UK Drug Pricing: An ICER of Zero?

March 18, 2014
Leela Barham

Leela Barham is a freelance health economist and policy expert. She has published in peer-reviewed journals and presented at national and international conferences. She has provided advice to the Department of Health and Social Care on policy on pricing of branded medicines to inform the negotiation of a successor to the UK’s Pharmaceutical Price Regulation Scheme (PPRS), the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS), as well as worked with patient groups, the NHS, pharmaceutical companies and many others internationally on the economics of healthcare and pharmaceuticals. Contact Leela on leels@btinternet.com

Pharmaceutical Executive

The incremental cost effectiveness ratio (ICER) – or the threshold for determining whether the costs of a new medicine are worth it – has been controversial since it’s inception.

The incremental cost effectiveness ratio (ICER) – or the threshold for determining whether the costs of a new medicine are worth it – has been controversial since it’s inception. There are those who deny that anyone can put a price-tag on life; those that accept the concept but are happy to let it be determined by a committee; and those who want to pinpoint that price with precision.

In the UK, there’s been a subtle shift over time: instead of denying that a threshold exists, the National Institute for Health and Care Excellence (NICE) has now moved on to acknowledging the threshold.

As that has happened, so too has debate on what the threshold actually is: not just in terms of what NICE uses but what is spent on health care.  And the latter is a complex interplay of national and local: national lobbying on what to spend on health versus other areas of governmental expenditure, and local decisions on where to spend the cash between the myriad possibilities from prevention to cure.  Add that to variations in efficiency of health spend (not just across different programmes of care but also in the efficiency of commissioners and providers) and it becomes difficult to see how a single threshold with real meaning can be arrived at, regardless of admirable attempts.

What does the 2014 PPRS mean for the threshold?

The 2014 PPRS has led to a new question in relation to the threshold: if the pharmaceutical industry is going to pick up the bill if NHS spending exceeds government’s allowable growth rate for branded medicines, then at some point, could the ICER of new branded medicines become zero?

An ICER of zero would definitely put the cat among the pigeons at NICE. How could they say no to a new medicine? But such a viewpoint misses some nuances:

  • The ICER reflects not just the cost of the medicine but any other costs incurred because the medicine is used.  That might be diagnostics, extra check-ups, managing side effects or even just a longer time spent in hospice or receiving end of life care at home.  An ICER, even if the medicine is essentially ‘free,’ won’t be zero.

  • It’s going to be difficult, perhaps even impossible, for NICE to know exactly when, and hence which products, would ‘trip’ into the zero marginal cost for a new branded medicine. So NICE might think a branded medicine could be cheaper to the NHS than its price suggests, but it won’t know when this will apply so even just adjusting the ICER downwards will be tricky.

But it is true that there must be some impact on affordability overall, because at the margin there could be ‘free’ stock provided to the NHS. That sits uncomfortably against the latest NICE process guide which drops reference to the £30,000 altogether, focusing on the tighter £20,000 threshold.

More affordable branded medicines may also not translate locally as we’ve yet to find out just how the national payments from companies will flow down to the pockets of those who must pay for medicines, and balance the NHS books at the local level.

The real threshold in the NHS

The real threshold in the NHS is probably somewhere in the range that’s used. NICE has approved medicines with ICERs of over £50,000 and estimates from actual spending decisions locally in the English NHS have suggested around £18,000 and perhaps even lower.  But it’s not just a matter of health economics. It’s a complex interplay of the money, the influencers and the budget holders. Only time will tell if the potential for free branded medicines changes NICE’s perspective, or that of local clinicians and managers.

Leela Barham is an independent health economist. She can be reached at leels@btinternet.com.

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