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Balancing health and innovation policy in pharmaceuticals: An agenda for action

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1. What is innovation and how can we derive ... 4. Different approaches to valuing innovation in Europe ... Pecuniary incentives and explicit industrial policy ... – PowerPoint PPT presentation

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Title: Balancing health and innovation policy in pharmaceuticals: An agenda for action


1
Balancing health and innovation policy in
pharmaceuticals An agenda for action
Corvinus Innovation Economics Conference
SeriesInnovation in Medicines
  • Panos Kanavos
  • London School of Economics
  • 10 March 2009

2
Agenda
  • 1. What is innovation and how can we derive value
    from it?
  • 2. Is health care innovation worthwhile?
  • 3. How do we provide incentives?
  • 4. Different approaches to valuing innovation in
    Europe
  • 5. Valuing innovation static vs. dynamic
    considerations

3
1. What is innovation and how can we derive value
from it?
4
The benefits of (pharmaceutical) innovation
EC-DG Enterprise, Pharmaceutical Forum, 2007.
5
Economic categories for innovative medicines
Kleinke, Health Affairs, 2001.
6
DERIVING VALUE FROM INNOVATION DROP IN DEATH
RATES FOR DISEASES TREATED WITH PHARMACEUTICALS,
1965-1996
DISEASE
TREATMENT
Antibiotics
ACE Inhibitors, beta blockers, nitrates
H2 blockers, proton pump inhibitors
ACE Inhibitors, beta blockers, nitrates
Anti-inflammatories, bronchodilators
Anti-hypertensives, diuretics
Percent Drop in Age-Adjusted Death Rate
Souce PhRMA, 1998, based on Boston Consulting
Group, 1993, and U.S. National Center for Health
Statistics, 1998
7
DERIVING VALUE FROM INNOVATION VACCINATION FOR
CHICKEN POX REDUCES LOSS-OF-WORK COSTS
Source U.S. News and World Report, March 27,
1995 based on data published in the Journal of
the American Medical Association
8
DERIVING VALUE FOR INNOVATION USE OF
CLOT-BUSTING DRUG REDUCES PATIENTS DISABILITY
AND RESULTS IN NET SAVINGS TO HEALTH SYSTEM
Millions of Dollars per 1,000 Treated Patients
Source Fagan, S.C., et. Al., Cost-effectiveness
of Tissue Plasminogen Activator for Acute
Ischemic Stroke, Neurology, Vol. 50, pp.
883-889, 1998
9
The importance of medical innovation - value to
medical professionals and patients
  • 30 major technologies selected
  • Survey relative importance of innovations among
    experts (N274)
  • What is the impact on patient health and welfare
    if medical technology is not available
  • Highest adverse effect from absence of
    innovations
  • Lowest adverse effect from absence of innovations
  • Focus benefits relative to best alternative
    treatment rather than absolute efficacy

10
Source Fuchs and Sox, Health Affairs, 2001
  • Diagnostic innovations with a mean score of 0.570
    and drug innovations with a
  • mean score of 0.473
  • Effect of innovations on length or/and quality of
    life was rated in a similar way

11
2. Key question Is health care innovation
worthwhile?
  • Quantify return by calculating the gain in
    monetary terms of increased survival arising from
    medical RD
  • clinical benefits, health improvement economic
    consequences
  • Difficult to measure
  • Counterfactual
  • what would have happened if no RD had taken
    place?
  • Return to RD should be NET of this effect
  • Spillover effects
  • European gains from RD undertaken in USA ( vice
    versa)
  • Time span over which to measure benefits
  • A number of studies

12
Measuring the impact of medical technology
  • The residual approach (Fuchs, 1972 Mushkin
    Ladenfeld, 1979)
  • The service intensity approach (Freeland
    Schendler, 1983 OTA,1984)
  • The excess inflation approach (Atman Blendon,
    1979)
  • The cost of treatment approach (Scitowski
    McCall, 1976 Scitowski, 1985)

13
In the past, medical technology, including
pharma, was often seen as
  • a black box difficult to untangle
  • a residual in a multi-factorial model
  • responsible for increasing the volume of
    services provided to patients
  • having positive impact on LoS, but very often
    cost increasing

