Valuing prizes and making
reimbursement decisions: how
different?
Kalipso Chalkidou, MD, PhD
Harkness Fellow in Health Policy
Johns Hopkins School of Public Health
on sabbatical from NICE (UK)
DISCLAIMER: The views expressed here are those of the
speaker and not of the Commonwealth Fund nor NICE.
What does NICE do?
• Part of the National Health Service - UK
• Issues evidence-based advice on clinical
practice and the use of technologies
• To make a decision it takes account of:
 Clinical effectiveness
 Cost-effectiveness: health/cost
 Equity and other social values
 Anti-discrimination and other legislation
• Core principles: independence, transparency,
inclusiveness, consistency, methodological
robustness, review and appeal
Challenge 1
•
Getting good quality unbiased evidence
 Working with public sponsors of research
 Working with industry early on in development
 “Only in research’ and risk sharing -e.g. Velcade
but…
 Limited public funding for NICE priorities
 Strong vested interests of sponsors
 “Crowding out” of non-drug interventions when price
discrimination by subgroup and indication is allowed
Challenge 2
•
Applying the right threshold range


Annual health budget set by government
normative decision
How much is an extra year in full health -one QALYworth? positive decision given:
•
•

Health budget
Demand on budget by medical technologies
Empirical evidence of NHS productivity1 and of
substitution of technologies at the local NHS level2
1: Martin S, The Health Foundation, 2007, 2: King’s Fund, Brunel and City Universities and NICE; also
see Culyer A, J Health Serv Res 2007
Challenge 3
• Incorporating values in decision-making
 Equity and legal (UK, EU) considerations
 Social Value Judgements and the Citizens’ Council
 Case law -casuistry- approach within a framework of
procedural justice: Daniels “accountability for
reasonableness”
 Always within the cost effectiveness range
Challenge 4
• What about the ‘innovation premium’?
 Innovation matters: this is why we (NHS) pay up to
£30,000 per additional QALY
but we will not:
 Settle for low quality or no evidence
 Pay twice: once now and once when (if) the
(better) innovation is developed
 Give wrong incentives today leading to bad value
innovation in the future
 Compromise access today in hope of better (and
possibly unaffordable) future medicines
 Implicitly subsidise the drugs’ industry
UK developments in drug
pricing
“We recommend that
Government reform the
PPRS replacing current
profit and price controls
with a value based
approach to pricing to
ensure the price of drugs
reflect their clinical and
therapeutic value to patients
and the broader NHS.”
Office for Fair Trading, February 2007
UK government response
Interim Government Response to OFT Report
“We agree with the OFT that it is time to develop a
pricing system which is fit for purpose for the
twenty first century. We must ensure that any
future pricing scheme delivers value, rewards
innovation and ensures a fair deal.”
Competitiveness Minister Stephen Timms, London, August 2007
In the press
The innovation debate
• NICE and static efficiency:
 as long as threshold reflects ‘real world’
productivity, and,
 appropriate substitution takes place at local level
• NICE and dynamic efficiency:
 Signalling NHS demand curve to monopolist
 Providing consistent evidence-based incentives
which reduces undiversifiable, systematic risk
(cost of capital)
 Incentivising affordable future innovation
NICE methods and prizes: the
same criticisms (i)
• Who defines value?
 The payer: payer’s WTP < patient’s WTA
• How is value defined?
 Incremental cost over incremental benefit + distributional and
legal considerations
• Hold-up (time inconsistency) problem
 Transparent, consistent and reliable environment
• Possibility of political rent seeking distorting research
 Reality of private sector rent-seeking
 Appropriate controls: public involvement and accountability
 Publicly vs privately funded research: population need and
capacity to benefit vs profit maximisation
 Patent system notoriously bad in sharing information commercial in confidence data
DiMasi and Grabowski, 2004 and 2007
NICE methods and prizes: the
same criticisms (ii)
• Yardstick competition
 Today: obscure costs and monopoly power
 Benchmarking based on relative performance of similar
firms (prizes) and of best alternative treatment (VBP)
• Little experience
 NICE, PBAC, PHARMAC…in operation for years
• What about me-too (similar) drugs?
 What about them?!
DiMasi and Grabowski, 2004 and 2007
It’s not going
to be easy…
A prizes’ approach would…
• Disentangle the decision to develop an idea
from the decision to purchase a product
• Address access and rationing problems
 only ‘worthwhile’ drugs enter the market
 marginal cost pricing minimises deadweight loss
• Incentivise investment in evidence-making,
not marketing, to demonstrate value
• Provide more secure investing environment
(similar to P-V agreements in VBP)
Concluding remarks
• Drugs’ markets already:
 Centralised
 Tax-funded
in most countries: NICE (UK), PBAC (Aus),
Cancer Care Ontario (Ca), HIRA (Kr)…
• Prize setting and value-based reimbursement
decision-making:
 similar methodological principles (and criticisms)
 we are becoming better in improving our methods
and addressing the criticisms!
Selected publications
•
Martin, S, Rice, N and Smith, PC The link between healthcare spending and health outcomes: Evidence
from English programme budgeting data, The Health Foundation, June 2007
•
Culyer et al. Searching for a threshold, not setting one: the role of the National Institute for Health and
Clinical Excellence. J Health Serv Res Policy. 2007 Jan;12(1):56-8.
•
S. Birch and A. Gafni. The 'NICE' approach to technology assessment: an economics perspective. Health
Care Management Science 7 (1):35-41, 2004.
