The Pharmaceutical Price Regulation Scheme Outcomes and implications of the OFT
Study
Simeon ThorntonOffice of Fair Trading
07 June 2007
PDIG Summer Symposium
Overview
Introduction to study
Study process Main findings – the case for reform Recommendations
Key challenges / issues to address from recommendations
Address some misconceptions
Overview of study
Remit
Assess whether PPRS best means of meeting its objectives – VfM and incentives to invest
… or whether case for reform
Timetable
Launched September 05
Published February 07
Government response expected late June 07
What is the PPRS? £8n pa spent in UK on branded drugs prescribed
in NHS. PPRS means of influencing price
Profit controls
Cap and floor on company profits on sales to NHS
Rules for allowable costs
Price controls
Freedom of pricing up front. Subsequent restrictions on increasing prices
Periodic price cuts imposed. 7% in 2005. Can be delivered through ‘modulation’
Primary Care Organisations
Pharmacies
BM PI BM, GM
W W
PPRSScheme M
etc
GPs
Patient
List
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Profit controls Financial flows
Guidance, constraint
Prescription charge or free
Branded prescription or on patent drug
Generic prescription for off patent drug
Dru
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GMS contract
Pharmacy contract
Fee
sPrice controls
PPRS is a demand side instrument Not a truly regulatory measure. Attempt to
exercise buyer power in purchase of prescription drugs Structure of demand atypical PPRS certainly atypical!
Works in conjunction with other demand side measures National level – NICE, SMC, AWMSG, NPC etc
Local level – primary and secondary care
Aims to deliver VfM for NHS and give companies incentives to invest in useful drugs in future
Focus on dynamic incentives Why care about effects on innovation?
R&D global common cost but UK sales only c. 4% of world demand. But
At least 12 countries (c. 25% of world market) peg prices to reference basket that includes UK
Used informally in negotiations as well
UK prices likely to influence incentives to invest in drugs
Focus on static and dynamic efficiency legitimate
Main concerns with current scheme Companies welcome stability and speed
of access
But neither profit nor price controls take account of value of drugs: implications for VfM and incentives to invest
Profit cap ill suited to an innovative sector. Plus practical difficulties. Repayments 0.01% of revenue 99 – 04
Price cuts again blind to value of drugs – winners and losers. Plus sustainable in the future?
Portfolio effects (and margin differences) potential to distort competition
Practical implications Identified drugs for which NHS stakeholders
had expressed concern over cost effectiveness.
Reviewed price and clinical efficacy data with advice from experts.
Over £600 m in 2005 could have been used more cost effectively in primary care under alternative regime.
Benefits for patients NHS and innovative companies from reform
Snapshot. Small sample of drugs. Does not quantify gains in secondary care (data issues)
Key recommendationThat Government work towards reform of PPRS replacing current profit and price controls with a value based approach to pricing
On patent Off patent
New system would free resources to improve patient access to treatments and give companies stronger incentives to invest in the most useful drugs
On patent brands Ex ante or ex post vbp? Either an
improvement
Ex post alone closer to current arrangements. Ex ante risk of delay but maximises benefits of vbp and improvement in uptake of ce medicines?
Recommendation: hybrid vbp
Fast track ex ante assessment and five yearly ex post reviews
Possibility of risk sharing Flexible price structure to reflect different value in
different indications. Could be achieved through rebates
p0
A
p0
Cost/QALY equalised at maximum thresholds
Comparator
pA
Incremental benefit relative to comparator:product A = 1.5 QALY
defines price thresholds
Off-patent brands Off patent brands with bioequivalent Cat M
comparator
Price set in relation to that of Cat M generic equivalent
Brand premium for originator brands
Where no Cat M equivalent treat as on patent
Institutional arrangements Make use of existing institutions and
expertise in the NHS
Reform would need to be phased in – capacity building
Key challenges
UK prices while retaining devolved institutions and responsibilities
Avoiding duplication and ensuring consistency of approach
Medium term – post 2010
Possible long term
Key challenges for implementation Based on interaction with
stakeholders pre and post launch
Definition of value
Information requirements
Choice of comparators
There are others (level of threshold etc).
Definition of value Value to patient – quality of life and length
of life. Recognise different benefits in different indications / subgroups
Case for including non-patient benefits
Value in “innovation per se” more problematic Novelty unrelated to patient benefits. Operational?
Transparent?
Public subsidy / support for genuine market failures
Allow for brand premium for plausible but undemonstrated benefits. But size should reflect fact that value has not been demonstrated
Information Is VBP feasible / practical given information
constraints? One extreme – no information – a problem
for rational prescribing regardless of pricing approach
Recognise the challenges – case for early stage engagement and support (Cooksey)
Recognise that value can emerge over time
an argument for ex post assessments possibly risk sharing (Velcade) not a case for ignoring value
Choice of comparators Comparing ce of on-patent brands with
generics – premium only if demonstrated to be better
Main controversy relates to comparison of existing products with generics
Recognise short run implications. But is there a sustainable long term alternative? Can we systematically turn a blind eye to cost effective
substitutes? Not efficient and not sustainable Not in interests of patients or innovative companies Recognise that there may be benefits that have not been
demonstrated in RCTs – brand premium.
Some misconceptions (1) “Ignores incremental innovation”
Recommendations take full account of incremental innovation Reflect different values in different indications / patient
subgroups For some drugs we could not find evidence of differential
benefits (argument about the clinical evidence not the principle)
“Disadvantages 2nd, 3rd etc in class”
Products that arrive on market soon after originator will prosper (unlike other systems – FIC premium, therapeutic tendering)
Products that arrive many years later without offering benefits over existing products will not
Good dynamic incentives
Some misconceptions (2) “May adversely affect investment in
the UK”
Footloose investment - price not related to where investment carried out
Scheme does not provide explicit incentives to invest in UK – R&D allowance applies wherever carried out. Cannot legally do so
Loose bargaining – threats etc. Credible? Even if so, not recommending reductions in
expenditure – reallocation of spend – winners and losers
Some misconceptions (3) “Leave it to the demand side”
This is part of the demand side! Complementary with other measures to encourage cost
effective prescribing Not currently sufficient on their own in all cases
(particularly primary care awareness of price, clinical effectiveness etc.) – economies of scale
If we can get price right should alleviate need for other forms of rationing
Conclusion Long term model. Sustainable because
based on best use of expenditure – in interests of patients and innovative companies
Major implications – winners and losers. But unrelated to question of overall spend.
Challenging questions of implementation – evidential threshold.