What Does the UK's 'New' PPRS Mean for Value-Based Pricing?

Nov 20, 2013

The UK government has finally announced details on the 'new' PPRS. But what does this mean for the mooted move to value-based pricing? Leela Barham reports.

Details have finally emerged on the revamping of the Pharmaceutical Price Regulation Scheme (PPRS), the voluntary pricing deal between the UK Government and the pharmaceutical industry.

It’s about time, as a deal had to be reached before the January 1, 2014, deadline. Without it, industry would have found itself with no choice but to operate in the Statutory Scheme for Pricing of Branded Medicines, which, with its imposition of a 15 per cent price cut, would be unpalatable to many. It would also have broken the long-standing ‘gentlemanly’ relationship between industry and Government, something that both sides are likely to want re-ignite after the early breaking of the PPRS in 2008.

In a document known as the ‘Heads of Agreement’, both sides set out some of the core features of the new deal.

Industry to ease the UK deficit

Among the most controversial elements is a mooted government safety net in the form of an ‘austerity commitment by industry’, underpinned by individual company ‘austerity contributions’.

What that means is that Jeremy Hunt, the UK’s Secretary of State for Health, has insulated the National Health Service (NHS) from inflation-busting growth in the branded medicines bill. With austerity a watchword for Government, and an inescapable reality for budget holders in the NHS, it will require considerable generosity from industry to help the NHS tackle its ever-rising funding gap. Latest estimates suggest a gap of some £30 billion by 2021.

It also plays into a wider debate on austerity in the NHS: if the medicines bill can’t be blamed for inflation then others will have to shoulder it, and that means staff, the biggest component of costs. Many staff groups have however, already faced their own pay freeze.

The austerity contribution is an additional safety net: the PPRS already prevented companies from making ‘excessive’ profits from sales to the NHS because it limited profit margins. That element still remains, with a slightly more generous margin of tolerance.

The headline figures for the industry’s contribution are stark: allowable growth in the branded medicines bill of 0% in both 2014 and 2015. This will give the governing Conservative Party the chance to remind the electorate of their tough stance in the run up to the General Election in 2015. The growth will then be set at 1.8%, 1.8%, and 1.9% for the next three years, respectively.

Individual companies will pay to the Department of Health (DH) a fixed percentage of their net sales, with some exemptions. For 2014 it’s 3.74%, but the final percentages for later years will depend on the actual spend of the NHS and net sales of each company. That could be a fraught process: a dispute resolution process still features in the new PPRS and may come in handy in future.

Pro innovation — in theory

The latest PPRS features a degree of opportunity — in theory. Companies bringing new, innovative products to market will fare better than those who do not. Their sales count towards the overall spend of the NHS on branded medicines, and hence the industry’s allowable growth target, but their own payback won’t include new products brought to market past after December 31,2013. That means industry as a whole pays more for their individual success.

But since innovation often takes much longer than the five-year time horizon of the PPRS it may just benefit those with a good pipeline now. It’s not likely to help those who are earlier on in development. They will face the uncertainty of bringing their new products to market after the close of the 2014­–2018 PPRS and potentially under a new Government.

Smaller companies are treated differently: firms with sales of £5 million or less will be exempt from payments and their sales won’t count towards the industry target. Again, that’s likely to play into a General Election claim of proof of a pro-business and pro-innovation stance. But critics will point out that getting started is one hurdle, staying around quite another.

If it isn’t broken, don’t fix it

Much is staying the same — proof for those who said all along that the PPRS wasn’t broken and that it could evolve much as it has since the 1950s. It still includes profit control, with a more generous allowance before companies need to pay back to the Department of Health (DH). Even the un-used flexible pricing provisions still remain.

There is a question though about just how far you can stretch the PPRS. There’s a lot bolted onto it, without much taken away to ensure that the scheme is manageable and proportionate to the task. Many have said for some time that trying to achieve multiple goals from just one regulatory tool was a tough ask; the PPRS may suffice for now (although the proof of the pudding, as they say, will be in the eating). But will it survive past 2018?

The new PPRS still includes the administration requirements of regular reporting to DH, and these become more important as there will be reconciliation to make sure that the industry doesn’t go above the allowable growth rate. If they do, the reconciliation process will need to ensure that they pay what they ought to help the NHS balance the books.

Value Based Assessment instead of Value Based Pricing

The scheme as a whole means that what the NHS pays nationally stays the same irrespective of the value of both existing and any new products brought to market. Trying to make that sound anything like the concept of Value Based Pricing (VBP) is simply impossible.

Instead, VBP has become more about the tweaks to the way that value is assessed. And it comes down to the National Institute for Health and Care Excellence (NICE) to implement. But the new PPRS has provisions that will constrain them:

· It states that there will be no change to the threshold range for cost effectiveness by NICE. That’s quite a coup given that NICE set the threshold by default over time (someone had to). It’s also despite an impressive piece of work by renowned economists at York, Imperial College, and the Office of Health Economics, which suggested the threshold come down to around £18,000 per Quality Adjusted Life Year versus the £20,000-to-£30,000 it is now (and sometimes higher with End of Life adjustments).

· A wider assessment of value by including Burden of Illness (BoI) and Wider Societal Benefits (WSBs), and NICE must consult first on how they are going to approach this.

· NICE will have no role in price setting.

No doubt these have been hard won by industry. If the threshold really doesn’t change, and BoI and WSB allow for ‘uplifts’ and not ‘down weights’, industry may even have secured a rise in the threshold. Although that’s doubtful in practice, given the independence of the Appraisal Committees who weigh up the evidence and costs of new products and who ultimately decide at what threshold to say yes, no or maybe for each individual product.

What about access?

Access to medicines remains part of the PPRS, building on the inclusion of issues relating to NICE and Patient Access Schemes in the 2009 PPRS. But just as before, access is not something that DH and the Association of the British Pharmaceutical Industry (ABPI) can work on alone; access is related to a whole host of policies and practices across the devolved nations.

An additional complexity now relates to the new players in England, where NHS England is a driving force. These new players can decide on whether to buy orphan medicines under their specialized services role, or as part of the Cancer Drugs Fund, as well as how they support Clinical Commissioning Groups (CCGs), who hold the purse strings for their local populations. And they may be less won over by the guarantees that the new PPRS deal offers. Will they receive any payback? Will they even know if their own expenditure on branded medicines has tipped them over the point where the next prescription is essentially ‘free’ to them?

Industry is likely to be pleased to have included expectations for NHS England to deliver on Innovation, Health and Wealth (IHW). This sets out requirements for positive appraised NICE drugs to be on local formularies and an Innovation Scorecard. But change seems to have been slow; another element has been stopped altogether with the cancellation of the planned specialised services commissioning innovation fund.

What next?

The full text of the PPRS is expected soon, by the latest January 1, 2014. VBP will follow later, as NICE needs to consult and set out how its methods will change to accommodate BoI and WSBs. Plus more can be expected on IHW as industry seeks to address access problems.

Leela Barham ([email protected]) is an independent health economist who blogs at http://leelabarhameconomicconsulting.blogspot.co.uk

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