•
OTA, Pharmaceutical R&D: Costs, risks and rewards, Feb 1993
•
Garber et al, Insurance and incentives for medical innovation, NBER, 2006 (paper 12080)
•
Claxton, K: OFT, VBP: QED?, Health Econ, 2007, 16: 545-558; (and forthcoming in the BMJ)
•
Gagnon, MA, Lexchin, J: The cost of purchasing pills, PLoS Medicine, Jan 2008, 5(1)
•
Light, D, Misleading Congress about drug development, 2007, Journal of Health Politics Policy and Law,
32(5):895-915,
•
DiMasi and Grabowski, Should the patent system for new medicines be abolished? Clin Pharmac Ther,
82(5): 488-490, Nov 2007; also: Comments on the Hubbard and Love trade Framewirrk for financing
pharmaceutical R&D, June 2004
•
M. D. Rawlins and A. J. Culyer. National Institute for Clinical Excellence and its value judgments. BMJ
329:224-227, 2004.
•
Skinner et al., Is Technological Change In Medicine Always Worth It? The Case Of Acute Myocardial
Infarction, Health Affairs 25 2006: w34-w47
•
•
A. Williams. What could be Nicer than NICE? London:Office of Health Economics, 2004.
Daniels N, Sabin JE: Limits to Health Care: Fair Procedures, Democratic Deliberation and the Legitimacy
Problem for Insurers. Philosophy and Public Affairs 1997, 26(4):303-502.
Visit NICE at www.nice.org.uk
Thank you!
Additional slides
What are we giving up to pay
for better value drugs?
Webb and Walker, Lancet 2007
Bias?
Manufacturer ICERs (log10)
6
Lower ICER=Better value for money
5
4
3
2
1
450 line
0
0
1
2
3
4
5
Assesment Group ICERs (log10)
Miners et al, BMJ 2005
6
A4R
• Publicity
 Limit-setting decisions and their rationales must be publicly accessible.
• Relevance
 These rationales must rest on information and principled arguments that fairminded parties (people predisposed to working together under rules of mutual
cooperation) can agree are relevant to deciding how to meet the diverse needs
of a covered population under necessary resource constraints.
• Appeals
 There is a mechanism for challenge and dispute resolution regarding limitsetting decisions, including the opportunity for revising decisions in light of
further evidence or arguments.
• Enforcement
 There is either voluntary or public regulation of the process to ensure that the
first three conditions are met.
Daniels and Sabin, Philosophy and Public Affairs 1997
Some NICE Social Values
•
•
•
•
•
NICE should not recommend an intervention (that is, a treatment, procedure,
action or programme) if there is no evidence, or not enough evidence, on which
to make a clear decision. But NICE may recommend the use of the intervention
within a data collection or research programme if this will provide more
information about the effectiveness, safety or cost of the intervention.
Decisions about whether to recommend interventions should not be based on
evidence of their relative costs and benefits alone. NICE must consider other
factors when developing its guidance, including the need to distribute health
resources in the fairest way within society as a whole.
Although NICE upholds the right of individuals to make their own decisions
about their care, this should not lead NICE to recommend interventions that are
not effective and cost effective enough to provide the best value to users of the
NHS as a whole.
NICE recognises that when it is making its decisions it should consider the
needs of present and future patients of the NHS who are anonymous and who
do not have people to argue their case.
When choosing guidance topics, when developing guidance and when
supporting people who are putting the guidance into practice, NICE should
actively target health inequalities, such as those associated with sex, age, race,
disability and socioeconomic status.
The innovation debate
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Expected not current profits drive investment
Pharma no riskier than other R&D-driven industries
revenue (or profit) does not always mean R&D
R&D does not always mean health
Drug prices not only tool for society to support R&D:
tax regime, IPR regulations, infrastructure and
education, direct funding (e.g NIH in USA)
• Drug price not most appropriate tool to support R&D:
perverse effects on health, future innovation and
industry through implicit subsidies to pharma
OTA, 1993; Garber, NBER, 2006; Skinner, Health Affairs, 2006; Light, Public Health, Policy and Law, 2007
Claxton, Health Economics, 2007
In a market system, we get
access to what we can afford…
The market demand curve provides a constraint on a monopoly’s ability to
profit from its market power. A monopolist would prefer, if it were possible, to
charge a high price (P) and sell a large quantity (Q) at that high price. The
market demand curve makes that outcome impossible. The monopolist can
choose any point on
the demand curve
P
P
but it cannot choose
competitive firm
Monopoly
a point off the
under patent protection
demand curve.
US: patients’ WTP, (obscure)
insurance company and
government criteria
demand
demand
UK: NICE, local NHS-run
Trusts
Q
Mankiw NG. Principles of Microeconomics, 4th Edition 2007
The momentum is building
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France
 EUnetHTA - EU Commission: evidence generation for new drugs
 Drug pricing based on HAS tiers: economic evaluation considered
Germany
 New Social Insurance Code: ceiling price on innovations
 Economic evaluation by law - IQWiG (2007)
Korea
 Positive list and value based pricing by law - HIRA (2008)
Italy
 5% tax on marketing to fund comparative effectiveness research
 Used funding to compare b-IFN to azathioprine; latter better value
The Netherlands
 Evaluation of all expensive inpatient and “orphan” drugs
Canada
 PATH and THETA ‘field evaluations” of new technologies
 Cancer Care Ontario