Value-Based Pricing

Abstract

Rising costs in healthcare mean that many countries can no longer absorb the increased expenses associated with innovative yet expensive new medicines. Innovation and investment in research and development (R&D) have become secondary factors to cash-strapped governments looking to control spending on healthcare. To award a premium price, governments in these markets now require a demonstration of clinical, patient and economic value of comparable products. In accordance with this trend, both the US and UK Governments have introduced reforms to measure and establish comparative value. The differences in their healthcare systems represent an ideal comparison of the impact of reforms in a predominantly public funded system (UK) with a system largely supported by private health insurance contributions (US). The extent to which these reforms affect national spending on healthcare will very likely inform and influence countries looking to implement their own healthcare reforms.

Through its creation of the National Institute for Health and Clinical Excellence (NICE), the UK has long been an advocate of understanding the cost effectiveness of available medicines. The UK has now developed plans to link established value, as determined by NICE, to a list price under value-based pricing (VBP). The US, on the other hand, has ensured that any comparisons of value are made on clinical qualities and not on cost effectiveness. As part of its healthcare reforms, the Patient-Centered Outcomes Research Institute (PCORI) has been created to fund and carry out comparative effectiveness research to determine comparative value of therapeutic alternatives. Importantly, legislation prevents it from funding and carrying out cost-effectiveness comparisons. Furthermore, public providers in the US, such as the Centers for Medicare and Medicaid Services, are prohibited from basing coverage decisions solely on the PCORI’s research. This is in contrast to the UK where NICE appraisals are directly linked to product uptake and can have significant effects on the success of the product. Either way, in both the US and UK, the dissemination of data comparing therapeutic options, using direct or indirect comparisons, will enable both private and public payers to make informed decisions on product value. Such VBP significantly steps away from the free pricing environment that previously characterized these markets. These reforms will have implications for the way the industry conducts R&D and will place varying levels of importance on different types of evidence. Head-to-head comparisons and postmarket observational research will likely become critical factors in achieving and maintaining premium prices in the UK and access in the US.