Is it possible for NICE to be objective about pharmaceutical pricing?

Guest Blog: Barbara Arzymanow

The Government appears to recognise the past shortcomings of NICE (National Institute for Health and Clinical Excellence) but no other organisation in the UK is appropriate to make expert recommendations on the value of individual drugs.  No matter how expert and well-reasoned NICE’s recommendations become, they are bound always to be controversial. All drug valuations depend on highly debatable assumptions. The traditional drug pricing system in the UK, the PPRS (Pharmaceutical Price Regulation Scheme), had as a major objective supporting the vast economic contribution of drug R&D to the UK. The NHS reforms do not establish a clear structure for promoting R&D in the UK and focus instead on empowering patients. Support for R&D needs to be an integral part of future structures. The heart of the challenge is to maintain support for R&D in the UK at the same time as pursuing NHS reforms that empower patients. We should also aim to align our interests with other European countries. Value-based pricing has already been implemented in a number of European countries and we must learn from the controversy that has followed.

The PPRS did not fix the price of individual products. Instead the overall revenue that each company was allowed to earn on supplying medicines to the NHS was agreed with the authorities.  The PPRS has been regarded by many experts as the best drug pricing system in the world and as a key reason for Britain’s historical success in the pharmaceutical industry.  The proposed new system involves setting a price for each drug according to its value. Unfortunately there is no objective way of doing this. The only official body in the UK to have made an attempt, NICE, has been very controversial. A number of NICE’s decisions have been widely regarded as wrong or insensitive and some have been reversed. Even the Chief Executive of NICE has admitted that assessing the “societal value” of drugs is “challenging” and that further discussion is needed.

Many experts work on assumptions about the value of a year of high-quality human life. Most estimates are around US $ 50,000-100,000. The arguments in support of these valuations often come from economists, actuaries and insurance companies and are in truth flimsy and arbitrary. A lot of jargon is used in discussing drug prices but there is no escaping the fact that the value of a medicine depends heavily on the circumstances in which it is prescribed.  For example, an expensive life-saving drug is worth much more to a patient who is allergic to all cheaper alternatives.  Another example is provided by antibiotics that save patients from fatal infections. Again the value depends on the situation. The value of curing a severe infection in someone in the late stages of terminal cancer with only weeks to live is surely different from the value of curing a life-threatening infection in a young, otherwise healthy adult.

In the final analysis most medicines add to healthcare expenditure by helping people to live longer and spend more time in old age, when health costs are potentially the highest. Many drugs that just relieve suffering in people also raise public expenditure. What then is the value of most drugs?  It is about the value of extra years of life or an improved quality of life. Quantifying these values is like trying to measure happiness.

The benefits of medicines for different illnesses are hard to compare. Consider some examples. Viagra improves the sex lives of many men. Zofran reduces vomiting in cancer patients undergoing chemotherapy or radiotherapy. Roaccutane improves severe acne. There is simply no consensus amongst experts, patients, doctors or politicians about how to quantify the relative values of these agents. Drugs that increase life expectancy can also not be compared directly because different categories of patient may be the main beneficiary (e.g. babies, young mothers, working men, the elderly, people living with HIV). Who is to say which of these groups have more valuable lives or can insist that they should all be treated equally? Lives that are being extended by drugs vary enormously in quality. Who can say that any particular view on how a person feels is right?  Is the life of a great scientist worth the same as that of an evil criminal?

Despite the general pattern some drugs genuinely reduce costs (e.g. by removing the need for surgery or shortening hospital stays). Some drugs also have a benefit to society (e.g. by reducing the burden on carers) or on the economy (e.g. by getting people back to work sooner).

The main reason for supporting the pharmaceutical industry is to promote R&D that may result in new drugs meeting unmet medical needs. Other, more domestic reasons are to encourage investment and employment in the UK or Europe.  The PPRS did some of this encouragement directly by rewarding companies for carrying out R&D or basing production in the UK. An important drawback of value-based pricing arises because pharmaceutical R&D involves a large, unavoidable element of luck. If companies are rewarded only for winners we must not be surprised by cutbacks or closures after barren periods in R&D. All pharmaceutical companies go through unproductive phases in R&D. At present many big pharmaceutical businesses are facing poor R&D output at the same time, largely because of increased bureaucracy reflecting past mergers.

