Value, Price, Guidance and Evidence

1
Value, Price, Guidance and Evidence

• Karl Claxton
• Department of Economics and Related Studies,
• Centre for Health Economics,
• University of York.
• www.york.ac.uk/inst/che
• Based on a paper to be published in Health
  Economics,
• available at www.interscience.wiley.com

2
Overview

• Common concerns
• What is value?
• Value and price
• Price and guidance
• Price, uncertainty and the value of evidence
• Prospects

3
Common concerns

• Inward RD
• No incentives from current PPRS
• Infrastructure and publicly funded research
  (Cooksey)
• NHS Spend
• Reallocation of revenue
• Total drug spend may well increase
• Value of innovation
• Pay more than its value in the hope that
  something better will be developed?
• Subsequent to market
• Shorter time until generic entry
• True under current PPRS

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What is value?
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Value and price
Price
Value of the innovation P.Q
All value is private revenue P.Q No net
health benefits to the NHS
P
NHS benefits following patent expiry? 1.
Competitive generic entry 2. New technologies
priced relative to generic versions of the old
Q
Quantity
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Price and guidance?
Price
Choose Guidance Revenue Net Benefit
P1 S1 P1.Q1 0
P2 S1S2 P2.Q2 A
P3 S1S2S3 P3.Q3 AB
P1
P2
P3
S1
S2
S3
Q1
Q
Q2
Quantity
7
Price and volume/rebate?
Price
Perfect discrimination P1 for Q1, P2 for
(Q2-Q1), and P3 for (Q-Q2)
P1
Marginal price volume P1 for Q1, and P0 gt Q1 P2
for Q2, and P0 gt Q2 P3 for Q, and P0 gt Q3
P2
P3
S1
S2
S3
P0
Q1
Q
Q2
Quantity
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How should we share value?

• Should the private sector get all the value?
• We dont care who gets it
• No subsidies or publicly funded research and
  development
• But it is legitimate to care
• NHS should get some of the value
• No one has ever argued it should get it all
• How to share?
• Avoid games (commitment, hold up and
  politicisation)
• Other markets where innovation is protected
• Give monopoly rights during patent period
• Explicit rules that mirror other markets
• A free choice of price but with associated
  guidance
• No price discrimination (marginal price
  volume/rebate)
• No winner take all negotiations

9
Price and the value of evidence?

• Approval close to licence
• Net benefits of early access
• Evidence base is least mature
• Impact on future research
• Incentives for manufacturers
• Ethics of experimental research
• Recruitment into trials
• When do we need more evidence?

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Why is evidence valuable?
How things could turn out Net Health Benefit Net Health Benefit Net Health Benefit Best we could do if we knew
How things could turn out Treatment A Treatment B Best choice Best we could do if we knew
Possibility 1 9 12 B 12
Possibility 2 12 10 A 12
Possibility 3 14 17 B 17
Possibility 4 11 10 A 11
Possibility 5 14 16 B 16
Average 12 13 13.6
Whats the best we can do now?
Could we do better?
Choose B, expect net benefit of 1 QALY
Get an extra 0.6 QALY
Wrong decision 2/5 times
Maximum benefit of more evidence is 0.6 QALYs or
12,000 per patient
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Coverage and evidence?

• Research conducted while approved for use
• Publicly funded or sponsored research will be
  undertaken
• Questions to ask
• Is additional evidence needed?
• What type of evidence is needed?
• Can this evidence be provided with concurrent NHS
  use?
• Type of research
• Observational/registry
• RCTs generally not possible

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Coverage without evidence?

• Early approval?
• Net benefits of early access
• Forgo evidence need to support NHS practice
• If ignore uncertainty
• We will undermine evidence base
• Current and future technologies
• Compare costs and benefits to all NHS patients?
• Price and guidance depends on uncertainty
• As well as effects, other costs and the threshold

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Only in research?
Benefits of approval
Opportunity costs of approval
ICER
14
Provide the evidence needed
15
Or reduce price
Benefits gt Costs
ICER
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Dangerous omission?
An opportunity not to be missed

• Account for uncertainty and the need for evidence
• Reward investment in evaluative research
• Incentivise the critical path envisaged in
  Cooksey
• Earlier decisions without undermining the
  evidence base for future NHS practice

17
Clear and predictable signals

• Reduce unnecessary risks and uncertainty
• Provide information - display the NHS demand
  curve
• Avoid unexpected nos and delays
• Explicit rules
• Avoid hold up and demonstrate commitment
• Threshold based on what is displaced in the NHS
• Redress scientific methods and process
• Depoliticise allocation decisions in the NHS
• A threat to public and private sectors
• Share the benefits of yes and the
  responsibility for no

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Prospects?

• There are potentially significant benefits
• Short run but greater in the longer run
• Opportunity to link price, evidence and guidance
• Incentivise/guide the critical path outlined in
  Cooksey
• Reduce all risks not necessary for incentives
• For example,
• Expected revenue for a product and total expected
  spend
• Monitor and/or agree a two way rebate
• Negotiate bands for growth in spending?
• OFT is a good deal for private sector its too
  good!