Value-Based Pricing in regenerative medicine: You get what you pay for

Author: Natasha Davie, 12/10/13

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The UK has previously committed to incorporating some sort of value based pricing into its reimbursement scheme to improve patient access to innovative medicines. With recent backtracking on this decision, as the Jan 2014 deadline for this integration approaches, we examine how such a decision would impact regenerative medicine.

The cost of health care is on the rise. Forbes recently released an alarming figure saying that the true cost of getting a new drug to market is $5 billion and 12 years of development, not taking into account the quality of life cost for the patient being without crucial new treatment. And yet, despite sky-high prices, the drugs that we’re making only show marginally improved efficiency over existing treatments. There is no relationship between the cost of a drug and its ability to improve health, and yet rocketing expenses are essentially pricing patients out of the best care available. Everyone is losing, so where is the value?

Innovative new therapies, including regenerative medicines, add a whole new level to this. The majority of regenerative therapies have added complexity in terms of manufacture, administration, and storage. It’s not quite as simple as popping a couple of pills. This, as expected, means that the standard price point for most of these therapies will be higher than for small molecules. Yet the value they create in terms of patient benefit has the potential to be significantly greater. However, with the gradual migration of health care in general towards personalized medicine, we’re also aware that two people with the same symptoms can respond very differently to identical treatment. The value they get from their treatment is different, but they pay the same price. It’s essentially a genetic lottery. And it has me wondering… is this fair?

Medical devices are developed in a similar way to therapeutics, with one key difference. Generally speaking, the price tag of the final product is much more closely related to the value it provides for the end user (be it doctor or patient). This seems to make more sense, but does it work for medicines? Can we take it one step further, and base the price not only on the value it is proven to give to a population during clinical trials, but also to the value it provides to each specific patient?

This concept, called value-based pricing (VBP), is becoming more and more convincing as a way to share risk and control soaring drug prices. It provides the right incentives for drug developers – by prioritizing effectiveness – and I believe it could be especially useful in the reimbursement of regenerative medicines. But before I get to that, let me explain how it works.

Value-based pricing is where health-care payers and industry agree to link reimbursement price or coverage to the value conveyed, i.e. the actual performance observed (see figure 1). It would create a fundamental shift in the way that value is assessed, and so is especially relevant to countries with single-payer health-care systems, such as Canada and the UK.

VBP functions best when there is a clear definition of when a medication works, and when it doesn’t. Determining the metrics for this isn’t easy, but I argue that it should be a priority. There should be better ways of assessing patient outcomes, and improvements in quality of life that result from medical treatment.

 

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(Figure 1 from http://deloitte.wsj.com/cfo/files/2012/09/ValueBasedPricingPharma.pdf)

Patients who respond well to treatment pay more to subsidize the patients who don’t – and who consequently require further treatment. Regenerative medicine offers treatments for diseases for which no options currently exist, and in some circumstances even the potential for cure. If we can fulfil the promise of these therapies, reimbursement by VBP could be fundamental to ensuring value and satisfaction for all stakeholders, even with the higher price points required.

VBP puts the patient back in the heart of the health-care system, and foremost in the minds of industry. Efficacy pays, and you can’t put a value on life.

How do you feel about the value you get from health care? Do you think it’s fair to pay more for medical treatment if your condition improves and less if it doesn’t?  I’d really like to hear your thoughts in the comments section below. 

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Natasha Davie

Natasha Davie is part of the Centre for Accelerating Medical Innovations at Oxford University, where she is pursuing a doctorate in Clinical Laboratory Sciences. She has been involved in regenerative medicine since 2002, when she worked with the London Regenerative Medicine Network on numerous projects analysing cell therapy translation, and gaining expertise in clinical trials, regulation, manufacture and commercialization. She completed her Masters in Biochemical Engineering at University College London in conjunction with the Harvard Stem Cell Institute and Harvard Medical School. Follow Natasha on Twitter @natashadavie
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3 Responses

  1. Christopher McCabe says:

    Dear Natasha,

    it is good to seen members of the regenerative medicine community beginning to wrestle with the issue of whether the technologies being developed will be paid for. Congratulations on venturing bravely into this important area.

    Unfortunately the model of value based pricing conveyed in this blog is rather naive, and whilst alluding to some important issues, it risks misleading readers as to the differences between value based pricing, risk sharing, payment by results. Some forms of value based pricing may address include characteristics of all three; this is not necessarily so; and there are forms of risk sharing and payment by results schemes that are distinct from value based pricing.

    I am also concerned that your blog rather misguidedly, perpetuates two particularly unhelpful arguments; (1) efficacy pays; and (2) you cant put a value on a life.

    Efficacy does not pay. At least in terms of health care reimbursement, effectiveness pays. Risk sharing schemes are one mechanism for managing the uncertain relationship between efficacy and effectiveness. The regenerative medicine community would be unwise to assume that demonstrating efficacy under ideal conditions will lead to a positive reimbursement decision.

    Secondly, we can and do put a value on a life. Individuals,implicitly place a value on their health/life when they identify how much they are willing to pay for health insurance. Governments implicitly put a value on health and life when they choose how much of the public sector budget to allocate to health care. Governments also frequently use an explicit value of life in evaluating transport investments which impact upon the risk of road accidents and the associated injuries and deaths.

    Perhaps more importantly, when the resources available to a health care system are limited and fully committed, then the decision to reimburse a new technology is simultaneously a decision to remove funding from other health care technologies. Hence, the decision is not about whether one person or group of people’s lives are worth the cost, it is about choosing between competing uses of the same resources, and hence choosing between different people’s health. The implicit valuation of health is unavoidable under these circumstances.

    Useful references for readers to understand value based pricing and other schemes for managing uncertainty in the evidence base for new technologies include:

    http://www.york.ac.uk/media/che/documents/papers/researchpapers/CHERP60_value_based_pricing_for_pharmaceuticals.pdf

    and the February 2010 edition of PharmacoEconomics
    http://link.springer.com/journal/40273/28/2/page/1

    There is an excellent report on issues around valuing health and the benefits of health technologies at:

    http://www.eepru.org.uk/EEPRU%20VBP%20survey%20DP%206.6%20Proof%20RA%20CLEAN-2.pdf

    Once again, well done for raising thess issues. I encourage you and your laboratory research peers to engage with the health economics literature on these important issues to enable the regenerative medicine community to learn from the extensive experience of the pharmaceutical and medical device research communities in this space.

    Chris

  2. Natasha Davie says:

    Thank you for your thoughtful comments Chris, I will definitely take your points on board.

    This article was meant to introduce some concepts of value-based pricing and frame it in terms of regenerative medicine. Any insight you can give to correct or develop that is greatly appreciated. I used efficacy and effectiveness interchangeably; I’ll make sure that gets corrected, but in terms of putting a value on life, you’ll have to excuse my sentimentality as I respectfully disagree with you. I’m reluctant to believe that the price that a government slaps on the head of a person represents their true value, to society and to their family. Health insurance is complicated, but I think when a person decides how much they’re willing to spend it’s determined more by what they can afford than by what they perceive to be their own intrinsic value. I feel a bit foolish arguing, but I think there’s more to this than the cost of life. 

    Saying that, perhaps the sentence that explicitly says this could be easily misconstrued, so I’m happy to remove it from this blog. Thanks again for your insights, I found them very helpful and I’m sure readers did too. I look forward to your comments in the future.

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