James Raftery: What’s happening with NICE? The cancer drugs fund and “value based pricing”

The reports that NICE is to be stripped of its powers to recommend against NHS use of drugs prompts questions about the Coalition Government’s health plans. Some indication of what these might be can be gleaned from the current “Consultation on the cancer drugs fund” and its linked impact assessment. By having to frame the questions, the consultation document reveals some of what has been decided. Unusually the impact statement reveals more, including the lack of evidence for key assumptions.

The cancer drugs fund is seen as a “bridge to the government’s aim of introducing a value based pricing system for branded drugs in 2014.” The timing is important. This change will happen in the next Prescription Pricing Regulation Scheme (PPRS) from 2014 onwards.  Value based pricing was proposed by the Office of Fair Trading in its 2007 review of the PPRS. As outlined there it involved using cost effectiveness analysis to decide how much a drug is worth to the NHS. The 2009 PPRS rejected value based pricing in favour of patient access schemes. The limited success of such schemes may have led back to value based pricing.

One of the reasons for the PPRS rejecting value based pricing in 2009 had to do with the work involved. If it meant a NICE-type assessment of every drug, both new and existing, the task would have been overwhelming. However, some countries (Australia,  New Zealand) succeed with a reduced form of value based pricing. Rather than a NICE process, the equivalent of the Prescription Pricing Authority in those countries decides which drugs will be allowed into the national formulary. Unless superior cost effectiveness can be demonstrated, the price offered will be that of the cheapest existing drug in the formulary. While this  shows how value based pricing can operate in practice, it cannot deal with the challenges of new high cost drugs for novel indications. Such drugs pose problems for all systems, the solutions to which require detailed assessment of the sort NICE does. In Australia and New Zealand, PBAC and PHARMAC attract the same hostile media attention as NICE on these drugs. 

The media comment has portrayed NICE as being stripped of its powers to deny drugs which fail its cost effectiveness test. Value based pricing as recommended by the Office of Fair Trading means that cost effectiveness will expand not contract. The question is who does it and how. Up to 2014 (three years can be a long time in politics) NICE will continue to appraise new drugs, including those for cancer.  The consultation document states that NICE, “remains at the heart of the government’s plans for the NHS. It will continue to play a vital role in offering advice to the NHS on the clinical and cost effectiveness of new medicines…We believe it is important that NICE should continue to appraise new cancer drugs by default and that companies should have  an incentive to engage with the process…By continuing to appraise the majority of new cancer drugs NICE will ensure pharmaceutical companies will have an incentive to offer prices that represent value rather than relying on the cancer drugs fund to pick up new drugs .”

Does the cancer drugs fund undermine cost effectiveness analysis? Yes,  insofar as it privileges cancer without good reason. No, if good reasons exist for treating cancer drugs differently. The impact statement reviewed if the public valued cancer treatments more highly. It concluded that :  “no evidence had been found for prioritising cancer above other severe conditions or to prioritising drug treatments above any other interventions for cancer.”

The cancer drugs fund could be seen as an extension of NICE’s end of life scheme which involved an upward adjustment to its cost per QALY threshold. This had very limited scope as it applied   only to small patient groups with a prognosis of less that 2 years and a drug offering more than 3 months life expectancy. This was NICE’s attempt to limit the extent to which the government’s acceptance of  the Richard’s report undermined its cost effectiveness analysis. The separation of  the cancer drugs fund from NICE indicates that, politically at least, the end of life scheme was an insufficient response.

The biggest criticism of the cancer drugs fund is that it takes money away from patients with other diseases. The impact assessment estimates this opportunity cost at 4,000 QALYs. Although based on optimistic assumptions about the relation between cost and QALYs, it provides a first estimate. The impact statement acknowledges that this could only be justified if the public attached a higher value to these cancer QALYs compared to other diseases. As noted above it found no evidence for this.

The impact statement also reveals how the size of the cancer drugs fund was set at £200m pa. This was based on the Rarer Cancers Foundation report which put £200m as the cost of bringing the UK’s use of cancer drugs up to an average of a group of European countries. The impact statement considers the assumptions required to justify this, specifically that the UK is underfunding rather than other countries overfunding. It concludes: “in summary it is possible to interpret the evidence from international comparisons as supporting the proposition that the UK is underfunding cancer drugs. However this support cannot be considered ‘robust’ as the evidence is capable of the opposite interpretation.”

The consultation on the cancer drugs fund is much concerned with whether it should operate at regional rather than national or local levels. Regional working would build on the way decisions are being made on the preliminary £50m cancer drug fund which relies on the Cancer Network and Special Health Authorities. The consultation acknowledges that Special Health Authorities will be abolished in 2012 when the NHS commissioning Board is established but “expects that the NHS commissioning Board to be guided by the principles outlined in this document…”

Regional is considered superior to national or local decision making. Complete devolution is seen as attractive by placing decisions in the hands of doctors treating patients. The downside is variations by small area and lack of control over the uses to which the fund is put. According to the impact statement it would “increase the risk that the nominal budget is overspent.”  Central control is seen as unresponsive to particular patient needs and to the experience of treating clinicians. The paper considers that regional organisation would provide a clear structure for decision making. “A regionally based process will allow clinical engagement with the opinion leaders in local cancer services.”

Regional funding is also seen as offering greater scope for deals with drug companies over prices. The consultation notes: “regional approaches could open greater flexibilities than may be available at national level to reach agreements with manufacturers for supply of individual drugs, as happens now in some cases.” The impact statement goes further:  “the funding decisions of  regional funds would be much less closely scrutinised by international purchasers- so firms might be more willing to offer prices that maximise patient benefits while still generating profits.”

What can be concluded?

First, the interpretation of the report of the death of cost effectiveness seems premature. The key question is how value based pricing will be implemented from 2014. If NICE is not to play a key role, then comparable expertise will be required at national level to deal with new high cost drugs.

Second, the impact statement on the cancer drugs fund shows that policy makers were well aware that the key assumptions for these policies lack evidence. No evidence could be found that the public value cancer drugs more highly than other drugs. The case for the size of the £200m per year fund “cannot be considered ‘robust.’”

Third, the emphasis on regional working suggests that the new ministers might be having to recognise that intermediate layer serves a function in the NHS. Successive reorganisations of the NHS have abolished regions only to re-invent them under a different name. Given the demise of  Regional Health Authorities and Strategic Health Authorities, the question is what will their replacement be called?  

Finally, the cancer drugs fund provides a strange “bridge”  to value based pricing. “Value” is in danger of being redefined in terms of politics rather than economics. A more accurate term  might be “dread disease based pricing.”

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. Comments welcomed.