Some potential pitfalls that NICE and its political masters should consider carefully are listed below:

  1. Sticking too rigidly to what is clinically proven.  A drug should be launched once enough data has been collected to show that the product benefits a target category of patient when given in a specified dosage regime. Patients, doctors and drug companies do not want a medicine to be unavailable for use in circumstances where it is proven to work whilst the full profile is explored. Often at launch the extent of the benefit has not been reliably established. As time goes by, new types of patient will usually be found to benefit. The dosage regime and formulation may be refined. Combinations with other drugs may be found to work better than originally anticipated, as happened with the first drugs for HIV. In general, doctors not involved in research should prescribe drugs on the basis of hard evidence. NICE on the other hand should take an educated view about how a drug is likely to develop. If NICE’s views turn out to be better than random guesses, future adjustments in value estimates will be able to be smaller and less frequent. Some of NICE’s worst decisions such as with Alzheimer’s Disease drugs arose because NICE doggedly refused to consider the benefits in situations where the evidence was not yet fully available. In the case of Alzheimer’s Disease patients with advanced disease were studied first. For a long time NICE only recommended late-stage use. Even when the drug approval authorities and most experts accepted that less severe sufferers would benefit NICE continued to drag its feet and to want more evidence than was available at the time. Ultimately, as the evidence grew, NICE bowed to the inevitable. Not surprisingly NICE’s excessive caution was heavily criticised by doctors, carers, patients and health economists and lowered respect for the organisation.
  2. Failing to recognise that the value of a drug may vary between patients and between different uses. Unless different formulations are needed for different uses, a drug can effectively have only one price unless major changes to prescribing are made. These would require much more information to be given on prescriptions and bureaucratic control and audit procedures.
  3. Drug companies will not wish to sell any drugs more cheaply in the UK than in the rest of the EU because parallel exports from the UK would undermine the EU pricing structure of the products. The best way to try to resolve this issue would be for companies to enter into agreements, for example over risk sharing, that reduce net spending on the drugs without affecting the wholesale price. Agreements of this type have not worked well in the past but there is no reason why they cannot be improved.
  4. The price of a drug needs to be managed not just at launch but throughout its commercial life. Relevant changes include the emergence of new competing products and patent expiries.  A drug cannot be priced in line with its value at all stages. For example, patent expiries may trigger a sharp decline in the price of drugs but do not affect their medical values.
  5. If drugs are sold at a higher price in the UK than Europe, the extra profit would go largely to distributors importing product from abroad. Research-based companies would not receive the full benefit.
  6. From a public spending perspective a pure, value-based pricing system may turn out to be a poisoned chalice. Sooner or later a drug will be discovered whose value far exceeds what it would be reasonable to pay. However unlikely it may be, what would NICE do if a cure for all cancers were discovered? The Public would not like to see vast NHS resources spent unnecessarily on a single product. On the other hand, if value-based pricing is suspended in cases where Government does not like the results, we must question the sincerity of the process.
  7.  The drug industry has a natural bias towards focussing on markets with large numbers of potential patients. If pharmaceutical companies are to be encouraged not to overlook small markets, higher drug prices are needed for rarer conditions.
  8. Whilst drug pricing is the most important factor affecting the commitment of companies to R&D, many other factors are relevant such as the patent box, R&D tax credits, tax breaks for investors and support for academia. Biotechnology companies particularly need support and are less influenced by drug prices because the launch of any drugs is typically still years away.

The points raised above could generally be addressed by preserving more elements of the PPRS in the new value-based pricing system. Such an approach is entirely consistent with a focus on value if the effect is a more successful drug industry.

Future structures need to involve promoting research as a fundamental part of their ethos. There is also a need for more international cooperation, particularly in the EU, as conflicting pricing systems do not send a clear message and can undermine one another.


About Barbara Arzymanow

Barbara Arzymanow is a Research Fellow at 2020health and is a founding director of an independent healthcare consultancy firm. She has been an investment analyst specialising in Pharmaceuticals for 25 years, prior to which she carried out academic medical research in university laboratories. Her experience, obtained entirely from outside the pharmaceutical industry, gives her a unique, political perspective independent of commercial lobbies. She has extensive experience in financing the biotechnology industry, which is vital for the long-term standing of medical research in the UK. She has always been inspired by the scientific excellence within the UK and would like to see collaborations between industry, the NHS and academia strengthened. For more information about Barbara's research and writings including submissions to Government Departments please visit . Barbara also tweets as @barbararesearch .
This entry was posted in Andrew Lansley, Department of Health, Drugs, NHS, Pharma, Research and tagged , , , , , , , , , , , . Bookmark the permalink.

One Response to Is it possible for NICE to be objective about pharmaceutical pricing?

  1. Pingback: Medical advisory body “NICE” should not spend too much time valuing drugs. | 2020health's Blog

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