James Raftery: Value based pricing—terms of reference given by the Department of Health to NICE

On 20 June the Department of Health announced that: “Expert body given responsibility to look at the benefits medicines bring to wider society.” The terms of reference are not on either the Department of Health’s nor NICE’s websites, but I requested and got a copy. Here is what they say:

“ The methods for value assessment of branded medicines under value based pricing should:

  • be applied to medicines within the scope of the value based pricing system, and incorporated into the methods for other categories of guidance at NICE’s discretion;
  • adopt the same benefit perspective for all technologies falling within the scope of value based pricing, and for displaced treatments;
  • be as transparent and predictable as possible;
  • be informed by the best available evidence;
  • include a simple system of weighting for burden of illness that appropriately reflects the differential value of treatments for the most serious conditions;
  • encompass the differential valuation of “End of Life” treatments in the current approach within the system of Burden of Illness weights;
  • include a proportionate system for taking account of Wider Societal Benefits;
  • not include a further weighting for Therapeutic Innovation and Improvement;
  • produce guidance for patients and the NHS which describes the clinical and cost effectiveness of the technology and its position in clinical practice.”

What to make of this?

Firstly, it clarifies officially for the first time what value based pricing will entail. As outlined in previous blogs, burden of illness and End of Life considerations are to be included in the estimation of quality adjusted life years (QALYs). A societal as opposed to an NHS perspective will be adopted for costs—via the somewhat misleading term “Wider Social Benefits.” These are likely to be due to  changes in care requirements and employment that result from treatment by a specific drug. Reduced care and/or increased employability would involve cost offsets which could reduce the cost per QALY, enabling a higher price. Vice versa, as is likely with some treatments that extend life without reducing care requirements, the societal perspective could raise the cost per QALY of a particular drug, implying a lower price.

Secondly, the therapeutic innovation and improvement is dropped. This is no real surprise as it proved impossible to measure, let alone avoid double counting. But it marks a retreat for those wanting to reward  innovation over and above its contribution to QALYs. Since scope exists in the Pharmaceutical Pricing Regulation Scheme to reward innovation in other ways, changes might be expected there.

Thirdly, the requirement that the same approach be taken to displaced treatments marks an important acknowledgement of the opportunity cost of NICE recommending any technology. Given a fixed NHS budget the opportunity cost is measured by the treatments that must be foregone. Applying this within a societal as opposed to a NICE perspective will raise complications, but the acknowledgement of opportunity costs is welcome.

Fourthly, the emphasis on transparency, predictability, simplicity, and proportionality signals support for the approach the Department of Health has developed for measuring these new elements. It has used existing data to provide a ready reckoner set of estimates particularly for Wider Social Benefits (or costs). However this will not prevent companies with products that might score well on these factors commissioning more detailed work to support their case.

Fifthly, pricing is not mentioned! NICE will continue as before with an amended formula. Some companies facing a refusal for a drug with some effectiveness will offer price cuts via a Patient Access Scheme. Some will not. And the latter will cause political repercussions as before. The story has to do with how little has changed.

Finally and more generally, NICE and its methods will survive virtually unchanged. Despite Andrew Lansley’s rhetoric, value based pricing has not proved the solution to the political problems posed by NICE’s refusals of high cost drugs with relative poor effectiveness. The dilemmas to do with the Cancer Drugs Fund remain, but as previously indicated, measures are being taken to enable it continue in some form.