James Raftery: What does “value based pricing” mean for NICE?

The “value based pricing” consultation paper” makes the following relevant references to the future of the National Institute for Health and Clinical Excellence (NICE).

“NICE does not have a role in relation to the pricing of medicines, though the scrutiny of its appraisal process may encourage drug companies to set prices which satisfy its cost effectiveness criteria. However, if NICE concludes that a drug may offer some benefits but that these are not sufficient to justify the prices at which the drug is available, NICE’s only option is to recommend that the NHS restricts its use of that drug. There is no scope for NICE … to enter into pricing negotiations or to recommend an NHS price.” (Para 2.8)

“There will continue to be a role for technology appraisals, which measure the health benefits and costs of a new product and compare them with the costs and health benefits that could be obtained if the funds were used elsewhere in the NHS. But the current approach may not adequately reflect all the components that contribute to a treatment’s full impact on health and quality of life. And it may not always be apparent how important factors that patients and society value, such as impacts on carers, are taken into account. This could be reflected more systematically and transparently in the assessments of new medicines.” (Para 2.19)

“As part of value based pricing there would be a basic cost effectiveness threshold, directly reflecting the health gains displaced when new treatments are funded. This would set the maximum that the government was prepared to pay for medicines that offered no additional value in terms of innovation, tackling diseases with a high burden of illness or wider societal benefits.” (Para 4.13)

“The basic threshold need not be the one currently used by NICE. In developing value based pricing, there would be a re-evaluation of the ‘basic’ cost effectiveness threshold, to put estimates of the value of alternative use of NHS funds on a sound, evidence based footing.” (Para 4.14)

The pharmaco-economic evaluation would be similar to the technology appraisal process currently carried out by NICE. It would calculate the patient health benefits of the product and reflect all the costs and benefits beyond the direct purchase price of the medicine, including, for example, cost savings elsewhere in the treatment pathway. (Para 4.26)

“For individual new medicines companies will have to produce a set of data. NICE … would provide advice to ministers and the manufacturer on the costs and benefits and health gain attributable to that product. NICE will be the key source of advice on the relative cost effectiveness of new medicines, although in future this will be combined with other aspects of value before a reimbursement price is determined. Given the expertise of NICE they will play an important role in any new system but the details of their role will depend on, among other things, the responses to this consultation.” (Para 5.3)

“More generally NICE’s role will increasing focus on giving authoritative advice to clinicians on when and how the most cost effective treatments can best be used on the development of quality standards which set the standards the NHS should aim for in the treatment of certain conditions. The assessment of relative clinical and cost effectiveness of treatment options will play a continuing part of the development of NICE clinical guidelines.” (Para 5.4)

“Alongside the pharmaco-economic evaluation and within the value based pricing assessment, expert panels would review the evidence produced by the company and determine the relevant categories in terms of burden of illness, therapeutic innovation and wider societal benefit for a new medicine. This would determine what if any weightings would be applied to arrive at a threshold or maximum price for that drug.” (Para 5.6)

“NICE’s role in ensuring patient access to clinical and cost effective drugs remains critical. NICE will continue to appraise new drugs until we implement our plans for value based pricing from 20104, and, as set out above, they will have an important part to play in these longer term plans.” (Para 6.8)

What to make of this?
First, the critique of the current system must be read in part as a critique of NICE in terms of its current methods not adequately reflecting the three factors stressed in the consultation: innovation, burden of illness and wider societal benefits. Although the consultation recognises that NICE has attempted to deal with these, it considers that it does not so sufficiently “systematically and transparently.” Crucially, under the new regime, consideration of these factors will not be within NICE’s remit.

Second, although NICE will continue to provide pharmaco-economic assessments as now, these will be supplemented under “value based pricing” by new “expert panels” that will determine the relevant categories of burden of illness, therapeutic innovation and wider societal benefits. This raises the question about how the expert panels might differ from NICE’s four current appraisal committees. If, as the consultation proposes, the “expert panels” have higher authority, it become hard to see why anyone should serve on NICE’s committees. Who will be on the “expert panels”? Will they have representatives from the Department of Business Innovation and Skills? Or drug company representatives? These questions are not part of the consultation. They should be.

Third, the statement that “the details of [NICE’s] role will depend on, among other things, the responses to this consultation” (para 5.3, above) could be read as negatively or (just) positively. Given the above, the former seems more likely. It looks as if NICE’s role in technology appraisal is to be limited to providing a technical pharmaco-economic input to a new system for establishing drug prices. To my mind, the term “value based pricing” should have mandatory quotation marks to indicate it should be used with caution.

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.