The government has been warned that awarding an "innovation premium" to incentivise the development of innovative medicines which deliver step changes in benefits to patients could introduce perverse incentives for manufacturers and prescribers.

Suggestions for such a premium were included in the government's consultation on its plans to introduce a value-based pricing (VBP) system for branded medicines, and were supported by 51% of the responses. However, many of the respondents also suggested that the definition of "innovation" in this context should be broadened to capture incremental innovations which can also bring significant benefits to patients, and also other factors - such as new modes or action, a reduction in side effects or improved drug delivery mechanisms - which also improve the patient's experience.

Moreover, given that regulatory timelines could be the only difference separating a novel compound and a perceived "me too" drug, there could be the potential for perverse effects if the innovation premium was available only to a "first in class" innovative medicine and not to the "fast followers" which were in development at the same time but came to market soon after, they added.

Respondents which supported the innovation premium, including many from the industry, were keen to engage in discussions about the definition of innovation and the factors that could be taken into account in assessing it, but many of those which did not support the proposal declared that innovation is only meaningful in terms of the benefits that a product provides to patients and society.

Moreover, the consultation exercise heard concerns that introducing additional rewards for innovation could distort prices by providing a double premium - recognising both benefits to patients and the mechanism that delivered that benefit. Investing NHS resources in this way would be hard to justify, the government was told.

There is also the potential for unintended consequences such as a reduced incentive to use very innovative drugs if they were priced very highly. Also, if innovation were valued for its own sake, this could contribute to a perception of "new always being better," thus devaluing existing, proven and established treatments.

In its response, the government acknowledges the complexity of the issue, and says that distinguishing between different levels of innovation is likely to be one of the most difficult parts of the VBP assessment to get right.

It also acknowledges that innovations which lead to step changes in patient outcomes are rare, and that when they do come about, they are often the product of long, complex and difficult research. "If breakthrough innovation were easy, everyone would be doing it," it says, adding: "that is precisely why we have proposed offering an extra incentive for this type of innovation - so that pharmaceutical companies can have confidence that it is worth making the investment in areas that have the potential to deliver the greatest benefits to patients and society."

"We recognise the value that incremental developments can bring," the government response says. "Where incremental changes lead to demonstrable health benefits, there will be scope for these benefits to be taken into account in the pharmacoeconomic assessment, which will sit at the core of value-based pricing."