1. Eurohealth
RESEARCH • DEBATE • POLICY • NEWS Volume 14 Number 2, 2008
Pharmaceutical policy:
cost containment
and its impact
Pricing pharmaceuticals
Generic medicines: savings to health care systems?
Innovation and regulation in the pharmaceutical sector
Orphan drugs: challenges for economic evaluation • Public-private partnerships for health and development
Pharmaceutical pricing in France • Parallel trade and cost control • Access to medicines in sub-Saharan Africa

2. Eurohealth
C Ensuring affordability, safeguarding
innovation
Health care systems are under continuous pressure to
LSE Health, London School of Economics and Political
Science, Houghton Street, London
WC2A 2AE, United Kingdom
fax: +44 (0)20 7955 6090
www.lse.ac.uk/LSEHealth
O
deliver high quality services that meet ever higher
public expectations. They are also acutely aware of the Editorial Team
need to contain costs. The direction of pharmaceutical EDITOR:
David McDaid: +44 (0)20 7955 6381
policy is one challenge; for instance what pricing email: d.mcdaid@lse.ac.uk
mechanisms help facilitate greater value for money? As
FOUNDING EDITOR:
Thomas Ceuni and Jim Attridge note in respective
M
Elias Mossialos: +44 (0)20 7955 7564
articles in this issue of Eurohealth, the benefits of email: e.a.mossialos@lse.ac.uk
pharmaceutical innovation to Europe are substantial; DEPUTY EDITORS:
Sherry Merkur: +44 (0)20 7955 6194
but in the prevailing economic climate how can email: s.m.merkur@lse.ac.uk
Europe protect and nourish these industries and Philipa Mladovsky: +44 (0)20 7955 7298
safeguard innovation? Moreover, to what extent email: p.mladovsky@lse.ac.uk
M
should restrictions be imposed on access to new EDITORIAL BOARD:
Reinhard Busse, Josep Figueras, Walter Holland,
medications? Julian Le Grand, Martin McKee, Elias Mossialos
SENIOR EDITORIAL ADVISER:
Thus it is to these complex issues that we devote this Paul Belcher: +44 (0)7970 098 940
email: pbelcher@euhealth.org
issue of Eurohealth, bringing together perspectives
first aired at last year’s European Health Forum DESIGN EDITOR:
E
Sarah Moncrieff: +44 (0)20 7834 3444
Gastein. One approach to cost containment is value email: westminster.european@btinternet.com
based pricing (VBP) where price is dependent on the SUBSCRIPTIONS MANAGER
effectiveness of medications in everyday practice. Champa Heidbrink: +44 (0)20 7955 6840
email: eurohealth@lse.ac.uk
Although effective, as Philippe Sauvage points out, the
impacts on overall health care costs in France are Advisory Board
negligible. Alistair McGuire et al also note that while
N
Anders Anell; Rita Baeten; Nick Boyd; Johan Calltorp;
VBP may help reduce excessive profits for industry, Antonio Correia de Campos; Mia Defever; Nick Fahy;
Giovanni Fattore; Armin Fidler; Unto Häkkinen; Maria
this may also reduce future research investment or Höfmarcher; David Hunter; Egon Jonsson; Meri Koivusalo;
imply that it this is concentrated in areas where the Allan Krasnik; John Lavis; Kevin McCarthy; Nata
Menabde; Bernard Merkel; Stipe Oreskovic; Josef Probst;
greatest health gains can be predicted. Tessa Richards; Richard Saltman; Igor Sheiman; Aris
Sissouras; Hans Stein; Jeffrey L Sturchio; Ken Thorpe;
T
Miriam Wiley
Such a policy might without careful consideration be
short sighted and detrimental to investment in areas Article Submission Guidelines
such as drugs for rare diseases. Michael Drummond see: www.lse.ac.uk/collections/LSEHealth/documents/
eurohealth.htm
argues here that conventional approaches to cost
effectiveness analysis will mean that such drugs, even if Published by LSE Health and the European Observatory
on Health Systems and Policies, with the financial support
developed, are unlikely to be reimbursed. New of Merck & Co and the European Observatory on Health
approaches that capture their social value are required. Systems and Policies.
