The Questionable Economic Case for Value-Based Drug Pricing in Market Health Systems

This article investigates the economic theory and interpretation of the concept of “value-based pricing” for new breakthrough drugs with no close substitutes in a context (such as the United States) in which a drug firm with market power sells its product to various buyers. The interpretation is different from that in a country that evaluates medicines for a single public health insurance plan or a set of heavily regulated plans. It is shown that there will not ordinarily be a single value-based price but rather a schedule of prices with different volumes of buyers at each price. Hence, it is incorrect to term a particular price the value-based price, or to argue that the profit-maximizing monopoly price is too high relative to some hypothesized value-based price. When effectiveness of treatment or value of health is heterogeneous, the profit-maximizing price can be higher than that associated with assumed values of quality-adjusted life-years. If the firm sets a price higher than the value-based price for a set of potential buyers, the optimal strategy of the buyers is to decline to purchase that drug. The profit-maximizing price will come closer to a unique value-based price if demand is less heterogeneous.     

英国价值定价理念对我国医保药品报销政策的启示

本文在梳理英国医保药品报销政策的基础上,通过对价值定价理念的深入研究和理解,系统探讨其在报销政策制定过程中对药品目录遴选、价值测算、支付标准确定、医保基金平衡和报销效益评估的作用机制,并深入思考通过价值定价理念建立起的药物警戒体系与药品报销政策间的衔接机制。在此基础上总结价值定价理念的特点、应用阶段和具体操作方法,以期为我国提供借鉴。     

Evidence-Based Decision-Making in Asia-Pacific with Rapidly Changing Health-Care Systems: Thailand, South Korea, and Taiwan

Objective:  To review the use of evidence in the market approval process, reimbursement, and price control mechanisms for medicines and medical devices in Thailand, South Korea, and Taiwan.
Methods:  Documentary reviews supplemented by interviews with senior policymakers of relevant public health authorities.
Results:  Drug regulatory authorities play a vital role in the market authorization process by considering evidence on safety, efficacy and quality for new medicines, and bio-equivalence for new generic products of previously patented medicines. For the formulation of the reimbursement list, all three cases applied evidence on cost-effectiveness, to various degrees, with clear institutional structure, capacity, and functions. Only Thailand has specified an explicit benchmark on cost-effectiveness for inclusion in the reimbursement list. For price control, all have established mechanisms and processes for price negotiation. These mechanisms apply evidence on cost structure and relative prices in other countries to ensure affordable prices, especially with the patented drug industry. Thailand's universal insurance schemes use a capitation payment model which proves effective in implicit price control. To increase access to essential medicines that have patents on and high price, Thailand applied Trade-Related Aspects of Intellectual Property flexibilities; "government use of patent," for public noncommercial purposes to seven essential drugs in 2006 to 2008.
Conclusion:  Rapidly increasing health expenditure and universal health insurance systems have created greater requirement for proof of "value for money" in the approval and funding of new medical technologies. All settings have established clear mechanisms to apply appropriate evidence in the processes of market approval, reimbursement, and pricing control.     

Impact of Cross-Reference Pricing on Pharmaceutical Prices

Objective

Several EU countries are determining reimbursement prices of pharmaceuticals by cross-referencing prices of foreign countries. Our objective is to quantify the theoretical cross-border spill-over effects of cross-reference pricing schemes on pharmaceutical prices in the former EU-15 countries.

Methods

An analytical model was developed estimating the impact of pharmaceutical price changes in Germany on pharmaceutical prices in other countries in the former EU-15 using cross-reference pricing. We differentiated between the direct impact (from referencing to Germany directly) and the indirect impact (from referencing to other countries that conduct their own cross-reference pricing schemes).

Results

The relationship between the direct and indirect impact of a price change depends mainly on the method applied to set reimbursement prices. When applying cross-reference pricing, the reimbursement price is either determined by the lowest of foreign prices (e.g. Portugal), the average of foreign prices (e.g. Ireland) or a weighted average of foreign prices (e.g. Italy). If the respective drug is marketed in all referenced countries and prices are regularly updated, a price reduction of € 1.00 in Germany will reduce maximum reimbursement prices in the former EU-15 countries from €0.15 in Austria to €0.36 in Italy.

Discussion

On one side, the cross-border spill-over effects of price reductions are undoubtedly welcomed by decision makers and may be favourable to the healthcare system in general. On the other side, these cross-border spill-over effects also provide strong incentives for strategic product launches, launch delays and lobbying activities, and can affect the effectiveness of regulation.

