The Pharmaceutical Price Regulation Scheme Outcomes and implications of the OFT

Study

Simeon ThorntonOffice of Fair Trading

07 June 2007

PDIG Summer Symposium

Overview

Introduction to study

Study process Main findings – the case for reform Recommendations

Key challenges / issues to address from recommendations

Address some misconceptions

Overview of study

Remit

Assess whether PPRS best means of meeting its objectives – VfM and incentives to invest

… or whether case for reform

Timetable

Launched September 05

Published February 07

Government response expected late June 07

What is the PPRS? £8n pa spent in UK on branded drugs prescribed

in NHS. PPRS means of influencing price

Profit controls

Cap and floor on company profits on sales to NHS

Rules for allowable costs

Price controls

Freedom of pricing up front. Subsequent restrictions on increasing prices

Periodic price cuts imposed. 7% in 2005. Can be delivered through ‘modulation’

Primary Care Organisations

Pharmacies

BM PI BM, GM

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PPRSScheme M

etc

GPs

Patient

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Profit controls Financial flows

Guidance, constraint

Prescription charge or free

Branded prescription or on patent drug

Generic prescription for off patent drug

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GMS contract

Pharmacy contract

Fee

sPrice controls

PPRS is a demand side instrument Not a truly regulatory measure. Attempt to

exercise buyer power in purchase of prescription drugs Structure of demand atypical PPRS certainly atypical!

Works in conjunction with other demand side measures National level – NICE, SMC, AWMSG, NPC etc

Local level – primary and secondary care

Aims to deliver VfM for NHS and give companies incentives to invest in useful drugs in future

Focus on dynamic incentives Why care about effects on innovation?

R&D global common cost but UK sales only c. 4% of world demand. But

At least 12 countries (c. 25% of world market) peg prices to reference basket that includes UK

Used informally in negotiations as well

UK prices likely to influence incentives to invest in drugs

Focus on static and dynamic efficiency legitimate

Main concerns with current scheme Companies welcome stability and speed

of access

But neither profit nor price controls take account of value of drugs: implications for VfM and incentives to invest

Profit cap ill suited to an innovative sector. Plus practical difficulties. Repayments 0.01% of revenue 99 – 04

Price cuts again blind to value of drugs – winners and losers. Plus sustainable in the future?

Portfolio effects (and margin differences) potential to distort competition

Practical implications Identified drugs for which NHS stakeholders

had expressed concern over cost effectiveness.

Reviewed price and clinical efficacy data with advice from experts.

Over £600 m in 2005 could have been used more cost effectively in primary care under alternative regime.

Benefits for patients NHS and innovative companies from reform

Snapshot. Small sample of drugs. Does not quantify gains in secondary care (data issues)

Key recommendationThat Government work towards reform of PPRS replacing current profit and price controls with a value based approach to pricing

On patent Off patent

New system would free resources to improve patient access to treatments and give companies stronger incentives to invest in the most useful drugs

On patent brands Ex ante or ex post vbp? Either an

improvement

Ex post alone closer to current arrangements. Ex ante risk of delay but maximises benefits of vbp and improvement in uptake of ce medicines?

Recommendation: hybrid vbp

Fast track ex ante assessment and five yearly ex post reviews

Possibility of risk sharing Flexible price structure to reflect different value in

different indications. Could be achieved through rebates

p0

A

p0

Cost/QALY equalised at maximum thresholds

Comparator

pA

Incremental benefit relative to comparator:product A = 1.5 QALY

defines price thresholds

Off-patent brands Off patent brands with bioequivalent Cat M

comparator

Price set in relation to that of Cat M generic equivalent

Brand premium for originator brands

Where no Cat M equivalent treat as on patent

Institutional arrangements Make use of existing institutions and

expertise in the NHS

Reform would need to be phased in – capacity building

Key challenges

UK prices while retaining devolved institutions and responsibilities

Avoiding duplication and ensuring consistency of approach

Medium term – post 2010

Possible long term

Key challenges for implementation Based on interaction with

stakeholders pre and post launch

Definition of value

Information requirements

Choice of comparators

There are others (level of threshold etc).

Definition of value Value to patient – quality of life and length

of life. Recognise different benefits in different indications / subgroups

Case for including non-patient benefits

Value in “innovation per se” more problematic Novelty unrelated to patient benefits. Operational?

Transparent?

Public subsidy / support for genuine market failures

Allow for brand premium for plausible but undemonstrated benefits. But size should reflect fact that value has not been demonstrated

Information Is VBP feasible / practical given information

constraints? One extreme – no information – a problem

for rational prescribing regardless of pricing approach

Recognise the challenges – case for early stage engagement and support (Cooksey)

Recognise that value can emerge over time

an argument for ex post assessments possibly risk sharing (Velcade) not a case for ignoring value

Choice of comparators Comparing ce of on-patent brands with

generics – premium only if demonstrated to be better

Main controversy relates to comparison of existing products with generics

Recognise short run implications. But is there a sustainable long term alternative? Can we systematically turn a blind eye to cost effective

substitutes? Not efficient and not sustainable Not in interests of patients or innovative companies Recognise that there may be benefits that have not been

demonstrated in RCTs – brand premium.

Some misconceptions (1) “Ignores incremental innovation”

Recommendations take full account of incremental innovation Reflect different values in different indications / patient

subgroups For some drugs we could not find evidence of differential

benefits (argument about the clinical evidence not the principle)

“Disadvantages 2nd, 3rd etc in class”

Products that arrive on market soon after originator will prosper (unlike other systems – FIC premium, therapeutic tendering)

Products that arrive many years later without offering benefits over existing products will not

Good dynamic incentives

Some misconceptions (2) “May adversely affect investment in

the UK”

Footloose investment - price not related to where investment carried out

Scheme does not provide explicit incentives to invest in UK – R&D allowance applies wherever carried out. Cannot legally do so

Loose bargaining – threats etc. Credible? Even if so, not recommending reductions in

expenditure – reallocation of spend – winners and losers

Some misconceptions (3) “Leave it to the demand side”

This is part of the demand side! Complementary with other measures to encourage cost

effective prescribing Not currently sufficient on their own in all cases

(particularly primary care awareness of price, clinical effectiveness etc.) – economies of scale

If we can get price right should alleviate need for other forms of rationing

Conclusion Long term model. Sustainable because

based on best use of expenditure – in interests of patients and innovative companies

Major implications – winners and losers. But unrelated to question of overall spend.

Challenging questions of implementation – evidential threshold.