The parallel trade in drugs can generate a modest Eurohealth is a quarterly publication that provides a forum
for researchers, experts and policymakers to express their
downward impact on costs in recipient countries, as views on health policy issues and so contribute to a
Panos Kanavos and Stacey Kowal illustrate, but it can constructive debate on health policy in Europe.
also have an adverse impact on access to medications The views expressed in Eurohealth are those of the authors
alone and not necessarily those of LSE Health, Merck & Co
in exporting countries. Yet at the same time Elisabeth or the European Observatory on Health Systems and
Seeley and Panos Kanavos indicate that across the EU Policies.
governments continue to pay too much for generic The European Observatory on Health Systems and Policies
is a partnership between the World Health Organization
drugs. Clearly, there is much for health systems and Regional Office for Europe, the Governments of Belgium,
the pharmaceutical industry alike to digest. Finland, Greece, Norway, Slovenia, Spain and Sweden, the
Veneto Region of Italy, the European Investment Bank, the
Open Society Institute, the World Bank, the London School
David McDaid Editor of Economics and Political Science, and the London School
of Hygiene & Tropical Medicine.
Sherry Merkur Deputy Editor
Philipa Mladovsky Deputy Editor © LSE Health 2008. No part of this publication may be
copied, reproduced, stored in a retrieval system or transmitted
in any form without prior permission from LSE Health.
Design and Production: Westminster European
email: westminster.european@btinternet.com
Printing: Optichrome Ltd
ISSN 1356-1030

3. Contents Eurohealth
Volume 14 Number 2
Pharmaceutical Policy Jim Attridge is Visiting Fellow, Tanaka Bus-
iness School, Imperial College, London, UK.
1 Editorial – Cost containment: impact and consequences
Melinda Hanisch and Panos Kanavos Thomas B Cueni is Secretary General, Inter-
pharma, the Association of Swiss Pharma-
3 Pricing pharmaceuticals: value based pricing in what sense? ceutical Research Companies, Basel,
Alistair McGuire, Maria Raikou and Panos Kanavos Switzerland.
Jillian Cohen-Köhler is Assistant Professor,
6 Pharmaceutical pricing in France: a critique
Philippe Sauvage Leslie Dan Faculty of Pharmacy, University
of Toronto, Canada.
8 Can Europe afford innovation? Michael F Drummond is Professor of Health
Thomas B Cueni Economics, Centre for Health Economics,
University of York and part-time Professor,
11 Innovation and regulation in the biopharmaceuticals sector LSE Health, London School of Economics
Jim Attridge and Political Science, UK.
16 Challenges in the economic evaluation of orphan drugs Gavin George is Senior Research Fellow at
Michael F Drummond the Health Economics and HIV/AIDS
Research Division of the University of
18 Generic medicines from a societal perspective: KwaZulu Natal, Durban, South Africa.
savings for health care systems?
Melinda Hanisch is Director of Policy,
Elizabeth Seeley and Panos Kanavos
Europe, Middle East, Africa and Canada,
Merck & Co., Inc., New Jersey, USA.
22 Does pharmaceutical parallel trade serve the objectives of cost control?
Panos Kanavos and Stacey Kowal Panos Kanavos is Senior Lecturer in Interna-
tional Health Policy, LSE Health, London
School of Economics and Political Science,
European Snapshots UK.
27 When will it happen? Paving the way for risk adjustment in Slovakia Lucia Kossarova is reading for a PhD, LSE
Lucia Kossarova Health, London School of Economics and
Political Science, UK.
