Paul Catchpole's speech from the ABPI Annual Conference and Dinner 2011

Paul CatchpoleI’m going to cover in my talk on value based pricing some reflections on the current Pharmaceutical Price Regulation Scheme (PPRS); consider the objectives for value-based pricing (VBP), and some of the key challenges and issues which need to be sorted out; talk about where we are with the thinking on the assessment of value under any new system; and finish with some reflections on the significance of what lies ahead of us in reforming the UK pricing and reimbursement environment.


The UK is unique among western nations in the structure of both its national health service (NHS) and its medicines reimbursement system. Since its inception, the PPRS has been negotiated usually every five years between the government and the ABPI - on behalf of the pharmaceutical industry in the UK - to establish a voluntary agreement for medicines reimbursement. As times have changed, so have the contents of the scheme, ensuring that it always remains contemporary and addresses the changing needs of both government and industry. 

The latest voluntary agreement which runs until the end of 2013 has as its core objectives:

  • First, the delivery of value for money for the NHS by securing the provision of safe and effective medicines at reasonable prices.
  • Second, the promotion of a strong and profitable pharmaceutical industry that is capable and willing to invest in sustained research and development to encourage the future availability of new and improved medicines for the benefit of patients and industry in this and other countries.
  • Third, to help the NHS and industry develop sustainable financial and investment strategies so that the UK can remain a stable and predictable market.

And finally, to promote access and uptake for new clinically and cost-effective medicines in the NHS in a sustainable manner.

This final objective was introduced in the last negotiation and resulted in a package of additional measures being written into two entirely new chapters of the PPRS which included supporting the NHS with better horizon scanning information about new medicines; the routine collection and publication of metrics about medicines usage; and new mechanisms to allow improved value for money to be offered by companies to the NHS in the form of flexible pricing arrangements and patient access schemes for their medicines. 

These latter measures in particular have already enabled many more NHS patients to be treated with innovative medicines than would otherwise have been the case.

VBP objectives

It is on this solid foundation that we need to build further.  The governments proposed objectives for VBP as set out in its recent consultation to some extent do this. 

They recognise that improving outcomes for patients will be achieved through better access to effective medicines, and they recognise that a wider assessment of the range of factors through which medicines deliver benefits for patients and society needs to be undertaken, alongside the evaluation of clinical effectiveness. These objectives are welcomed by industry and we agree with them.

However, as the ABPI pointed out in its response to the VBP consultation, the proposed objectives omit the need for a strong and profitable pharmaceutical industry and they now place a greater emphasis on achieving the best use of NHS resources over achieving reasonable prices. They also omit any reference to encouraging the future availability of new and improved medicines for the benefit of patients in other countries, which in the current scheme, sends a strong signal about the UK being a global leader in research and development (R&D) and pharmaceutical exporting.

The pharmaceutical industry in the UK has been acknowledged by government as a major economic contributor and key to the future prosperity of the nation. This position comes about from overall UK market conditions, encompassing both the strength of the science base, the symbiotic relationship between the NHS and industry for clinical research and the UK commercial environment as a springboard for international success. The Department of Health has responsibility for both the regulation and the sponsorship of the industry and needs to ensure that the right balance is struck.

UK medicines pricing is important because the UK is referenced either directly or indirectly by at least 25% of the rest of the world’s markets. UK prices affect the global revenues of the whole pharmaceutical industry which in turn affect the amount of money available for research and development. It should be noted that the UK is the second largest recipient of pharmaceutical R&D expenditure so stands to gain or loose disproportionately if global R&D expenditure declines.

Any new pricing and reimbursement scheme needs to achieve a better balance between health and industrial policy requirements for it to be viable for everyone. 

However, there are also a number of other strategic issues which will need to be carefully worked through before we can judge whether or not a workable scheme can be created.

Strategic issue – access and uptake

First and foremost, the introduction of value based pricing alone will not be enough to ensure improved access to medicines for patients and thus deliver on what Government has stated as a central objective for a new pricing and reimbursement environment. Patient outcomes will only improve if medicines get to and are used by patients. The ongoing structural and commissioning reforms of the NHS alongside the challenging fiscal climate over the next few years can be expected to have a significant impact on the uptake of medicines.

Additional measures will therefore need to be built into value based pricing to ensure improved access for patients and further measures outside of value based pricing will also be needed. I believe in this regard we are in agreement with the position of NICE which Andrew will elaborate upon shortly.

Whilst there are multiple mechanisms available within the ‘new NHS’ which could be harnessed to ensure better access to medicines such as the Commissioning Outcomes Framework; the Quality and Outcomes Framework; NICE Quality Standards and NICE Technology Appraisal Guidance, these mechanisms are largely available in England only. 

Decisions on access to medicines are a devolved responsibility and the devolved administrations will need to contribute specific solutions which will be appropriate for their own healthcare organisations, processes and systems.  One size will not fit all across the UK. A worthy aim of a new UK pricing and reimbursement environment will be to avoid increasing inequalities in patient access to medicines across the four nations.