Conclusions

To avoid the negative effects of cross-reference pricing, a weighted index of prices from as many countries as possible should be used to determine reimbursement prices in order to reduce the direct and indirect impact of individual countries.     

价值医疗背景下创新药品的定价和支付模式综述

价值医疗体系中,付款人追求物有所值,采用基于价值的定价和支付,管理创新药物对基金预算的影响和健康产出的不确定性。通过对价值定价、适应症特异性定价、按结果付费及按揭定价等模式的分析,为我国的创新药品医保准入提供借鉴。     

Value-Based Pharmaceutical Contracts: Value for Whom?

Value-based pharmaceutical contracts (VBPCs) are performance-based reimbursement agreements between healthcare payers and pharmaceutical manufacturers in which the price, amount, or nature of reimbursement is tied to value-based outcomes. VBPCs are often complex, and the nature of who benefits and in what ways can be unclear. We discuss how VBPCs compare with value-based payer–provider arrangements in terms of performance-based reimbursements and alignment of incentives. In addition, we examine how VBPCs can affect costs, clinical outcomes, and access to medications. Because these contracts are unlikely to reduce costs in isolation, we recommend taking a patient-centered approach when developing VBPCs and tying VBPCs to more overarching payer drug cost reduction strategies.     

Pharmaceutical reference pricing in Germany: definition of therapeutic groups, price setting through regression procedure and effects

The German reference pricing system defines a reimbursement threshold for groups of pharmaceuticals. Pharmaceuticals are grouped according to certain criteria by the Federal Joint Committee. To make different active ingredients comparable, so called reference values are defined. Subsequently, the federal association of sickness funds sets reference prices using a regression procedure. However, the impact of the reference price system is limited. On the one hand there is a strong incentive for pharmaceutical companies to decrease prices to the reference price. On the other hand there is no incentive for further price reductions. Additionally, only one part of the pharmaceutical market is affected by reference pricing. Therefore the instrument has only managed to lower pharmaceutical expenditure in the short run. For sustainable long-term cost containment the use of other regulatory instruments is necessary. Nevertheless, compared to other instruments of price-regulation, reference pricing seems to be a good alternative to control pharmaceutical prices, since rationing is kept as little as possible.     

The introduction of a value-based reimbursement programme—Alignment and resistance among healthcare providers

Reimbursement programmes are used to manage care through financial incentives. However, their effects are mixed and the programmes can motivate behaviour that goes against professional values. Value-based reimbursement programmes may better align professional values with financial incentives. The aim of this study is to analyse if and how healthcare providers adapt their practices to a value-based reimbursement programme that combines bundled payment with performance-based payment. Forty-one semi-structured interviews were conducted with representatives from healthcare providers within spine surgery in Sweden. Data were analysed using thematic analysis with an abductive approach and a conceptual framework based on neo-institutional theory. Healthcare providers were positive to the idea of a value-based reimbursement programme. However, during its introduction it became evident that some aspects were easier to adapt to than others. The bundled payment provided a more comprehensive picture of the patients' needs but to an increased administrative burden. Due to the financial impact of the bundled payment, healthcare providers tried to decrease the amount of post-discharge care. The performance-based payment was appreciated. However, the lack of financial impact and transparency in how the payment was calculated caused providers to neglect it. Healthcare providers adapted their practices to, but also resisted aspects of the value-based reimbursement programme. Resistance was mainly caused by lack of understanding of how to interpret and act on new information. Providers had to face unfamiliar situations, which they did not know how to handle. Better IT-facilitation and clearer definition of related care is needed to strengthen the value-based reimbursement programme among healthcare providers. A value-based reimbursement programme seems to better align professional values with financial incentives.     

药品价格指数在医保支付标准中的应用研究

国家发展改革委提出取消大部分药品政府定价,医保目录内药品以医保支付标准进行支付。在市场价格的基础上形成医保支付标准,因此收集和整合药品市场价格信息成为实施这一政策的关键。药品价格指数可以整合药品市场价格信息,反映药品价格的变化水平。本文通过分析医保支付标准制定的需求,明确应当以分位价格指数的方式制定医保支付标准。通过介绍德国参考定价来具体说明利用分位价格确定医保支付标准的做法,并且引入不同的药品价格指数来分析药品价格变化的原因,为医保支付标准的制定和调整提供依据。     

Drawing on international experience to reform the Belgian market for ostomy appliances

