Value-based pricing scheme would put emphasis on cost-effectiveness

A report by the Office of Fair Trading in the UK has recommended that the pricing of drugs should be based not on how much the drug costs to develop, but on the benefit that the drug can bring.

After examining the proposals for a paper published in the journal Health Economics,1 Professor Karl Claxton, who works in the Department of Economics and Related Studies and Centre for Health Economics at the University of York, said he believes that Value-Based Payments (VBP) make sense. He is, however, worried that the current plan is overly generous toward pharmaceutical companies and could lead to a rise in the total NHS drug bill.

Under the new scheme the NHS would take on technologies only if they are cost-effective: that means the health benefits of using the technology must be greater than health displaced elsewhere in the NHS (due to the additional cost of the technology), said Claxton. This, he believes, will provide a powerful incentive for companies to concentrate on cost-effective delivery when they develop new therapies.

Such a radical shake-up is bound to cause concern within the industry; for example, that the result will be less revenue for some products. But Claxton believes that most fears are unfounded - while some individual products may earn companies less, the overall spend will either remain fairly constant or could increase.

Claxton proposes that there should be an agreement to monitor total NHS spend, and link this monitoring to a rebate agreement in which any underspend created by the new system is shared by the industry. Equally, higher than expected spend would lead to a transfer from industry to the NHS. 'This would reassure the Treasury and Department of Health that the introduction of VBP will not lead to uncontrolled rises in spending, and industry that there will not be dramatic cuts,' said Claxton.

'The OFT report provides a clear and coherent rationale for a move to VBP. The OFT has put down an important marker which will inevitably shape the scope of future policy debates about value, guidance, price and innovation,' he added.