Value-based drug pricing is meant to reduce the postcode lottery but could end up achieving the opposite.

Just before Christmas, health secretary Andrew Lansley outlined his plans to transform the UK’s drugs pricing system. He said a new tactic was necessary to drive innovation and give patients better access to drugs that could improve their treatment.

Mr Lansley said there were too many cases where the health service was paying too high a price for drugs not delivering enough benefit.

The government’s reforms aim to replace the current pharmaceutical price regulation scheme and National Institute for Health and Clinical Excellence technical appraisals with a system in which drugs are assessed on the value they add to treatment, the innovation they deliver to the wider market and the extent to which they deal with unmet need.

This is an admirable idea that aims to move patients away from the “postcode lottery” system so often derided by the Daily Mail. But can it deliver all it promises?

The first issue that raises concern is the fact that this policy doesn’t actually set a value-based price for drugs. Instead, it sets a maximum threshold price that the NHS is prepared to pay. What one might have expected is a target cost per quality adjusted life year with drug prices adjusted to a level that achieved this.

Furthermore, the policy will only be applied to new drugs and a revised version of the price regulation scheme will be developed for everything else. The fact that a price for a drug will be based on an estimation of value does not mean that it is rational to spend money on it if alternative drugs or treatments provide greater benefit for a patient at a lower cost. So, there could be far better alternatives for commissioners to spend their money on.

The government’s cancer tsar Sir Mike Richards has repeatedly pointed out that early detection, radiotherapy and surgery are often a much better investment than many of the new cancer drugs that come on the market.

A substantial number of the treatments the NHS provides have a lower cost per quality adjusted life year than the standard threshold NICE uses. So it is likely that many more effective and better value for money medicines may be cut to make space for new drugs. This will mean a loss of efficiency at the very time the NHS will need to be doing all it can to save money.

Overly optimistic

A major plank of these proposals is based on innovation. But can we be sure that value-based pricing will drive innovation? The government believes that paying a premium for innovation will incentivise research. But the UK equates to a mere 3.5 per cent of the global pharmaceutical market and the idea that a premium on just one product in an already small market will increase research and development may be overly optimistic.

More fundamentally, if a company invents a genuinely innovative product for an under-served area of treatment, the reward comes from high sales volumes and an eager market prepared to pay for the benefits. Rewarding innovation, regardless of the almost impossible task of defining it, looks unnecessary.

This policy seems to assume that all patients will benefit similarly from a drug. But it does not specify whether the price will differ depending on the basis for which the drug is used.

It also does not clarify how the new system will deal with drugs that have multiple uses, and multiple values: drugs such as Avastin, used for cancers and age-related macular degeneration.

The policy is yet to provide clarity on how the pricing system will deal with situations where a clinician’s practical use of the drug changes his or her view of its effectiveness or cost. Will the price go down if the evidence suggests it is less effective in the field than in trials?

The government’s promise is that value-based pricing will remove the need for commissioners to make difficult decisions. But it is difficult to see how this will be the case if only a few drugs have a value-based price and existing treatments are still subject to rationing judgement.

It is possible that commissioning consortia will look at the cost of drugs that are approved through the “old” system and decide not to commission them. This would be entirely sensible if there are interventions that would create better value for their patients.

If consortia took a hard line on promoting value it is possible this policy could reduce access to some drugs, especially given that the mandatory funding requirement that used to accompany NICE decisions will have been removed.

There is consensus among many in the health service that the current model for rationing drugs needs improving, but in many ways the government’s consultation raises more questions than it answers.

This proposed system has created much debate about how it will undermine the role of NICE and the impact it could have on efficiency. These reforms aim to reduce the postcode lottery, but the fact that there will be 250 or more consortia taking commissioning decisions could well have the opposite effect.