Risk-sharing schemes are necessary for underpinning value-based pricing (VBP) schemes for medicines - without them they will sink, a leading health economist has told UK Members of Parliament.

Discussing the Office of Fair Trading (OFT) proposals for replacing the Pharmaceutical Price Regulation Scheme (PPRS) with a VBP system for medicines which are made available through the National Health Service (NHS), Prof Jon Nicholl, deputy director of the National Institute for Health Research (NIHR) health technology assessment programme, discussed how VBP could address the pricing of new treatments whose effectiveness has not been established. “If we don’t know the value we don’t know the price,” he said but, for these products, an initial price could be established and a risk-sharing scheme set up in order to determine their cost-effectiveness and therefore “correct” price.

The risk-sharing scheme should incorporate a randomised trial, which must be of high quality, publicly-funded and conducted independently of those groups with a conflict of interest in their outcome, he told the House of Commons Health Select Committee last week. However, he added that it would be impossible to carry out such studies if the treatments are already being used widely. Therefore, under a VBP system, randomised trials would have to be set up as soon as possible and before beliefs about a product’s effectiveness have become established. Alternatively, such treatments could be made available on the NHS only for patients who agree to enter such trials, he suggested.

Industry spokesmen and health economists addressing the Committee agreed that while a move to a VBP system would lead to lower prices for some drugs, overall NHS spending on branded medicines could in fact go up. VBP is about getting relative prices correct and making the best use of the available expenditure but not about cutting the budget, said Simeon Thornton, author of the OFT report, while Professor Adrian Towse, director of the industry-backed Office of Health Economics (OHE) suggested that a backstop, in the form of the PPRS, might still be needed in order to keep the drugs bill under control.

A menu of prices

Karl Claxton, professor of economics at York University, outlined how the VBP system would work. Manufacturers would be offered a “menu” of prices, each associated with appropriate guidance on the product’s use on NHS and with the highest prices being available when use is restricted to more cost-effective sub-groups of patients. In this way, positive net health benefits can be achieved, with the NHS sharing the benefits of innovation with manufacturers even before patent expiry, he said, adding that manufacturers will naturally invest in the development of products that they expect to reward them best – which, under VBP, will also be those that are most valuable to the NHS.

However, he emphasised that pricing in the least cost-effective subgroup of patients would have to be maintained and that any attempts by manufacturers to game the regulator by offering “all or nothing” deals at higher prices must be rejected. Therefore, he said, it is essential that the pricing authority should have a level of political independence.

Certain parts of the current process would also have to be strengthened, for example the National Institute for Health and Clinical Effectiveness (NICE) Single Technology Assessment (STA) procedure, said Prof Claxton. He also suggested that the cost-effectiveness threshold range of £20,000-£30,000 per quality of life-adjusted years (QALYs) currently used by NICE to assess treatments may be too high.

Asked by the MPs on their views on suggestions that replacing the PPRS with VBP would discourage R&D investment in the UK, witnesses pointed out that it is a myth, albeit widely-believed, that the PPRS provides incentives for companies to invest here, and that in any case such inducements would be illegal under European Union (EU) law. Mr Thornton said that there is nothing in VBP to dissuade investments – in fact, it is just as likely to attract the best innovative companies, he claimed.

Factors such as an excellent science base and the very rapidly developing and improving clinical research environment continue to attract investment to the UK, said Prof Nicholl, while Prof Claxton suggested that such concerns “may be more readily explicable as a threat,” and wondered whether it was appropriate to use NHS resources as a tool for industrial policy, “particularly when other, more effective incentives and legal policy levers may be available.” By Lynne Taylor