It is in the mutual interest of both government and the industry to ensure that there are no further barriers to clinicians deciding whether to prescribe a medicine for the patients once a value based price has been agreed. In other words, the new system will need to ensure that there are no regional or local blocks once a medicine has gained an agreed value based price and so has theoretical national access. The value of a medicine is only realised once the right patients are able to use that medicine.

Strategic Issue – single system

Value based pricing will only apply to new medicines launched after 1st January 2014. This means that around 20 or so products will be subject to VBP per year. For the first few years, more than 95% of the medicines on the market will not be VBP’d and this situation will change only gradually over the following 15–20 years. For this reason, it is therefore of utmost importance that we have a new UK pricing and reimbursement scheme that appropriately encompasses all medicines in the context of companies’ whole portfolios.

A new voluntary agreement needs to be negotiated to create a single, workable system which provides stability and predictability. This agreement will crucially need to be fully aligned with the broader NHS reforms.

Strategic issue – innovation

I would now like to turn to the topic of innovation. The pharmaceutical industry has produced waves of innovation that have eradicated infections, cured previously incurable diseases, reduced events from chronic diseases and extended productive life for millions of people.

It is an important goal of value based pricing to further incentivise such innovation. However, to do this properly first requires an understanding of how pharmaceutical innovation works. Firstly, it unfolds over decades: research programmes typically take 10-12 years from idea to medicine. Secondly, medicines often end up treating conditions for which they were not originally conceived. Thirdly, new mechanisms of action may initially appear to offer only small benefits but ultimately go on to influence the creation of new classes of therapeutics that replace all previous treatments.

'First in class' medicines are rarely those that turn out to be the treatment of choice: earlier medicines may carry side effects or have lower efficacy. In many cases the most valuable treatments bring important benefits for patients, such as more convenient administration that may not seem to be major advantages but are hugely valued by patients.

Competition in R&D benefits everyone. It ensures the continued drive for ever more timely and cost effective medicines development. It would be wrong to contemplate backing just “one horse”. Therefore there must be fair recompense for all new medicines when they eventually reach patients.

The medicines in the pipeline today (including around 600 for cancer, 300 for cardiovascular disease and 100 for Alzheimer's Disease) are by definition already in development: the question is therefore whether or not these medicines will receive fair reward in the UK?

Appropriately valuing innovation in the right way is also critical in order to ensure that the medicines for tomorrows conditions and tomorrows patients can be created.

Strategic issue – uncertainty and absence of evidence

Evaluations undertaken via health technology assessment processes generate plausible ranges of cost effectiveness rather than point estimates.  Whilst the industry recognises the need to generate appropriate evidence at launch, under value based pricing, there will be no less uncertainty than in the present system and this will need to be reflected in value based assessment processes.

In exceptional cases where there is considerable uncertainty in the evidence base or when there is inadequate or immature evidence upon which to base a firm value based pricing decision, it will be necessary to utilise additional approaches to granting reimbursement in order that NHS patients are not denied access to important medical innovations. 

Coverage with evidence development, patient access schemes, risk share schemes or flexible pricing arrangements may therefore need to be available within any new system for use in exceptional circumstances. A review of the existing PPRS flexible pricing arrangements, which includes patient access schemes, is presently underway as part of a commitment made in the 2009 agreement and this will report in due course.

Strategic issue – devolved nations

There is one further and somewhat challenging barrier which introduces additional complexity to any discussions around value based pricing.  Medicines pricing is a reserved power. However, decisions on assessing value are devolved, so just as the devolved administrations have different mechanisms for ensuring access to medicines, they also have different value assessment systems and processes. NICE, SMC and AWMSG all undertake their own assessments of clinical and cost effectiveness for new medicines.  A new pricing and reimbursement environment will need to be applicable across the UK and ideally, somehow, should avoid the creation of duplicative processes.  Any new process should not delay access for patients in the devolved administrations compared to current timelines

These are the current strategic issues on which the ABPI is presently working. They will need to be progressed before delving into the detail of how to assess value and how changes to the current system could be made.

Assessment of value

Nevertheless, most of the discussion to date on value based pricing in the UK has focussed on the assessment of value. Arguably this is what the UK HTA agencies do best and generally in a more comprehensive and transparent way than many other countries. Broadening of the value assessment process is strongly supported by industry; however there will no doubt be difficulties and challenges to be overcome along the way. Industry is generally supportive of the inclusion of measures of severity and level of unmet need in the process of value assessment.  However, some challenges have already been raised by academics about their inclusion and there is a scarcity of empirical evidence and research to inform the setting of weightings for these measures.  It is presently unclear who should be responsible for setting and agreeing any weightings.

The inclusion of a broader societal perspective is also welcomed by industry but just how wide the perspective should be still needs to be determined.  There are likely to be winners and losers. For example, medicines for older people may fair less well under a system which considers societal costs and benefits but medicines for people of working age may well do better under such a system. It is vital that the implications of this are well thought through and communicated for the benefit of all patients.