Alistair McGuire is Professor of Health
Health and Development Economics, LSE Health, London School of
29 The ‘Price is Right’? Promoting local production for ARVs in Economics and Political Science, UK.
Sub-Saharan Africa
Tim Quinlan is Research Director at the
Kinsley Wilson, Jillian Cohen-Köhler and Alan Whiteside
Health Economics and HIV/AIDS Research
Division of the University of KwaZulu Natal,
33 Public-private sector partnerships as a means of development in Africa,
Durban, South Africa.
in the context of HIV/AIDS
Gavin George and Tim Quinlan Maria Raikou is Research Fellow, LSE
Health, London School of Economics and
Political Science, UK.
Evidence-informed Decision Making
Philippe Sauvage is Deputy Head of the
37 “Myth Busters” We can improve quality one doctor at a time Cabinet of the Minister of Health, Ministry
of Health, Youth Affairs and Sport, France.
39 “Bandolier” On limitations
Elizabeth Seeley is Research Assistant in
Health Policy, LSE Health, London School of
Economics and Political Science, UK.
Monitor
Alan Whiteside is Director, Health Econom-
42 Publications ics HIV/AIDS Research Division, University
of KwaZulu-Natal, Durban, South Africa.
43 Web Watch
Kinsley Wilson is PhD candidate, Leslie Dan
44 News from around Europe Faculty of Pharmacy, University of Toronto,
Canada.

4. PHARMACEUTICAL POLICY
Editorial:
Cost containment: impact and consequences
Melinda Hanisch and Panos Kanavos
Pharmaceutical cost control measures are these are often used in an unpredictable latter part of the twentieth century.6
becoming more widespread and complex manner and their actual budgetary signifi- Restricting access to new medicines solely
as national health systems are under cance may be limited. For instance, on the basis of containing static costs, then,
continuous pressure due to ageing popula- Philippe Sauvage in this issue notes that in represents a short-termist perspective both
tions, increasing incidence of chronic the case of France, rebates account for only from an economic and a public health
disease, persistent inequalities, and rising about 1–2% of total annual pharmaceutical standpoint.
citizen expectations of what their health expenditure.1 Consequently, while such
systems should deliver. Often unpre- measures may allow governments to Reduced patient access
dictable pricing and reimbursement redirect resources, they may not deliver In the broader context, varying and
controls are employed at the national and, huge savings. complex pricing and reimbursement
increasingly, regional levels in the name of policies in Europe can cause both signif-
Ironically, some cost containment policies
achieving value for money. icant overall delays in access to new medi-
may result in not more but less efficient
cines across the region, and also large
Yet, current approaches to pharmaceutical use of limited health care resources. A
disparities in access between citizens of
cost-containment may not achieve long- prime example is reference pricing, which
individual countries. Despite its limita-
term health care cost savings. In fact, by rewards generics with higher prices than
tions, the most recent European Federation
discouraging health care innovation and they would have under competitive market
of Pharmaceutical Industries and Associa-
inhibiting access to innovative treatments conditions. Seeley and Kanavos in this
tions WAIT (Waiting to Access Innovative
for patients who need them, they may have issue demonstrate that in some European
Therapies) Indicator Report showed that
a negative impact on long-term costs, countries reference pricing produces rela-
patients in some Member States may wait
health outcomes, and the availability of tively low levels of competition in the
more than a year longer than those else-
new medical innovations. Articles in this generics sector and higher than average
where for access to the same medicine.7
issue, based on presentations made at the prices for payers.2 In Germany, France,
This is in conflict with EU Member State
2007 European Health Forum Gastein, Italy and Spain, prices for generics cluster
commitments to address health inequal-
provide evidence and argumentation that around the reference price, and decline
ities.
