” Appraising the value of innovation and other benefits: a short study for NICE, ” the report by Sir Ian Kennedy contains one of the best critiques of the new buzz word “innovation” but perversely goes some way to recommending it be included in cost effectiveness.

Kennedy does not arrive at innovation until page 37 of his 52 page report. In the interim he provides a robust defence of cost per QALY. He dismisses criticisms to do with particular aspects in favour of endorsing the process which explicitly considers opportunity costs within the fixed NHS budget. “I adopt as a starting point my firm conviction that the approach adopted by NICE is fundamentally sound. Indeed I would go further and describe the ICER/QALY approach as quite simply the best tool available to do the job that NICE has been set … NICE does not exist as an arm of government’s industrial policy.” (Para 2.14). While he argues for a slightly wider definition of health benefits to include features valued by patients and/or society, he emphatically rejects benefits beyond the NHS and social care such as those to do with the workforce.

When he eventually gets to innovation he pokes fun at some definitions. “While everyone was content to use the word and agreed it was a good thing,” he found it hard to identify what was being discussed. The NHS Innovation Centre definition he described as “long on words but short on comprehensibility.” Kennedy suggests three criteria for a product to be innovative: it is new, it constitutes an improvement on existing products that delivers a “step change” in terms of outcomes for patients.

Kennedy has then to explain why a product delivering better outcomes would not score a higher QALY score. He recognizes that: “‘step change’ is question-begging to a degree.” He confronts the argument that the value of innovation might be not to the NHS but to the manufacturer being able to operate in a more favourable economic environment. “But that is the point here: that there is a value to the wider economy in having pharma working in the UK‘s economy and contributing to it and the trick is to ensure a quid is gained for the quo”. (footnote 53, page 39). This seems to me to be saying that innovation has to do with a product being linked to this country rather than some other country. Kennedy uses the terms UK and NHS interchangeably in places – an example of metonymy ( a figure of speech used in rhetoric in which a thing or concept is not called by its own name, but by the name of something intimately associated with that thing or concept). However good for the NHS is different from good for the UK, in that the former has to do with health policy, the latter to do with industrial policy.

A useful question here is whether innovation is a problem of the supply or the demand side. NICE and the NHS are to do with the demand side – that is what should be bought for patients. Industrial policy is largely to do with the supply side – and if innovation is a supply side problem, then there are policies to deal with it (tax breaks, education etc). And NICE should not concern itself with innovation. Kennedy considers these arguments but finds them “too purist”. He considers that some adjustments to the NICE approach are possible without undermining its fundamental purpose and rationale.

How does Kennedy suggest NICE should take innovation into account? Exceptionally and on a temporary basis is his answer. Manufacturers could indicate in advance that a particular product was going to be an innovation and NICE would work with them and patients groups to ensure that it was innovative. A higher cost per QALY threshold could apply only until the data was able to show whether or not innovation had been proved. NICE should only offer incentives for innovation when it is realised. Put in these terms, innovation could be managed through a ‘flexible pricing’ or ‘patient access’ scheme of the sort NICE is already involved with.

Kennedy is critical of several other recent changes (innovations?) forced on NICE. On the “innovation pass” he suggests criteria which would greatly limits its application. Uniquely he considers who should fund the costs of this scheme, suggesting that it should not be the NHS as otherwise NICE and its system of resource allocation would be undermined. He is also critical of NICE’s new guidance on End of Life care – he notes that if treated as anything other than a rare exception, this guidance could threaten the existence of a rational system of resource allocation in which the interests of all are weighed.

The coverage of the Kennedy report has tended to focus on peripheral issues such as his recommendation that NICE’s communications should be more proactive, and that processes should be more transparent.

Overall, the Kennedy report endorses NICE and its use of health economics. It provides a cogent critique of “innovation” but given the popularity of the term, he suggests a way of including it as a factor in NICE appraisals only in exceptional circumstances, which have to be proven, after which it ceases to apply.

James Raftery is a health economist with several decades experience of the NHS. He is professor of health technology assessment at Southampton University. A keen “NICE watcher,” he has provided economic input to technical assessment reports for NICE but has never been a member of any of its committees. The opinions expressed here are his personal views. He welcomes comments to his blog.