• Andrea Mantovani

Value Based Pricing - The way forward after recession times?

European public authorities are continuously struggling to maintain a high level of access to health care, while limiting increases in expenditure associated with an ageing population and higher demand, mainly linked to chronic diseases (diabetes and cardio-vascular), oncology and lately rare diseases. 

The latest global economic recession has put additional pressure on public budgets across Europe and the entire world. Europe and USA and most of the western countries in 2008/2009 were largely affected by the financial crisis. As the recession in Europe continued, the effect was felt especially in southern European countries and Ireland (PIIGS). Soon the problem of financial debt for individual European countries developed into a crisis in the Eurozone, which then became a high priority for the European Central Bank and the European Parliament. All countries were urged to implement cost-saving measures that affected public financing for health care. Recession, which is defined as two successive quarters of negative growth in gross domestic product (GDP), can have a detrimental effect on the health of the population because economic downturns are strongly associated with a decline in health-care utilization and a deterioration in health outcomes. For example, suicides and homicides increased among working-age men and women when unemployment rose rapidly during past recessions in Europe and the Rest of the World. The World Health Organization examined the influence of the recession on expenditure on, and the sales and prices of, medicines between 2007 and 2009 in 84 countries. It found that the economic recession had mixed effects and that the largest declines in medicine sales occurred in high-income countries and in Europe.

 It has been shown that countries that were seriously affected by the crisis, such as the Baltic countries, Greece, Portugal, Italy, Spain all implemented several pharmaceutical policy measures. This included price cuts, changes in reimbursement rates, Internal Referencing Pricing (IRP), promotion of lower prices Biosimilars and Gx, formulary reviews, delays in time to access, stricter reimbursement criteria, different forms of claw backs and products paybacks. The same happened and is happening around Europe (UK, Germany, France) and Japan, and now in the USA with the high impact governmental debate on prices and PBMs schemes.

The ways in which countries responded to the recession differed greatly, with less economically stable countries implementing a larger number of policies that affected the pharmaceutical sector than economically stable countries. However, despite numerous policy changes and contrary to general expectations, overall consumption of pharmaceuticals in the 10 highest-selling therapeutic classes continued to increase in most countries and there was no clear difference between economically stable and less stable countries. Furthermore, the total consumption and sales of pharmaceuticals are expected to continuously grow in the next years.

The Value of medicines was and still is a key driver for pharma companies in order to get new products on the market at the right price and to maintain existing prices/ margins for older drugs.

I strongly believe that Value is the result of the below representation, which is very much linked to the concept of Value Based Pricing, hence linked to Value and associated to direct, indirect and social costs:

Fig. 1 – Elements of Value

Green circles: core elements of valueLight blue circles: common but inconsistently used elements of valueDark blue circles: potential novel elements of valueBlueline: value element included in traditional payer or health plan perspectiveRed line: value element also included in societal perspective

A couple of questions still remain open though:

which elements of Value should be included in the equation?How much is the system able to track and recognize the elements of Value and link them to their associated costs?

In the following table 1 (ISPOR Task Force 2018) you will see exactly what attributes should be discussed and what kind of perspective should be utilized when including or excluding certain Elements of Value.

I personally believe that while the concept of Value Based Pricing (and Value Based Healthcare) is virtually supported by everyone in the healthcare systems, there are still many hurdles to overcome in order to implement the model correctly:

1. The definition of Value is not commonly understood and shared by all parties in the system;

2. The weight attributed to the Value, once agreed, also represent a significant hurdle for determining the right price: should the Value of Hope be weighted as much as the Value of the QALY gained? And what eight should be given to the Scientific Spillovers?

3. The match between Value and Costs is hard to make: the systems probably lack the technology, the underlying platforms and the skills to run these complex algorithms altogether

4. Time is always an issue and every year budgets need to be set and finalized: hence time is becoming a point pressure to ensure Value and Costs are well linked and that outcomes are carefully and timely monitored over time.

There a few examples of Value Based Pricing in Europe (mainly in Italy, Sweden and France), but the value assessed is typically the clinical value alone of a certain medicine (see the latest case in Italy for the CAR-T reimbursement, based on a certain end point attainment in order to trigger the performance based payment).

But what about ancillary effects of other technologies that would allow much better outcomes for the patients, such as monitoring devices, sensors, smart data, smart devices, digital therapeutics? Shouldn’t they be taken into account when calculating the care value of a patient and their associated costs?

Value has always been the mantra for approving drugs in recent years: the introduction of the 5 levels rating by France, Germany and then Italy is a clear example of how much the Value Added by new medicines is so important for the HealthCare Systems around the world; the debate in UK (and now in USA) around the right thresholds to reward innovation is also a clear example on how the systems are putting more and more emphasis on this concept to ensure patients get better outcomes for what the NHS pay for.

Value Based Pricing seems a logical conclusion on how to tackle this problem for all the actors of the system, since it is the common denominator for everyone, as per below picture:

Patients are valuing the health outcomes they will get in taking a new medicine compared to the existing (or non-existing) onesBioPharma Companies will be interested to bring better health outcomes into the market and at the same time to recoup the costs of R&D (and other general costs in order to reward all stakeholders)Payers will be interested to approve new medicines that will bring better health outcomes to the patients at the same time making sure that the money spent on it will be appropriate compared to other priorities, hence the technology should be cost/ effective.

At the end, Health Outcomes, and subsequently Value Based Pricing seems quite a logical win-win-win solution for all the actors of the system. Assuming all the open questions raised on point nr. 2 are solved.

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World Preview 2019, Outlook to 2024, Evaluate Pharma, 12th Edition June 2019Effect of the economic recession on pharmaceutical policy and medicine sales in eight European countries, WHO, Christine Leopold et al., June 16th, 2014Defining Elements of Value in Health Care — A Health Economics approach: An ISPOR Special Task Force Report, Darius N. Lakdawalla, PhD et al., Value in Health 21, 2018 (131-39)What is Market Access?, Andrea Mantovani, Jan. 2nd, 2019, Value of Integrated Care, Andrea Mantovani, July 16th, 2019, alla crisi economica con il Value Based Pricing, Andrea Mantovani, Dic. 12th 2019, HPS Publications

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©2019 di Andrea Mantovani