cost containment policies should be more slowly over time than in countries
assessed in terms of their long-term effect where generics operate in more compet- In a similar vein, the current trend toward
on budgets, health benefits and access to itive environments. As a result, govern- the use of health technology assessment
care. They highlight the need for health ments that promote the use of generics in (HTA) in pricing and reimbursement deci-
care systems to continuously monitor an effort to achieve savings in their phar- sions highlights the conflict between cost
policy implementation and evaluate maceutical budget may actually spend effectiveness and societal values. Among
performance of individual policy measures more than they might if free pricing were others, the case of orphan drugs demon-
in a transparent and robust manner. allowed in that segment of the market. strates that cost-effectiveness alone cannot
Thus fewer resources are available for determine when a new medicine provides
Ambiguous budget impact payers to spend on innovative treatments. value for money.8 Using HTA to make
With regards to their primary objective – decisions about access to treatment for
There is a substantial body of evidence on
lowering costs – it is hard to argue that on patients with unmet medical needs implies
the favourable long-term economic
a short term basis some supply and a trade-off between cost-effectiveness and
benefits of innovative medicines and treat-
demand measures such as volume or profit societal values which may or may not
ments, which often offer the potential to
controls, rebates or paybacks, can achieve coincide with citizen expectations.
more efficiently manage disease. The use
some degree of annual savings. However,
of new medicines has been associated with Of course, from a financial standpoint the
significant reductions in mortality, lost effect of this de facto restriction in patient
Melinda Hanisch is Director of Policy, work days, and other health care costs, access to innovative treatments would be
Europe, Middle East, Africa and Canada, resulting in a net reduction in the cost of to reduce the potential health gains such
Merck & Co., Inc., New Jersey, USA. treating a given condition.3–5 Other treatments might bestow, and the accom-
Panos Kanavos is Senior Lecturer in research has also confirmed that advances panying economic benefit. Therefore, any
International Health Policy, LSE Health, in medical science and technology were short term budget savings would be
London School of Economics and Political instrumental in the reduction of avoidable negated in the long term by increased
Science. mortality in industrialised countries in the health care costs.
1 Eurohealth Vol 14 No 2

5. PHARMACEUTICAL POLICY
A damper on future medicines out, “the EU courts life sciences research arguments presented in this issue suggest
The aggregate effect of national cost through the Innovative Medicines the need for additional consideration on
containment policies in Europe may be to Initiative and other national programmes the intended and unintended impact of
reduce the future availability of new medi- with one hand, and with the other hand policies, and for continued efforts to strike
cines by failing to properly recognise the punishes the very products of this a balance between financial sustainability,
value of new products and reward the risks research.”9 In the global competition for public health and continued investment in
of pharmaceutical innovation. attracting high-technology investment, it innovation. Importantly, they also high-
is almost self-explanatory that Europe can light the role payers can play in assessing
As Jim Attridge notes in this issue, inno-
hardly afford this paradox. the short and long-term effectiveness and
vative pharmaceutical companies operate
performance of their policies, strategically
in a field of intense and increasing compe- In short, economic regulation of medicines
(re)-deploying resources where they are
tition, and must simultaneously deliver as it is pursued in Europe today often sends
most needed and, as the Commission also
value for money to their customers and the wrong signals to companies engaged in
points out, treating health care as a wealth-
sufficient levels of return to investors.9 the high risk endeavour of research and
enhancing investment11 rather than an
Research and discovery is not an entrepre- development of new medicines. As a result
unavoidably rising cost.
neurial activity but a long-term sustained of the unpredictability and complexity of
process performed in the context of a port- many pharmaceutical cost containment
folio of similar scientific efforts. Inno- measures, companies must bring new
REFERENCES
vation occurs in increments rather than products to market without definitive
breakthrough events, and it is this incre- knowledge of the pricing and reim- 1. Sauvage P. Pharmaceutical pricing in
mental innovation which drives the bursement environment. The uncertainty France: a critique. Eurohealth
of return on investment in turn has a 2008;14(2):6–8.
