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Operationalizing Value-Based Pricing of Medicines

A Taxonomy of Approaches

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The UK Government is proposing a novel form of price regulation for branded medicines, which it has dubbed ‘value-based pricing’ (VBP). The specifics of how VBP will work are unclear. We provide an account of the possible means by which VBP of medicines might be operationalized, and a taxonomy to describe and categorize the various approaches. We begin with a brief discussion of the UK Government’s proposal for VBP and proceed to define a taxonomy of approaches to VBP. The taxonomy has five main dimensions: (1) what is identified as being of value, (2) how each element is measured, (3) how it is valued, (4) how the different elements of value are aggregated, and (5) how the result is then used to determine the price of a medicine. We take as our starting point that VBP will include a measure of health gain and that, as proposed by the UK Government, this will be built on the QALY. Our principal interest is in the way criteria other than QALYs are taken into account, including severity of illness, the extent of unmet need, and wider societal considerations such as impacts on carers. We set out to: (1) identify and describe the full range of alternative means by which ‘value’ might be measured and valued, (2) identify and describe the options available for aggregating the different components of value to establish a maximum price, and (3) note the challenges and relative advantages associated with these approaches. We review the means by which aspects of VBP are currently operationalized in a selection of countries and place these, and proposals for the UK, in the context of our taxonomy. Finally, we give an initial assessment of the challenges, pros and cons of each approach. We conclude that identifying where VBP should lie on each of the five dimensions entails value judgements: there are no simple ‘right or wrong’ solutions. If a wider definition of value than incremental QALYs gained is adopted, as is desirable, then a pragmatic way to aggregate the different elements of value, including both QALYs and benefits unrelated to QALYs, is to use a multi-criteria decision analysis (MCDA) approach. All approaches to VBP ultimately require the conversion of value, however assessed, into a monetary price. This requires assessment of the marginal values of all types of benefit, not just of QALYs. All stages of the VBP process are subject to uncertainty and margins of error. Consequently, the assessment of overall value can provide bounds to a price negotiation but cannot be expected to identify a precise value-based price.

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The authors are grateful to Martin Buxton for helpful comments on an earlier draft.

Individual contributions

All three authors contributed to the conception, information gathering, analysis and drafting of this paper. Jon Sussex is the guarantor for the overall content of this paper.

Conflicts of interest

The authors’ work on this paper was supported by an unrestricted research grant from Celgene UK. The authors are employees of the Office of Health Economics, which is owned by the Association of the British Pharmaceutical Industry (ABPI). Neither Celgene UK nor the ABPI had any part in the study design; the collection, analysis and interpretation of data; the writing of the paper; or the decision to submit it for publication. Jon Sussex, Adrian Towse and Nancy Devlin have all received grants and consultancy fees from pharmaceutical companies, the DH and NHS organizations. They have also participated in advisory boards for pharmaceutical companies.

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Correspondence to Jon Sussex.

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Sussex, J., Towse, A. & Devlin, N. Operationalizing Value-Based Pricing of Medicines. PharmacoEconomics 31, 1–10 (2013).

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