Title: Balancing health and innovation policy in pharmaceuticals: An agenda for action
1Balancing 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
2Agenda
- 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
31. What is innovation and how can we derive value
from it?
4The benefits of (pharmaceutical) innovation
EC-DG Enterprise, Pharmaceutical Forum, 2007.
5Economic categories for innovative medicines
Kleinke, Health Affairs, 2001.
6DERIVING 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
7DERIVING 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
8DERIVING 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
9The 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
10Source 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
112. 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
12Measuring 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)
13In 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
14Achieving 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)
15Drug 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
16Innovation 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
17Is 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
18Source 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
19Source 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
20Population-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.
21Gains from increased longevity, 1970-2000, a,
males b, females Source Murphy and Topel,
Journal of Political Economy, 2006
22Is 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.
23Is 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?
243. How do we provide incentives?
- Encouraging research
- The role of the reimbursement system
25Encouraging 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
26General Industrial Policy Research and
Development Tax Incentives in Selected Countries
Summary of Policy measures
27The 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
28FranceASMR 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
29The Italian approach
30Value-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
31VBP 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
32Equity /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
33Pricing 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
344. Valuing innovation Static vs. dynamic
considerations
35Valuing 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
36What are the policy considerations?
- Reimbursement
- Rewarding innovation
37The 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
38Potential 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
39Improving 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