discovery process, builds scientific
knowledge and leads eventually to new negative impact on decisions concerning 2. Seeley E, Kanavos P. Generic medicines
waves of medical technology. Accordingly, the development of new treatments. from a societal perspective: savings for
company decisions regarding the scope health care systems? Eurohealth
and direction of pharmaceutical research Concluding remarks 2008;14(2):18–22.
are also necessarily long term in nature. That pharmaceutical cost containment 3. Lichtenberg FR. Pharmaceutical Inno-
This translates into huge risks if for some achieves its central mission – containing vation, mortality reduction and economic
reason research outputs are not able to the rate of growth of health care costs – is growth. In: Murphy K, Topel R (eds)
earn an appropriate return on investment. questionable. Individual policies, such as Measuring the Gains from Medical
price freezes or price cuts, or broader Research: An Economic Approach.
Cost containment policies can increase this Chicago: University of Chicago Press,
strategies such as generic policies, may
risk significantly. For example, therapeutic 2003, pp. 74–109.
have only a small and temporary impact on
(‘jumbo group’) reference pricing, by
budgets. Health insurers may in fact incur 4. Lichtenberg FR. Are the benefits of
grouping together patented and off-patent
higher costs than needed – either by over- newer drugs worth their cost? Evidence
medicines, and by not distinguishing
paying for generics, or by being ‘penny from the 1996 MEPS. Health Affairs
between the first and subsequent entrants 2001;20(5):241–51.
wise and pound foolish’ in the way they
in a therapeutic class, as a rule does not
allow disease to be prevented or managed. 5. Cutler DM, Long G, Berndt ER et al.
recognise the value of any existing incre-
Market or competition-based pricing The value of anti-hypertensive drugs: A
mental innovation and calls into question
policies often seem to allow greater perspective on medical innovation. Health
the benefits of new products. As a result,
headroom for innovative medicines, Affairs 2007;26(1):97–110.
the incentive for companies to continue
allowing society to reap the benefits of 6. Nolte E, McKee M. Does Healthcare
other related avenues of research is
advances in medical technology. Save Lives? Avoidable Mortality Revisited.
reduced. For instance, past major advances
in medical technology which have been the Further, cost-containment often restricts London: The Nuffield Trust, 2004.
product of incremental innovation, such as patient access to new treatments and 7. IMS Management Consulting. Patients
the immunosuppressant cyclosporine, creates significant disparities in access WAIT Indicator Phase 8 Report. Brussels:
might not have been available to patients if across Europe. This not only deeply EFPIA, 2007.
incremental innovation had not been conflicts with Member States’ 8. Drummond MF, Wilson DA, Kanavos P,
rewarded.10 Similarly, HTA as it is commitment to equity and solidarity and Ubel P, Rovira J. Assessing the economic
currently applied to determine market addressing inequalities in access to health challenges posed by orphan drugs. Interna-
access in several countries, has added to the care, but also denies society the long-term tional Journal of Technology Assessment in
atmosphere of uncertainty for new medi- economic benefits of medical innovation. Health Care 2007;23(1):36–42.
cines in that HTA processes may not be Lastly, by focusing on short term cost 9. Attridge J. Innovation and regulation in
sufficiently transparent, and that HTA savings at the expense of long term savings the biopharmaceuticals sector. Eurohealth
methodologies cannot accurately measure and health gains, and by denying recog- 2008;14(2):11–15.
the true value of a new medicine before it nition and reward for innovation and its
10. Cueni T. Can Europe afford inno-
reaches the market. associated risks, cost containment policies
vation? Eurohealth 2008;14(2):8–10.
discourage investment in and development
The economic regulation of pharmaceu- 11. Commission of the European Commu-
of new medicines which can fulfil unmet
ticals also directly contradicts current nities. Together for Health: A strategic
medical need and curb health care cost.
efforts to stimulate economic competi- approach for the EU 2008–2013. Brussels:
tiveness in Europe in the spirit of the While the use of cost containment policies Commission of the European Commu-
Lisbon Agenda. As Jim Attridge points appears to be inevitable and unavoidable, nities, 27 October 2007.
