The Pharmaceutical Price Regulation Scheme Outcomes and implications of the OFT Study Simeon Thornton Office of Fair Trading 07 June 2007 PDIG Summer Symposium

Overview  Introduction to study  Study process  Main findings – the case for reform  Recommendations  Key challenges / issues to address from recommendations  Address some misconceptions

Overview of study  Remit  Assess whether PPRS best means of meeting its objectives – VfM and incentives to invest  … or whether case for reform  Timetable  Launched September 05  Published February 07  Government response expected late June 07

What is the PPRS?  £8n pa spent in UK on branded drugs prescribed in NHS. PPRS means of influencing price  Profit controls  Cap and floor on company profits on sales to NHS  Rules for allowable costs  Price controls  Freedom of pricing up front. Subsequent restrictions on increasing prices  Periodic price cuts imposed. 7% in Can be delivered through ‘modulation’

PPRS is a demand side instrument  Not a truly regulatory measure. Attempt to exercise buyer power in purchase of prescription drugs  Structure of demand atypical  PPRS certainly atypical !  Works in conjunction with other demand side measures  National level – NICE, SMC, AWMSG, NPC etc  Local level – primary and secondary care  Aims to deliver VfM for NHS and give companies incentives to invest in useful drugs in future

Focus on dynamic incentives  Why care about effects on innovation?  R&D global common cost but UK sales only c. 4% of world demand. But  At least 12 countries (c. 25% of world market) peg prices to reference basket that includes UK  Used informally in negotiations as well  UK prices likely to influence incentives to invest in drugs  Focus on static and dynamic efficiency legitimate

Main concerns with current scheme  Companies welcome stability and speed of access  But neither profit nor price controls take account of value of drugs: implications for VfM and incentives to invest  Profit cap ill suited to an innovative sector. Plus practical difficulties. Repayments 0.01% of revenue 99 – 04  Price cuts again blind to value of drugs – winners and losers. Plus sustainable in the future?  Portfolio effects (and margin differences) potential to distort competition

Practical implications  Identified drugs for which NHS stakeholders had expressed concern over cost effectiveness.  Reviewed price and clinical efficacy data with advice from experts.  Over £600 m in 2005 could have been used more cost effectively in primary care under alternative regime.  Benefits for patients NHS and innovative companies from reform  Snapshot. Small sample of drugs. Does not quantify gains in secondary care (data issues)

Key recommendation  That Government work towards reform of PPRS replacing current profit and price controls with a value based approach to pricing  On patent  Off patent  New system would free resources to improve patient access to treatments and give companies stronger incentives to invest in the most useful drugs

On patent brands  Ex ante or ex post vbp? Either an improvement  Ex post alone closer to current arrangements. Ex ante risk of delay but maximises benefits of vbp and improvement in uptake of ce medicines?  Recommendation: hybrid vbp  Fast track ex ante assessment and five yearly ex post reviews  Possibility of risk sharing  Flexible price structure to reflect different value in different indications. Could be achieved through rebates

Off-patent brands  Off patent brands with bioequivalent Cat M comparator  Price set in relation to that of Cat M generic equivalent  Brand premium for originator brands  Where no Cat M equivalent treat as on patent

Institutional arrangements  Make use of existing institutions and expertise in the NHS  Reform would need to be phased in – capacity building  Key challenges  UK prices while retaining devolved institutions and responsibilities  Avoiding duplication and ensuring consistency of approach

Medium term – post 2010

Possible long term

Key challenges for implementation  Based on interaction with stakeholders pre and post launch  Definition of value  Information requirements  Choice of comparators  There are others (level of threshold etc).

Definition of value  Value to patient – quality of life and length of life. Recognise different benefits in different indications / subgroups  Case for including non-patient benefits  Value in “innovation per se” more problematic  Novelty unrelated to patient benefits. Operational? Transparent?  Public subsidy / support for genuine market failures  Allow for brand premium for plausible but undemonstrated benefits. But size should reflect fact that value has not been demonstrated

Information  Is VBP feasible / practical given information constraints?  One extreme – no information – a problem for rational prescribing regardless of pricing approach  Recognise the challenges – case for early stage engagement and support (Cooksey)  Recognise that value can emerge over time  an argument for ex post assessments  possibly risk sharing (Velcade)  not a case for ignoring value

Choice of comparators  Comparing ce of on-patent brands with generics – premium only if demonstrated to be better  Main controversy relates to comparison of existing products with generics  Recognise short run implications. But is there a sustainable long term alternative?  Can we systematically turn a blind eye to cost effective substitutes? Not efficient and not sustainable  Not in interests of patients or innovative companies  Recognise that there may be benefits that have not been demonstrated in RCTs – brand premium.

Some misconceptions (1)  “Ignores incremental innovation”  Recommendations take full account of incremental innovation  Reflect different values in different indications / patient subgroups  For some drugs we could not find evidence of differential benefits (argument about the clinical evidence not the principle)  “Disadvantages 2 nd, 3 rd etc in class”  Products that arrive on market soon after originator will prosper (unlike other systems – FIC premium, therapeutic tendering)  Products that arrive many years later without offering benefits over existing products will not  Good dynamic incentives

Some misconceptions (2)  “May adversely affect investment in the UK”  Footloose investment - price not related to where investment carried out  Scheme does not provide explicit incentives to invest in UK – R&D allowance applies wherever carried out. Cannot legally do so  Loose bargaining – threats etc.  Credible?  Even if so, not recommending reductions in expenditure – reallocation of spend – winners and losers

Some misconceptions (3)  “Leave it to the demand side”  This is part of the demand side!  Complementary with other measures to encourage cost effective prescribing  Not currently sufficient on their own in all cases (particularly primary care awareness of price, clinical effectiveness etc.) – economies of scale  If we can get price right should alleviate need for other forms of rationing

Conclusion  Long term model. Sustainable because based on best use of expenditure – in interests of patients and innovative companies  Major implications – winners and losers. But unrelated to question of overall spend.  Challenging questions of implementation – evidential threshold.