This article aims to review the regulatory framework governing the Belgian ostomy appliance market in the light of the experience of Denmark, France, the Netherlands and Ontario (Canada) with regulation of ostomy appliances. Information about the regulatory framework was derived from the international literature, analysis of legal texts and a survey completed by national experts. The comparative analysis revealed that these countries have adopted varying approaches towards regulating their domestic ostomy appliance market. Strategies to keep down prices include public procurement in Denmark, maximum prices in France and exclusion of expensive appliances from reimbursement in the Netherlands. To contain public expenditure on ostomy appliances, consumption patterns are monitored in the Netherlands, the quantity of reimbursed appliances is limited in Belgium and public reimbursement is restricted in Ontario. Ostomy appliances are generally distributed by community pharmacies and medical equipment shops. In countries that emphasise home care delivery such as Denmark, domiciliary distributors dominate the market to the detriment of community pharmacies which do not seem to be able to offer this service at a competitive price. An avenue for reforming the Belgian ostomy appliance market is proposed which valorizes the role of ostomy care nurses in guiding the choice of ostomy appliances. Furthermore, it is recommended that a competitive tendering process determines the price of ostomy appliances, that reimbursement for service provision by distributors is separated from reimbursement of appliances, and that patients receive a fixed grant from the third-party payer to buy ostomy appliances.     

台湾地区医保药品的采购模式和支付价格

目的:分析台湾地区医保药品在采购和支付方面的做法和经验,为大陆地区推进药品采购模式和支付价格改革提供参考。方法:系统梳理台湾地区在医保药品采购和支付方面的政策文件和相关文献,并与大陆地区药品采购和支付政策进行对比分析。结果:台湾地区医疗机构根据自身用药需求,自主采购药品,采购价格由供需双方直接谈判形成。政府仅对医保药品的价格进行管理,对新药采用国际参考定价办法;原厂药、BA/BE学名药、一般学名药的支付价以国际参考价格为上限,依次降低。药品质量也在医保支付标准考虑之列。此外,药品的支付价格依据采购价格实行动态调整,当二者差值大于30%时,健保署便会调整支付价格以减小二者的差价。结论:台湾地区通过制度设计和调整,较好地统筹了药品采购和补偿两个环节,形成了合理的药品采购价格和支付价格,这些经验可为中国大陆地区完善药品采购和支付政策提供参考。     

Value‐Based Differential Pricing: Efficient Prices for Drugs in a Global Context

This paper analyzes pharmaceutical pricing between and within countries to achieve second‐best static and dynamic efficiency. We distinguish countries with and without universal insurance, because insurance undermines patients' price sensitivity, potentially leading to prices above second‐best efficient levels. In countries with universal insurance, if each payer unilaterally sets an incremental cost‐effectiveness ratio (ICER) threshold based on its citizens' willingness‐to‐pay for health; manufacturers price to that ICER threshold; and payers limit reimbursement to patients for whom a drug is cost‐effective at that price and ICER, then the resulting price levels and use within each country and price differentials across countries are roughly consistent with second‐best static and dynamic efficiency. These value‐based prices are expected to differ cross‐nationally with per capita income and be broadly consistent with Ramsey optimal prices. Countries without comprehensive insurance avoid its distorting effects on prices but also lack financial protection and affordability for the poor. Improving pricing efficiency in these self‐pay countries includes improving regulation and consumer information about product quality and enabling firms to price discriminate within and between countries. © 2013 The Authors. Health Economics published by John Wiley & Sons Ltd.     

The End of the International Reference Pricing System?

All 28 EU member states except Sweden and the UK apply international reference pricing (IRP), international price comparison, external reference pricing or cross-reference pricing. The attractiveness of using prices of other countries as a benchmark for decisions within a national price control is obvious. Alternative models for price and reimbursement decision making such as value-based pricing (VBP), i.e. cost-effectiveness analyses, are more complicated. However, IRP provides incentives for stakeholders to take action not in line with optimal (welfare-maximizing) pricing. IRP is costly for two reasons. First, manufacturers are incentivised to limit or delay access to new innovative treatments in countries with small markets and/or a low income, which can be costly in terms of loss of health. Second, all countries also experience a loss of welfare (health) because IRP reduces the opportunities for differential pricing (Ramsey pricing), i.e. using the fact that the ability and willingness to pay differs between countries. Thus, IRP results in less sales revenue to finance research and development of new innovative drugs. We can now observe that payers and manufacturers are engaged in different types of risk-sharing schemes, price–volume negotiations, payback arrangements, confidential discounts, coverage with evidence developments, etc., all with the purpose of returning to the old model of price discrimination and Ramsey pricing. Shortly, real prices for use in IRP systems will cease to exist and, thus, we expect to soon see the end of IRP, a new system for price discrimination and an increasing demand for VBP.     

