The new drug pricing deal acknowledges that overall affordability is more important than cost effectiveness, and value based pricing is all but dead, says Mike Birtwistle

Yesterday’s announcement of a new drug pricing scheme was the product of over a year’s haggling, calculating and bluster. As with every pharmaceutical price regulation scheme, it was a confidential negotiation, with both sides nonetheless doing a fair amount of public posturing.

‘There is a common misconception that the UK is a low user of all forms of medicine and this has framed some of the responses to the deal’

There has already been the inevitable rush to judgement. Yet who “won” this negotiation is not the point; in truth, the industry has secured some commitments on access to new medicines in the PPRS deal even if they are not written in the highly legalistic tone of the cost-control commitments.

The longer term implications of the deal could be significant, though perhaps not in the way those who negotiated it intended.

Unpacking the deal

I should start with a declaration of interest. I have advised many of those with an interest in drugs pricing, but I wasn’t privy to the content of the deal or the discussions that led to it. What follows is my first attempt to unpack what this might mean for the NHS, industry and, most importantly, patients.

There is a common misconception that the UK is a low user of all forms of medicine and this has framed some of the responses to the deal.

The Department of Health’s Extent and causes of international variations in drug usage − a project I worked on − found the UK was mid-table overall.

It is a high user of some types of drug such as statins or drugs for acute myocardial infarction, and a low user of other types including newer cancer drugs and hepatitis C treatments.

‘Spending now to generate payments for someone else in the future is unlikely to be deemed an acceptable excuse for blowing a budget’

The UK can, therefore, achieve high levels of use. The challenge is to unpick what enables this and to deliver it for the right drugs and at the right price. This is the ultimate challenge for any pricing deal.

The government and pharmaceutical industry have gambled on a scheme that has some important differences from its predecessors. It seeks to cap the overall cost of branded medicines to the NHS, irrespective of how many are used or at what price. This has led some to argue that the constraints on budget holders will be lifted when it comes to new medicines.

This too is incorrect. An overall cap provides certainty to the Department of Health but adjustments will be made in future years, which will hardly reassure NHS managers fixated about in-year financial balance.

Spend now, pay later

It is also not clear if or how any PPRS payments will accrue to the budget holders who incurred any cost above the overall expenditure cap. Spending now to generate payments for someone else in the future is unlikely to be deemed an acceptable excuse for blowing a budget.

The deal effectively acknowledges that overall affordability is more important than cost effectiveness. The anticipated caps on spend have already been agreed.

Presumably the NHS could spend this money on highly cost effective drugs or on very cost ineffective drugs. Any payments triggered by excess spend will be the same, irrespective of the cost effectiveness of the medicines on which the money is spent. Value based pricing this is not.

‘Value based pricing might not be quite ‘dead’ but it is likely to be a damp squib’

So what has happened to value based pricing? The plan had been for reforms to the way value is measured to be developed in parallel with the negotiations on the PPRS. This has clearly not happened, with whatever might end up being called value-based pricing now delayed until nearly a year after the new pricing agreement comes into effect.

Value-based pricing might not be quite “dead” but as HSJ reported a few weeks ago, it is likely to be a “damp squib”.

Yet putting in place a cost cap on branded drugs spending does remove some of the risk of cost shocks associated with any changes to the National Institute of Health and Care Excellence’s process.

Perhaps there could now be an alignment of interest between the government, industry and charities about the need to explore more fundamental reform to value assessment than the somewhat timid incremental change currently being discussed. Now that would be significant.

Mike Birtwistle is a partner at Incisive Health

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