Value-Based Pricing: Too High a Price for UK Pharma?

May 01, 2012

There is Value—in the Patent Box
Discretion to set prices for new medicines free of government intervention is heading toward extinction in Europe, with the UK looking set to follow Germany in a race to an ill-defined destination it calls "value-based pricing." On target for phase-in at the end of 2013, the prospective new regime—dubbed by critics as a stealth system of payer-based value controls—will impact pricing beyond the UK, if only because most industrialized countries outside the US references UK prices in setting their own drug tariffs. Combined with controversial reforms to the National Health Service (NHS), an eroding base in clinical trials, and a politically charged debate on patent incentives linked to industrial policy (see sidebar), the price changes are likely to contribute to further erosion of the UK's reputation as a stable and predictable market for Big Pharma investors.

The reform is much more than a simple endorsement of value-based pricing (VBP). What the government intends is to abandon one of the most venerable structures for P&R in Europe, the Pharmaceutical Price Regulation Scheme (PPRS), which was introduced more than a half century ago and, as negotiated at five-year intervals, stands as a symbol of close policy coordination between politicians, the health bureaucracy, and industry. In its place looks to be a far more hierarchical arrangement in which industry will basically function as price takers in a process administered exclusively through the Department of Health.

One reason why the changes have attracted less attention than they deserve is the larger debate over reform of the NHS, which is being reorganized under a bill now making its way through Parliament. Ironically, the NHS reforms promise more autonomy to local physicians in funding patient care and introduce more private sector competition in service delivery—just as the demise of the PPRS removes what is left of pricing freedom in medicines, in favor of outright controls. And although the NHS reform is expected to cut $8 billion in costs to the $160 billion system by 2015, none of the savings are pledged to improving access to medicines.

Speak softly, industry

In addition, industry itself is taking a low profile on the drug proposal, with the Association of the British Pharmaceutical Industry (ABPI) declaring basic support for VBP as a framework for evaluating a future pact with government. Rob Walton, an analyst for Wisper Public Affairs, noted in a recent blog that the industry position was "so uncontroversial" that the Department of Health was able to cite it in responding to critics of a PPRS overhaul during the first public consultation on its plans last year.

ABPI Director Stephen Whitehead's support for VBP—"it provides significant opportunity to both improve patient outcomes and stimulate the development of new and innovative medicines of the future"—did feature prominently in the government's press releases. But the language is highly nuanced and accompanied by a number of important caveats; like many other aspects of the debate on access and pricing in Europe, the way the industry speaks in public can be open to interpretation.

It is also true that there is little consensus on exactly what the government intends to do, and—more importantly—how and to what effect the new regime will be implemented. The discussion itself has been exhaustive to the point where all parties think they have heard back at least some of what they have said. VBP has been on the reform docket since 2007 and the Conservative coalition government formally presented it as a replacement to the PPRS in 2010.