Eurohealth Vol 14 No 2 2

6. PHARMACEUTICAL POLICY
Pricing pharmaceuticals:
Value based pricing in what sense?
Alistair McGuire, Maria Raikou and Panos Kanavos
Summary: Reimbursement of pharmaceuticals ought to provide both incentives
for and reward innovation, as well as set a price which reflects the market
value of the product. In other words reimbursement must reward both
dynamic and static efficiency in the pharmaceutical sector. Within the UK a
debate has emerged concerning whether the Pharmaceutical Pricing and Reim-
bursement Scheme, a profits based regulatory scheme, should be replaced with
a value based pricing scheme. This article defines these competing reim-
bursement schemes and outlines their relative costs and benefits.
Keywords: Pharmaceutical Pricing, PPRS, Value Based Pricing, UK
The continuing debate over the pricing of vation as applied to future market condi- Indeed, patent protection is given as an
pharmaceuticals has emphasised the rela- tions. Given the tensions in securing static incentive to invest in such high R&D costs,
tionship of pricing to value. The recent UK and dynamic efficiency simultaneously thus protecting producer profits. While
Office of Fair Trading report on pricing there may be an optimal trade-off in the such protection is offered against molecule
within the UK1 recommends the pursuit of both goals. structure rather than specific products,
replacement of the Pharmaceutical Pricing patent protection can co-exist with product
Reimbursement Scheme (PPRS), essen- Background competition. Moreover, it can be noted that
tially regulation through profit control The value derived from regulated products pure monopoly is never really consistent
supplemented with ad hoc intervention on should reflect societal value. This is with investment in R&D. If monopoly
prices through the imposition of price cuts normally presented as the aggregate of protection exists there is little incentive to
if deemed necessary with a specific system producer and consumer surplus, defined as invest; investment in R&D is only pursued
of value-based pricing (VBP). It begins by the welfare gain from consumers if there is potential future competition in
defining the objectives of the regulatory purchasing products at the lowest possible the market, which leads to current compet-
environment and follows with a discussion market price and producer gain in terms of itive strategies that manifest themselves in
of the PPRS and proposed VBP structure, the fair market return achieved on sales. investments in R&D processes.
with accompanying critical appraisal at Given the nature of pharmaceutical
both the conceptual and practical levels. products and their reliance on high costs PPRS
concentrated in the research and devel- Of course regulation can also reduce
The aim here is neither to support, nor consumer surplus if it distorts the rate at
reject either system, but rather to provide opment (R&D) process, there is an argued
tendency towards monopoly production, which products bestowing health benefits
a critical overview of both. In assessing the to individuals flow onto the market. The
replacement of the PPRS with VBP a as these costs tend to prohibit entry into
the market. existing form of regulation within the UK
considered evaluation of the costs and is based on the PPRS which couples rate of
benefits must be undertaken. Importantly, Monopoly is associated with the return control with price control. The
two aspects of efficiency must be exploitation of consumer surplus through scheme imposes profit controls, through
considered: static efficiency, which relates control over prices, with a monopolist setting maximum and minimum achievable
to the pricing of a product about to enter gaining a higher return (profit) through profit levels for individual company sales
or already on the market, and dynamic selling reduced quantity at higher price. to the National Health Service (NHS),
efficiency which relates to product inno- Conversely, monopoly power could be coupled with price controls which allow
associated with higher levels of innovation, initial price setting freedom on launch but
Alistair McGuire is Professor of Health given the potential use of profits to protect then impose restrictions on subsequent
Economics, Maria Raikou Research future market status. With an estimated ten price increases. Increasingly there have
Fellow and Panos Kanavos Senior thousand molecules to be screened for also been price cuts on existing products
Lecturer in International Health Policy, every product developed for the market, it when the PPRS has been renegotiated
LSE Health, London School of Economics takes on average around £350 million (€443 every five years or so. Finally, price modu-
and Political Science. million) to produce a pharmaceutical lation is allowed through firms altering
Email:a.j.mcguire@lse.ac.uk product. prices within their product portfolio as
3 Eurohealth Vol 14 No 2

7. PHARMACEUTICAL POLICY
long as expected volume-weighted revenue bursement of pharmaceutical products in constraint across different products within
remains constant. The price cutting aspects the UK has tended to support delivery of a firm’s portfolio. The cost-effectiveness
of the scheme are arbitrary and open to producer surplus rather than protection of evaluation of some interventions then
gaming; higher price setting in anticipation consumer welfare. The balance between ensures an implicit control on price, if not
of cuts. dynamic and static efficiency has tended across the board, then at least through
towards a regulatory environment that has threat. The role of NICE could, of course,
The PPRS is often portrayed as being
supported producers rather than be extended to further augment the PPRS
dominated by the profit controlled
consumers. without replacement.
