Transcript Determining Value for Innovation and Setting Prices

Determining Value for
Innovation and Setting Prices
Richard Laing
EDM/PAR
WHO
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Octavia Quintana Trias,
DG Research
"How do you value innovation?
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Mr Günter VERHEUGEN
(Enterprise and Industry)
September 2004
"As for the economic aspects of medicinal products,
the Commission could, following deliberations on
pricing and reimbursement methods, play a part in
developing alternative approaches aimed at
promoting innovation and making it financially
rewarding.
Similarly, questions concerning national procedures
for determining the therapeutic value of new
medicinal products must also be tackled."
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The Problem
• European government have a dual role as
purchasers and in promoting innovation
• All OECD countries except USA regulate
pharmaceutical prices using up to five different
methods (Jacobzone)
• Price setting process is unpredictable for level
and time to a decision (“Black box”)
• Pharmaceuticals are among the most highly
regulated products
• Pharmaceuticals are only a small proportion of
total health care costs in developed countries
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www.pmprb-cepmb.gc.ca/symposium2002/
present/Jacobzone-Oct7-OECD/
Delays From Pricing And/Or Reimbursement
Application To Reimbursement (EFPIA Data)
90 days 180 days
Belgium
Greece
Portugal
France
Austria
Finland
Italy
Norway
Spain
Netherlands
Switzerland
Sweden
Denmark
Ireland
Germany
UK
0
5
Increasing
overall delay
Pricing
Reimbursement
P&R
100
200
300
400
500
Publication
600
700
800
(Days)
• In Belgium - until January 2002, the tr ansparency commission pr ocess had to be conducted before a company could apply for reimbursement
of a given product. In France, only ambulatory care products have been included in this analysis. In Italy and Sweden the pr icing and/or reimbursement
procedur e can start as soon as CPMP opinion is available (for centrally appr oved medicines). This analysis does not reflect the impact of recent r eforms
in Italy. In Spain anecdotal evidence suggests that delays have incr eased recently. In Switzerland a more comprehensive study concer ning 191 files
shows an average delay over 180 days. Finland has a two-tier reimbursement system, with a slower process for treatments of chr onic diseases
(reimbursed at 75%) and serious or life-threatening diseases, and a faster one for acute diseases. Delays shown in this study do not reflect this
distinction, and actual pricing and reimbursement delays are typically longer for medicines in the 75%/100% reimbursement categories
Differential Pricing
and Parallel Trade
• Differential pricing already occurs for many consumer
products
• For pharmaceuticals dramatic differences already exist
between countries for vaccines, oral contraceptives,
antimalarials and ARVs
• Economic theory indicates that where the true marginal
costs of a product are low, price discrimination will
increase the total revenue of a company, so long as
parallel trade can be minimized
• A number of technical solutions have been proposed to
limit pharmaceutical parallel trade, such as unique
presentation and country-specific labelling and
packaging measures
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Parallel Trade - The Evidence
Panos Kanavos (LSE) 2003
• Examined 19 top-selling drugs in six Northern European
"destination countries" of imports -- account for almost a
quarter of all prescription drug sales in Europe.
• Combined sales of reimported versions of these drugs
saved 0.3 percent to 3.6 % of their annual drug budgets,
or slightly more than $100 million.
• Savings were not passed on to consumers
• Drug prices in Northern and Southern Europe did not
become more similar.
• The biggest gains from selling imported drugs (46% of
the sales of all products studied) went straight to the
repackagers.
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http://www.washingtonpost.com/wp-dyn/articles/A60984-2004Sep29.html
Spreading the Burden of Drug
Development Costs and Valuing new
medicines
• Rewarding innovation is a key aspect of
pricing i.e. real innovation should be
rewarded!
• Pricing should reflect ability to pay
possibly measured as GNI per capita
• Pharmaco-economics already provides the
methods for reactive price setting and
could be used proactively
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Proposed Method (Henry 2002)
• The World Bank has suggested that health
care interventions may be considered
cost-effective if they buy a year of healthy
life for less than the national average per
capita GNI
• The method proposed for further
evaluation is based on GNI per capita and
efficacy measures
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Indicative prices of highly active antiretrovirals
(HAART) and a new hypothetical regimen in
countries of variable wealth
30000
United Kingdom
France
Italy
Spain
20000
15000
Slovenia
Czech Republic
10000
Latvia
5000
Russia
Mali
Kazakhstan
Philippines
Georgia
India
26076
23225
15000 20000 25000
Per Capita GNI $US
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Indicative price existing treatment
22783
19831
15627
12620
5000
10881
6199
4921
3744
3477
2500
2566
2557
2000
2401
2125
1959
1000
1637
1214
993
855
500
763
607
487
200
441
294
0
267
Indicative price $US
25000
Indicative price new drug
Indicative prices of existing antidepressant
treatment and a hypothetical new medicine
with greater efficacy
$6,000
United Kingdom
France
$5,000
Indicative Price $US
Italy
$4,000
Singapore
$3,000
$2,000
Spain
$1,000
Mali
India
Czech Republic
Slovenia
Greece
Latvia
$0
0
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5
10
15
20
Per Capita GNI $000US
Indicative price existing treatment
Indicative price new drug
25
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Conclusions (1)
• Easy to incorporate measures of clinical
performance and national wealth in
determining indicative prices for
pharmaceuticals.
• Does not mean that the indicative price is
necessarily the ‘right’ price, the lowest
possible price or an affordable price.
• No guarantee that manufacturers will be
interested in manufacturing products on
this basis.
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Conclusions (2)
• A more predictable system that encourages
medicines development and achieves
affordability of access in countries of variable
wealth requires reconsideration of current
policies towards parallel trade.
• Parallel imports tend to favour high-income
countries, which can benefit from the prices
paid in lower-income countries. May hurt
lower income countries
• Any inhibition of parallel trade conflicts with
European law, which highlights the need for a
13 wide debate on these issues.
Reviewer Comments
• “The model is theoretically interesting but
impractical.”
• “There is such a strong commitment to the
ideal of a European Common Market that
any restrictions on parallel trade would be
unacceptable.”
• “Technical requirements for such an
approach would be impossible to
undertake proactively.”
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Final Summary
• “If rewarding innovation is one of the
intended effects of reimbursement
policies, then setting prices related to the
level of clinical efficacy and the national
wealth as measured by GNI per capita
would be a logical and transparent
approach.”
• A researchable topic!
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