Pricing and Reimbursement in Europe: Where Does Innovation Fit?

April 9, 2014
Guest Blogger

Pharmaceutical Executive

It was recently said, in reference to the UK’s Value-Based Assessment(VBA) program, that innovation had not been “tried and tested in the pricing context”.

It was recently said, in reference to the UK’s Value-Based Assessment(VBA) program, that innovation had not been “tried and tested in the pricing context”, which explains the loss of the “innovation” criteria from the proposals formerly known as Value-Based Pricing (VBP). This prompted me to think about just how has innovation been part of pricing and reimbursement of medicines.

It’s not an easy question to answer, because innovation will have resulted in new medicines that deliver clinical benefits in the usual way that is measured: longer life, less morbidity or an improved side-effect profile. So, in that sense, innovation is simply part and parcel of all pricing and reimbursement decisions. If a new medicine offers benefits over and above the existing treatment options, and at a cost that a health system or insurer is willing to pay, it will be made available and innovation rewarded (to a lesser or greater degree depending on any price negotiation and/or any patient population restrictions). It is tricky too when there is no consensus on defining an innovative medicine.

But innovation has also been close to a separate feature in some of the world’s pricing and reimbursement systems too. Here are a few:

The French have had a long-running system which provided a signal of the innovativeness of a new medicine via the ASMR (the improvement in medical benefit). The ASMR included a range from the lowest of Level V with no improvement over existing options, through to Level I, considered a major innovation (innovative product with substantial therapeutic benefit). The ASMR was particularly important for price setting. But the number of products achieving the higher ASMRs fell over time, from 25 in 2006 to just 2 in 2011.

But this system has changed, moving instead to the Relative Therapeutic Index (ITR). Partly in response to concerns about listing of a product that was withdrawn far later in France than other countries, but also to bring cost effectiveness assessment more closely into pricing and reimbursement. This ranges from -1, with no reimbursement due to a number of reasons such as the medicine is inferior, or there is a lack of proof, to equal or greater than 3, where it considered a major improvement compared to the relative comparator. Even in the case of a score of 3, the manufacturer will still need to enter into a framework agreement with the pricing authority, but you’ve got to assume that this places them in a far better position than with a lower score.

In Italy there is a notion of innovativeness in the AIFA’s (the Italian Medicines Agency) classification of therapeutic benefit. A product can be rated as an “important, moderate or modest therapeutic innovation”. Quite what that translates to in price terms is difficult to work out though, as this classification is but one consideration that feeds into later price negotiations.

The Japanese pricing and reimbursement system is a complex one. It has a number of components ranging from international reference pricing to planned price cuts every two years. But there is a feature that tries to promote innovation: a ‘premium’ can be added to the initial price if it’s more innovative than existing drugs. And the premiums have been rising over the years.

The tricky thing is how often it’s applied, as otherwise it’s only a nice theoretical reward for innovation. Only two medicines received the innovation premium from June 1997 to April 2008. But efforts were renewed in 2010, and companies like GSK, Pfizer and Astellas have secured a premium for creating new drugs. But there are still calls for higher prices for innovative medicines, but only for those developed in Japan, to ramp up domestic R&D efforts.

In the UK, agencies like the National Institute for Health and Clinical Excellence (NICE) are already supposed to incorporate innovation in their decisions. How far they actually do, of course depends on who you talk to and their particular perspective.

But efforts to have a much clearer and separate innovation criterion as part of VBP proposals were dropped back in June 2013.

It’s not surprising that the Department of Health took that view. They’d likely want to avoid introducing something that could be easily monitored and demonstrate a less than pro-innovation system at the same time as the Life Sciences Strategy is being pursued. Industry might want to re-ignite the innovation debate though, especially whilst they have underwritten the risk of high growth rates in NHS expenditure on branded medicines all the way through to 2018 in the 2014 Pharmaceutical Price Regulation Scheme (PPRS). If the NHS can’t afford innovation with industry making PPRS payments, when can they?

Leela Barham is an independent health economist. You can find out more about her at and contact her at

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