The Pharmaceutical Price Regulation Scheme Outcomes and implications of the OFT Study

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PDIG Summer Symposium
The Pharmaceutical Price Regulation Scheme
Outcomes and implications of the OFT Study
Simeon ThorntonOffice of Fair Trading
07 June 2007
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Overview

• Introduction to study
• Study process
• Main findings the case for reform
• Recommendations
• Key challenges / issues to address from
  recommendations
• Address some misconceptions

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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

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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

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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

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Focus on dynamic incentives

• Why care about effects on innovation?
• RD 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

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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

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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)

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Key recommendation

• That 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

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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

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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

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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

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Medium term post 2010
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Possible long term
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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).

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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

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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

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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.

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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

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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 RD 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

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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

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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.