is Value in Health Care?” New England Journal of Medicine 363 (26): 2477–2481. doi:10.1056/NEJMp1011024. http://www.nejm.org/doi/full/10.1056/NEJMp1011024.

Raftery, J. 2013. “Value Based Pricing: Can It Work?” BMJ 347 (oct11 3) (October 11): f5941–f5941. doi:10.1136/bmj.f5941. http://www.bmj.com/content/347/bmj.f5941.

“The Health Insurance Experiment: A Classic RAND Study Speaks to the Current Health Care Reform Debate | RAND.” 2013. Accessed November 20. http://www.rand.org/pubs/research_briefs/RB9174/index1.html.

UK Department of Health. 2008. “The Pharmaceutical Price Regulation Scheme 2009.” http://webarchive.nationalarchives.gov.uk/20130107105354/http://www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_098498.pdf.

“Value-Based Pricing.” 2013. Wikipedia, the Free Encyclopedia. http://en.wikipedia.org/w/index.php?title=Value-based_pricing&oldid=580762115.

“Value-Based Pricing Definition.” 2013. Investopedia. Accessed November 19. http://www.investopedia.com/terms/v/valuebasedpricing.asp.

Welch, Bruce L., Joel W. Hay, Daniel S. Miller, Randall J. Olsen, Robert M. Rippey, and Annemarie S. Welch. 1987. “The Rand Health Insurance Study: A Summary Critique.” Medical Care 25 (2) (February 1): 148–156. http://www.jstor.org/stable/3765514.