element, although it has been argued this
has increasingly become less and less true This conclusion is consistent with the view
Value Based Pricing
as the profit rebate associated with PPRS that the PPRS does appear to provide
VBP regulation has been suggested as a
is implemented with less and less healthy incentives for R&D investment
replacement for PPRS in the OFT report.1
frequency.2 It is well known that the rate through a profits allowance accompanied
This would establish a maximum price for
of return regulation that characterises the with pricing freedom for individual
a pharmaceutical based on an ex ante eval-
PPRS tends to over-capitalisation. Inter- products within the given profit level,
uation for new products and a rolling ex
pretation of the PPRS in this form could albeit moderated by the possibility of
post evaluation of existing products. This
lead to an argument that it supports imposed price cuts. These price cuts are
might be supplemented by risk sharing
possible subsidisation of R&D capital. somewhat inefficient as they are imple- contracts if there was insufficient evidence
However, this is unlikely within the mented across the board and possibly with to allow a full ex ante appraisal, with the
specific form of the PPRS as individual some time lag, depending on when the price being contingent on the realisation of
companies are unlikely to over-estimate product is launched and PPRS negotia- treatment benefits. There would be non-
costs, thus protecting profits, as costs are tions take place. A tentative conclusion is linear pricing arrangements for different
subject to a form of benchmarking. that the PPRS provides incentives aimed at indications and sub-group applications,
Of course, given the multinational domi- securing dynamic efficiency, indeed some with generic pricing once off-patent if a
nance of the industry, internal cost shifting argue that such incentives are provided by generic was available. The evaluation
remains a possibility. Indeed the lack of a scheme that featherbeds individual firms’ would be based on the existing NICE type
payback within the PPRS over recent years dynamic efficiency, while at the same time cost-effectiveness evaluations. In other
is consistent, as the OFT pointed out, with allowing considerable latitude with respect words VBP would appear to be an
transfer pricing across different geographi- to static efficiency. extension of the type of evaluation already
cal areas, leading to the PPRS being inef- conducted as part of the valuation of a
fective. Moreover, even if Towse3 is correct The role of NICE range of therapies that NICE deems to be
in suggesting that, as the PPRS is a profit PPRS regulation of price is currently cost-effective within the existing system.
regulation rather than a regulation of complemented, although by no means The proposed system would retain patent
economic return, with R&D merely being comprehensively, by the cost-effectiveness protection and combine this with a
an expenditure, it remains the case that the analysis of specific interventions under- widened role for cost-effectiveness in
allowance of relatively high rates of return taken by the National Institute for Health pricing to pursue VBP. The emphasis
in the pharmaceutical industry may lead to and Clinical Evidence (NICE) in England, therefore moves towards static efficiency,
an over-investment in R&D facilities Wales and Northern Ireland. While obvi- with the emphasis on value for money at
coupled with high producer surplus. ously this is not a regulatory authority launch, and away from dynamic efficiency.