ABPI is concerned that the current proposed measure of therapeutic improvement and innovation is too narrow in its definition and neglects important aspects of value. It will need to be redefined. The many dimensions of innovation are not limited to just health gain but can include, for example, cost savings in other parts of the health budget, cost savings in the wider public sector and economy, greater convenience and tolerability.

Understanding how innovation occurs, as well as its many faces, will be important in arriving at any innovation measure which industry can agree to.

In particular, it is essential that the benefits which are important for patients are appropriately captured and valued. Public health and environmental benefits will also need to be taken into account in some circumstances. As already mentioned, new mechanisms of action may sometimes appear to offer only small benefits but ultimately go on to influence the creation of new classes of therapeutics that replace all previous treatments.

Many of these aspects of value cannot be expressed in terms of quality or quantity of life which can then be converted via economic modelling into a cost/quality adjusted life year (cost/QALY), each will need to be considered in their own right alongside the QALY.

So whilst we need to get the detail right to see whether it can be made to work, industry very much welcomes the broader definition of value which is being proposed.


And now to the topic of cost effectiveness thresholds, arguably the most important metric in pricing and reimbursement. In 1999 when NICE was first set up there was little empirical evidence for the setting of the cost effectiveness threshold range. In 2010, the Medical Research Council funded a two year research project to improve and develop methodologies for deriving threshold estimates. The project being undertaken by York University, Imperial College and other collaborators is now being used to derive thresholds based on already existing programme budgeting datasets. This project is crucial to the future UK reimbursement environment for medicines in the UK because it will likely provide the framework for deriving a value based price for new medicines. It will report in mid-2012. There are different methodologies available to derive the cost effectiveness thresholds, each of which will generate different results and each with their particular limitations.  The preferred approach being used by York involves using an opportunity cost approach. Early preliminary results shared in a recent workshop including many representatives from the pharmaceutical industry suggest a range of estimates by disease area: for respiratory and circulatory disease a cost/QALY of £8,000; for cancer a cost/QALY of £14,000; for infectious diseases a cost/QALY of £494,000; and for neurological conditions a cost/QALY of £537,000.  Across the eleven or so disease areas looked at so far, the ranges vary widely from £3,000 to £12m per QALY.  Clearly, these results are provisional and are subject to significant and, at present, unquantifiable uncertainty.

If any new cost effectiveness threshold simply drives down medicines prices, then companies might need to delay the launch of new medicines in the UK because of international reference pricing and access may be reduced.  Clinical research may shift to other earlier launch markets as the innovation cycle becomes interrupted and patients and the economy will suffer as a result.

The precise mechanism of how the cost effectiveness threshold will be determined and how it will be managed over time needs to be agreed. This is rightly the responsibility of government. In its report of 2007, the Office of Fair Trading recommended that threshold considerations should be negotiated as part of the PPRS agreement between government and industry.

Linking value to price

I would now like to turn to the linkage of value to price. Other countries have far more experience of this than the UK and we can usefully take learnings from particular markets that already do this.  ABPI and the American Pharma Group will shortly commission a joint project to identify and capture these learnings for the benefit of industry. France, Australia and Sweden already make assessments of the value of medicines and then use this information to inform reimbursement pricing negotiations with companies. What differs between these countries and the UK is how comprehensively this value is measured and what is taken into account.  

If we proceed with value based pricing here in the UK, there is much work to be done on thinking about how the process would work from the point of having an agreed overall assessment of the value of a medicine to finalising what would be the reimbursement price of that medicine. We need to do this in a way which is low on bureaucracy and does not introduce delays in allowing patients access to the medicines they need.   

Significance of what lies ahead

Whatever changes are eventually made to the UK’s pricing and reimbursement environment, they will be closely scrutinised by many countries around the world. These will of course include those that reference UK medicine prices either directly or indirectly in their own price setting processes, as mentioned already, around 25% of the global market. 

In the UK context, if the reforms are well thought through, NHS patients may be able to benefit from earlier and more consistent access to medicines. But if they are not, patients may face even longer delays in accessing new medicines as the attractiveness of the UK as an early launch market for new medicines continues to diminish. 

In the global context, VBP could present some risk for the competitiveness of the UK in the life sciences sector.  It is of course also a great and potentially unique opportunity to showcase the UK as a best practice exemplar not just in health technology assessment but also in pricing and reimbursement, where medicines are able to deliver their optimum value to patients and make a full and proper contribution to improving patient outcomes across the NHS.

As government examines its health care reform priorities, we remain ready to shape the future together. We need to work closely to ensure the outcome is a positive one. 

My ABPI colleagues and I look forward to working with you all to help create an environment where pharmaceutical innovation flourishes and shapes the new medicines for both this and future generations.

Thank you

Dr Paul Catchpole, Value & Access Director, ABPI


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