James Raftery: Value based pricing—equality effects and ways forward

This blog reports on the third workshop held by the Department of Health on the methods being planned for value based pricing, due to start in January 2014. Previous workshops on wider social benefits (WSBs) and quality adjusted life year (QALY) weights were reported in previous blogs. This workshop extended the work reported previously, with quantitative analysis of the effects of WSBs and qualitative analysis of QALY weights.

Wider social benefits have to do with the non QALY effects of treatment on the patient and her family, including labour, care, and use of other government services. The current NICE perspective, that of the NHS and personal social services, excludes wider social benefits. Inclusion of the latter would be likely to impact differently on different groups. For instance, people of working age might gain relative to older groups due to reduced absence from work. This final workshop explored these effects in relation to equalities legislation.

Nine “characteristics”  are protected by the Equality Act 2010: age, sex, disability, marriage, pregnancy, race, religion, sexual orientation, and gender reassignment. The law does not prevent the government making decisions that may affect one group more than another, but it does require that decisions are made in a fair, transparent, and accountable way. Authorities must also consider what actions can be taken to mitigate any disproportionate impact on any one group.

The workshop showed that inclusion of wider social benefits would impact on two of the protected characteristics: age and sex. The current distribution of NHS spend is skewed in favour of older age groups. Inclusion of wider social benefits would result in a less skewed distribution, benefitting the 30-44 and 45-59 age groups. Similarly, NHS spending, currently greater on women than men, would reverse to favour women. At first sight, a concern under the Equality Act.

However, those working on this came up with a novel solution which they argued would prevent any group being disadvantaged. Inclusion of WSBs would generate a “dividend,” which could help offset the disadvantage to particular groups.

The rationale for the dividend was complicated, but went like this. First, if resources were moved from the 10% of treatments with the lowest WSBs to the 10% with the highest, by definition the total WSB would increase. Applied to the 80 diseases (ICD, 3 digit level) which have accounted most new drugs in recent years, the effect of moving £1m from the decile with lowest WSBs to the decile with the highest would generate a dividend of £1.3m.

A key term in this microeconomic logic is ceteris paribus or assuming all else unchanged. In particular, the health gain from treating each decile is assumed to remain the same. That seems highly unlikely. Consider the first and last of the 80 diseases: “A40, Streptococcoal septicaemia” and “N95 Menopausal and other postmenopausal disorders.” Does it seem reasonable to assume that the £/QALY from drug treatments for these will be the same? And even if they were, could NHS resources really could be so shifted?

Only qualitative analysis of the effects of QALY weighting was reported. This focused mainly on the two key premia previously announced as part of value based pricing: burden of illness (BOI) and therapeutic innovation and improvement (TII).

BOI continues to be defined in terms of the “amount of health that the patient is expected to lose because of the condition, measured in QALYs.” Prematurely lost QALYs, thus defined, include both severity and duration of disease.

It was argued that BOI would impact differently on age groups  by type of illness. For life threatening and chronic diseases, BOI would favour younger patients purely because of life expectancy. Vice versa with acute conditions, BOI would favour the old as “they tend to be more severely affected by illnesses. For example, young people may be less affected by influenza than older people and they could recover more quickly. Overall, then, there are offsetting impacts of reflecting BOI across different age groups.”

TII was “defined as the magnitude of the QALY gain—which reflects the size of the breakthrough and the scale of the health benefit, per patient.” It was argued the effect of including TII would be the same as those for BOI, on the basis that “all else being equal, it seems probably that large breakthrough gains would be expected in those conditions in which there was greatest unmet need—and greatest scope for breakthrough.”

My thoughts on the above were as follows.

First, the detail of how the Department of Health proposes to implement VBP are becoming clearer, particularly with WSBs and to a lesser extent with QALY weights. How these might change in negotiation with the ABPI remains to be seen. But very little time remains as pointed out by the House of Commons Health Committee.

Second, it was acknowledged that WSBs could be cost increasing as well as cost reducing. For instance, if treatment was to enable a patient to live longer in a poor health state, that patient might use more resources. Not an atypical scenario with many recent cancer drugs? Although this possibility was mooted, its magnitude and implications were not explored.

Third, the suggestion adverse distributional impact of WSBs on some groups could be at least partly offset by the “dividend” was striking. If the pattern of NHS spending really was such that moving spending between diseases could generate such a big “dividend,” the implications would be considerable. While logic implies some “dividend,” its scale and the scope for realising it remained unclear.

Fourth, the suggestion that offsetting forces would apply with both BOI and TII implies lessened impact, at least on age groups. The influenza example, though ingenious, left me searching in vain for other examples.

Finally, while those working on how to implement value based pricing deserve credit for hard work and ingenuity, the concern of the Health Committee over timescales seems justified.

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.