Toward a Hedonic Value Framework in Health Care

In well-functioning markets, a hedonic pricing scheme can reflect the marginal valuation of various attributes of a differentiated product at market equilibrium. It serves as an important tool to inform pricing of a new product with a specific combination of attributes. Because health cannot be bought and sold in a market setting, and health care markets are distorted by insurance or government subsidies, direct valuation of a health intervention as a differentiated good through observed market prices is difficult. In this article, we discuss the rationale of using stated preference methods for developing a hedonic value framework for health insurance products to inform the decision on whether a product should be covered or subsidized by insurance, given its price. This value index will not reflect marginal value at market equilibrium, as in a hedonic pricing scheme, but would capture the distribution of marginal value in the population. We discuss how affordability concerns can be integrated into the development of a hedonic valuation model. We compare this framework with traditional cost-effectiveness analysis and also the existing value frameworks put forth by various organizations. The framework can be adopted to inform other decisions such as pricing. We argue that developing such a comprehensive and decision-theoretic value framework is feasible and, if successful, can serve to inform health care resource allocation in this country for decades to come in a systematic manner.     

日本药品价格制度研究及对我国药品价格管理的启示

目的:分析和研究日本药品价格管理机制,为中国药品价格政策制定提供借鉴与参考。方法:文献比较研究和描述性分析。结果:日本药品费用控制合理,很大程度上得益于日本统一、有效的药品价格管理制度,其市场已经建立起价格制定的完整体系,尤其在创新药品定价、国际价格比较、仿制药一致性评价以及仿制药定价等诸方面有较为科学的流程与依据。结论:日本药品价格管理的实质是实施医保支付价管理,这为中国未来医保支付价制定和建立科学价格管理机制提供了参考。     

OFT,VBP: QED?

The report by the Office of Fair Trading (OFT) on the UK pharmaceutical price regulation scheme (PPRS) recommends the reform of the current scheme, which is a combination of profit and price controls, to one where price is based on the health benefits offered by a pharmaceutical. On closer examination some of the more commonly expressed concerns about these proposals do not seem to be well founded.In principle, the OFT's recommendations may contribute to allocative and dynamic efficiency in the NHS. However, there are some dangers and the details of how it will be implemented are crucial. For example, value-based pricing with an inappropriate threshold for cost-effectiveness, or an inappropriate pricing structure, could lead to technologies being adopted at prices where their benefits, in terms of health outcome, do not offset the health displaced elsewhere in the NHS, a situation in which the NHS is damaged rather than improved by innovation. A failure to account for uncertainty and the value of evidence in negotiating prices and coverage could also undermine the evidence base for future NHS practice. Whatever view is taken, the OFT report will inevitably shape the scope of future policy debates about value, guidance, price and innovation.     

Pharmaceutical pricing and reimbursement in Finland

The cornerstones of social security within the Finnish health care system are public health care and an insurance system covering drug costs in outpatient care and the services of the private health care sector. The reimbursement system is two-tiered, so that when a wholesales price is approved for a drug, it automatically enters the basic reimbursement category. The acceptance of a medicine into the higher reimbursement categories for serious and long-term illnesses involves a separate legislative process. Compared with OECD countries, the degree of reimbursement is low. The price decision is mainly based on international price comparisons, the price of corresponding products on the market, and the funds the reimbursement system has at its disposal. Since 1998, a pharmacoeconomic justification has been mandatory for all new chemical entities. The wholesales prices fall below the EU average. A committee deliberating a reform of the reimbursement system is expected to deliver its report during the summer of 2001.     

Reforming the Belgian market for orthotic braces: What can we learn from the international experience?

OBJECTIVES: This article aims to review regulation governing outpatient orthotic braces (neck, wrist and knee braces) in France, the Netherlands and Sweden with a view to reforming the Belgian market. METHODS: Information about the regulatory framework was derived from an analysis of legal texts and a survey completed by national experts. RESULTS: Strategies to keep down prices include public procurement in Sweden, maximum prices in France, and exclusion of expensive braces from reimbursement in the Netherlands. Reimbursement is linked to a medical indication or a chronic condition in France, the Netherlands and Sweden. To gain reimbursement, the cost-effectiveness of orthotic braces needs to be demonstrated in France and the Netherlands. Orthotic braces tend to be initially prescribed by a specialist physician and distributed by orthotists, medical equipment shops and/or community pharmacies. CONCLUSIONS: Extensive government intervention exists in the outpatient orthotic brace market in the countries studied. Our recommendations to reform the Belgian market for prefabricated orthotic braces are to separate reimbursement for service provision from reimbursement for braces; to set prices by means of a tendering process or an international price comparison; and to make reimbursement conditional on effectiveness and cost-effectiveness of braces.