14
Achieving even incremental innovation requires
significant investments and can therefore be
perceived as a challenge for our healthcare
systems. But the benefits can be significant
  • Specific classes of drugs, for example statins,
    have proven to deliver extraordinary value
  • Early initiation of treatment with statins
    following an acute heart attach reduces the risk
    of fatal heart disease or a recurrent heart
    attack by 24 (1)
  • Every dollar spent on statin therapy in heart
    attack survivors (vs. survivors treated with
    usual care) has produced health gains valued as
    high as 9.44 (1)
  • When cholesterol is lowered with statin therapy,
    the risk of coronary events is reduced by 25 in
    type 2 diabetes patients (1)
  • Every additional dollar spent on statin therapy
    in type 2 diabetics who also suffer from high
    cholesterol has produced health gains valued at
    3 (1)
  • Beta blockers are another example with a highly
    positive ROI treatment of heart attack patients
    with beta blockers show a 351 return (1)
  • There are even equally impressive examples of
    ROIs from healthcare innovation
  • Treatment for heart attacks shows a 7 return on
    each 1 of investment in new therapies (e.g.,
    thrombolytic drugs, stents, long-term drug
    therapy) from 1984 to 1998 (33)
  • Improved treatments for low birth-weight infants
    shows a 6 return for each 1 of incremental
    investment in new therapies (e.g., special
    ventilators, artificial surfactants) from 1950
    to 1990 (33)

15
Drug innovation has also transformed the
treatment of grievous illnesses, such as cancer -
where we have seen significant value delivered at
societal and individual patient level, with the
promise of more to come
  • Experts estimate that innovative cancer drugs
    introduced between 1975 and 1995 have
  • Increased the 1-year crude cancer survival rate
    from 69.4 to 76.1, the 5-year rate from 45.5
    to 51.3, and the 10-year rate from 34.2 to
    38.1
  • Accounted for 50-60 of the increase in
    age-adjusted survival rates in the first 6 years
    after diagnosis
  • Added gt 1 year of life to patients diagnosed with
    cancer in 1995
  • Increased the life expectancy of the entire U.S.
    population by 0.4 years (since lifetime risk of
    being diagnosed with cancer is 40)
  • Recent research suggests the value to the patient
    of a life year saved in cancer is actually closer
    to 300K, well above the typical 30-75K QALY
    values used in health economics
  • If we continue to fund further innovation in
    cancer therapy, we can expect our children to
    reap even greater rewards
  • A cure for cancer would be worth 47T
  • A 1 reduction in cancer mortality would be worth
    500B

16
Innovation is unpredictable The Aspirin
innovation tree A story of rediscovery!
Aspirin was extracted from willow in 1825
Understanding of the critical role of thrombosis
in coronary heart disease 1950
-1975 Anti-platelet properties of Aspirin
discovered in 1971 The ISIS 2 study
demonstrated the ability of Aspirin to reduce
mortality in patients suffering heart attacks in
1988
17
Is health care innovation worthwhile?
  • Cutler et al (2007)
  • Value of anti-hypertensive drugs
  • Murphy and Topel (2007)
  • USA 1970-2000 gains in health added 3.2 trillion
    per year
  • Half attributable to progress in fighting CHD
  • McGuire et al (2007)
  • UK perspective
  • Cutler et al (1999)
  • Innovation has improved quality of life
    substantially
  • Treatment price inflation turns into treatment
    price deflation after accounting for improvements
    in quality of health delivered after treatment

18
Source Cutler et al., Health Affairs, 2007
In the absence of anti-hypertensive drug therapy,
average BPs for the population aged 40 and over
would have been 10 13 higher
19
Source Cutler et al., Health Affairs, 2007
  • 86,000 excess premature deaths from
    cardiovascular disease would have
  • occurred in 2001 among the US population aged 40
    and older without
  • anti-hypertensive drug therapy
  • 9 fewer deaths from major CVD, 38 fewer
    hospital discharges for stroke,
  • 25 fewer hospital discharges for MI
  • Significant avoidable hospitalisations and
    significant avoidable direct and indirect
  • economic cost from improved blood pressure

20
Population-weighted cumulative value of longevity
gains since 1900
Source Murphy and Topel, Journal of Political
Economy, 2006
Average gains for men and women (using
end-of-century population weights) are estimated
to be 1.3 million for the representative
individual of each sex.
21
Gains from increased longevity, 1970-2000, a,
males b, females Source Murphy and Topel,
Journal of Political Economy, 2006
22
Is health care innovation worthwhile?
  • Total estimate of the monetarised gain arising
    from increased survival
  • 1.61 trillion (men)
  • 1.22 trillion (women)
  • 2.84 trillion (1970-2000)
  • Net health expenditure
  • 2.58 trillion
  • 2 years UK GDP

Money gain in increased survival for Men
Money gain in increased survival for Women
McGuire Raikou, 2006.
23
Is health care innovation worthwhile?
  • YES at the general level
  • How do we provide incentives? Where?
  • Obviously depends on the reimbursement system?
  • What role does this play?

