The UK government’s proposals to introduce value-based pricing (VBP) — which aims to create a stronger link between the price the National Health Service pays for a medicine and the value it delivers (and in the process, ostensibly, further incentivize therapeutic innovation) — could actually serve to ‘hinder’ innovation, according to a UK think tank.
In its submission this month to a UK Department of Health consultation, the pro-market Stockholm Network claims that VBP could “counterproductively decrease the amount invested in R&D.”
While conceding that the UK’s current pricing system, the Pharmaceutical Price Regulation Scheme (PPRS), “is not allowing for a greater uptake in new innovative medicines in the NHS,” the Network maintains that PPRS has opened a regular dialogue between the government and industry — “with this discourse now developed to a point where both sides better understand each other’s pressures” — and shown itself to be “predictable and flexible”.
Rather than replacing the existing system with VBP, it argues, “certain merits of the PPRS deserve to be considered, given that this system has existed now for 54 years.” PPRS fixes maximum profits for drug companies, restricting them to a target annual return on capital, but allowing an “upper margin of tolerance” where companies can retain additional profits based on innovation and efficiency. Rather than improving on this system, VBP, according to the Network, is likely “to focus unnecessarily on lowering the price of drugs that the government believes have no value.”
“[A]ccurately determing the “value” of a medicine is likely to be incredibly difficult,” says the group. It is also difficult for value to be appreciated “when it is considered by a common currency, Quality Adjusted Life Years [QALYs], which will only ever be compared with alternative treatments and technologies.” If accurately calculating a medicine’s value is highly problematic, then the price established by such a measurement is unlikely to truly reflect its value.
The Network maintains that arguments in support of VBP pander to “the myth that incremental innovation is not real innovation”. “Breakthrough” medicines are not created out of thin air, it argues; rather, they emerge from a gradual process of discovery. And while it is important of course to reward the most innovative medicines, “it is wrong to treat all other new products as worthless and assume that they offer no value for money…” Distinguishing between “good” and “bad” innovation, then, is just far too simplistic.
Policymakers need to find better ways of encouraging innovation, the Network’s submission concludes. And, for this, the architects of VBP need to “go back to the drawing board.”
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Value-Based Pricing Could Counter Innovation, Says UK Think Tank
The UK government’s proposals to introduce value-based pricing (VBP) — which aims to create a stronger link between the price the National Health Service pays for a medicine and the value it delivers (and in the process, ostensibly, further incentivize therapeutic innovation) — could actually serve to ‘hinder’ innovation, according to a UK think tank.
In its submission this month to a UK Department of Health consultation, the pro-market Stockholm Network claims that VBP could “counterproductively decrease the amount invested in R&D.”
While conceding that the UK’s current pricing system, the Pharmaceutical Price Regulation Scheme (PPRS), “is not allowing for a greater uptake in new innovative medicines in the NHS,” the Network maintains that PPRS has opened a regular dialogue between the government and industry — “with this discourse now developed to a point where both sides better understand each other’s pressures” — and shown itself to be “predictable and flexible”.
Rather than replacing the existing system with VBP, it argues, “certain merits of the PPRS deserve to be considered, given that this system has existed now for 54 years.” PPRS fixes maximum profits for drug companies, restricting them to a target annual return on capital, but allowing an “upper margin of tolerance” where companies can retain additional profits based on innovation and efficiency. Rather than improving on this system, VBP, according to the Network, is likely “to focus unnecessarily on lowering the price of drugs that the government believes have no value.”
“[A]ccurately determing the “value” of a medicine is likely to be incredibly difficult,” says the group. It is also difficult for value to be appreciated “when it is considered by a common currency, Quality Adjusted Life Years [QALYs], which will only ever be compared with alternative treatments and technologies.” If accurately calculating a medicine’s value is highly problematic, then the price established by such a measurement is unlikely to truly reflect its value.
The Network maintains that arguments in support of VBP pander to “the myth that incremental innovation is not real innovation”. “Breakthrough” medicines are not created out of thin air, it argues; rather, they emerge from a gradual process of discovery. And while it is important of course to reward the most innovative medicines, “it is wrong to treat all other new products as worthless and assume that they offer no value for money…” Distinguishing between “good” and “bad” innovation, then, is just far too simplistic.
Policymakers need to find better ways of encouraging innovation, the Network’s submission concludes. And, for this, the architects of VBP need to “go back to the drawing board.”