24
3. How do we provide incentives?
  • Encouraging research
  • The role of the reimbursement system

25
Encouraging research
  • Identify unmet medical need
  • Focus on certain aspects where there is unmet
    medical need
  • Focus on developing new technology platforms
  • Science base and university-led research
  • Collaborations
  • Commercialisation
  • Pecuniary incentives and explicit industrial
    policy

26
General Industrial Policy Research and
Development Tax Incentives in Selected Countries
Summary of Policy measures
27
The role of reimbursement systemDifferent
approaches to valuing (biomedical) innovation in
Europe
  • ASMR in France
  • The Innovation Assessment Algorithm in Italy
  • Value-Based Pricing in the UK

28
FranceASMR Improvement of Medical Benefit
  • CLINICAL B/R RATIO
  • In comparison with the previous treatments
  • - based on RCT gt indirect comparisons -
  • I Therapeutic revolution
  • II Major progress
  • III Moderate improvement
  • IV Weak benefit
  • V No improvement in B/R
  • CEPS - price
  • - volume

29
The Italian approach
30
Value-Based Pricing in the UK Recommendations by
OFT (2007)
  • 1. All new products subject to a NICE ex-ante
    review, with an agreed cost per Qaly threshold
  • 2. Prices are set by DoH on basis of above review
  • 3. Periodic review and price adjustment when
    market conditions change
  • 4. Prices can rise or decline as a consequence of
    the review
  • 5. Patent expiry of a molecule implies a price
    cut for the molecule and price cuts for similar
    molecules
  • 6. Use risk-sharing and non-linear pricing
    agreements to help set the right prices
  • 7. in short-term continue PPRS in combination
    with VBP as above
  • 8. A fixed drug budget

31
VBP An exciting agenda
  • While CEA systems on which VBP may be based
    increasingly play a role in supporting
    decision-making, they are not without
    controversy.
  • Questions abound surrounding the following
    issues
  • Role of CEA in decision-making and
    priority-setting
  • Methods and criteria employed during the
    assessment process
  • Role of stakeholders
  • Threshold
  • Impact on innovation and access

32
Equity /need adjusted reimbursement decisions
compared with a constant cost-effectiveness
threshold
Cost/QALY
Adjusted threshold
Threshold
1.0
0.9
0.5
0.1
0.2
0.3
Degree of severity/need
33
Pricing medicines placing VBP in context
  • Decisions on reimbursement of pharmaceuticals
    based on cost-effectiveness require a threshold
    value, reflecting the citizens valuation of
    health gain
  • then thresholds need to be based on several
    principles
  • Equal value of all human beings
  • Usefulness
  • Need solidarity
  • Cost-effectiveness
  • Marginal utility

34
4. Valuing innovation Static vs. dynamic
considerations
35
Valuing Innovation static vs. dynamic
considerations
  • Static aspects
  • Product is on/entering market and price is
    determined by the existing market conditions
  • Dynamic aspects
  • Product innovation is sought with future market
    conditions uncertain

36
What are the policy considerations?
  • Reimbursement
  • Rewarding innovation

37
The value of innovation
  • Innovative markets tend towards competition
  • Why does a monopoly have an incentive to
    innovate?
  • Replaces itself
  • Can reward developed/developing products through
    assessing (social) value
  • Ex post after innovation
  • Might also wish to reward risk-taking behaviour
  • Ex ante prior to innovation
  • Patent protection (time to market and price still
    needs to be set)
  • Neither are straightforward

38
Potential problems
  • IF ex ante assessment based on product value and
    coupled with ex post adjustment based on product
    value
  • Innovative incentives reduced
  • Ex ante pricing based on efficacy does not
    necessarily reward innovation
  • Could apply risk-sharing more widely
  • If ex post pricing is adopted based on value of
    product the protection of innovation is weakened
    and the risk of innovation is returned to the
    firm
  • Firms may choose less risky innovations
    (potentially high value products)
  • Firms may not choose high risk innovation
    strategies (as payoff to discovery tends to zero
    relative to the ex post reimbursement inducement
    to minimise risk)
  • Generally 2 instruments are required if 2 policy
    targets are sought
  • Ex ante and ex post regulation might do this but
    there is no guarantee

39
Improving value assessments INCENTIVES
  • Timely access
  • Objectivity in value assessment
  • Incentives for RD
  • Comprehensiveness
  • Flexibility
  • Collaborative approach

40
  • In sum
  • Attributes of (biomedical) Innovation
  • A Continuous Cyclical process
  • Very often (in fact more often than not)
    incremental
  • Success in one area often seeds new innovation
    cycles
  • Motivated by therapeutic challenges and reward of
    success
  • Direction of innovation is often unpredictable
  • but support and incentives are important and so
    are the rewards where they are justified
  • In terms of improving value assessments, it is
    important to have timely access,
    comprehensiveness, flexibility and collaborative
    approach
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