dealing with pricing mechanisms per se,
The “may” is emphasised to highlight the for those drugs which are assessed it does A number of problems exist in using cost-
uncertainty that surrounds this issue. The imply some additional pricing constraints effectiveness analysis, pertinent to both its
optimal degree of investment is of course if the product is going to be purchased by existing use and future role in establishing
determined by the return in terms of social the NHS. In circumstances where a VBP. One major issue relates to the use of
value. This depends on the combined value product is assessed by NICE, this weakens clinical trial data to establish effectiveness.
of consumer and producer surplus. the ability of companies to modulate prices The objectives of such trials are normally
Producers may acquire consumer surplus across products in their portfolios. The to establish safety, tolerability and efficacy
through price differentiation with little within a tightly controlled population.
complementary role of other regulators on
impact on total surplus value. They may Such trials are normally short-term and
the operation of the PPRS therefore ought
also achieve excessive profits through therefore do not establish the long-term
not to be overlooked.
abuse of monopoly power and therefore health effects required for a comprehensive
reduce total surplus or may influence The existing system, combining patent cost-effectiveness analysis. The results
future producer and consumer surplus protection with the PPRS and occasional from such trials are currently aimed at a
through investment decisions. The first NICE cost-effectiveness evaluations, different set of regulatory bodies than those
two possibilities are associated with static could operate to underpin static and concerned with pricing and reimburse-
considerations, the later with dynamic dynamic efficiency within the UK with ment. Modelling, based on increasingly
considerations. There may also be equity respect to pharmaceutical products. Patent accepted methods, must therefore be
concerns over who should realise any protection relates to molecule structure undertaken not only for this reason but
surplus value; what share of the value and not product protection; for example, a also as health economic data on endpoints
inherent in the R&D process should be number of statins remain under patent and resource use are not routinely incor-
returned to consumers and producers? The protection competing with each other for porated within clinical trial studies. For
motivation to move to a VBP regulation market share. The operation of the PPRS example, if Quality Adjusted Life Year
appears to be that the current reim- allows free pricing within a profits (QALYs), the preferred outcome measure
Eurohealth Vol 14 No 2 4

8. PHARMACEUTICAL POLICY
for NICE, are to reflect outcomes over report, given circumstances where there is tation, it would have to start collecting data
which the surplus is to be evaluated, then a lack of data available to perform an ex at a late stage of development.
most products will have to transform ante analysis (for example, with chronic
While such data constraints are not insur-
clinical trial outcome measures into disease treatments), sub-group analysis
mountable, they are substantial and have
QALYs. Given that pricing and reimburse- will be even more unlikely as the risk
to be faced as an additional investment to
ment is required on launch, the ex ante fast transfer to companies increases with an
secure value for money pricing. It would
track appraisal method envisaged by the increasing number of sub-groups. It can
seem of doubtful regulatory efficiency to
OFT will place heavy demands on evalu- also be noted that such risk sharing
allow firms to pursue extensive ex post
ation data. This is not impossible to schemes erode patent protection in any
evaluations or risk-sharing agreements on
achieve, but it is open to uncertainty; hence case as the length of time required to
the basis of non-linear pricing proposals.
the combination of ex ante and ex post eval- establish regulatory worth is increased.
uations.
Investment in R&D
Challenges
Currently, NICE uses the Single Tech- Most of the discussion above relates to
It is clear that both the PPRS and the
nology Appraisal Process (STAs) as a issues of static efficiency. The impact of
envisaged VBP schemes have drawbacks. VBP has been less discussed with respect
means of assessing comparator products
The efficiency of their implementation is
within a limited time period.4 If used as the to dynamic efficiency. The envisaged regu-
largely concerned with the relative costs of latory environment is one where
basis for VBP, as envisaged by the OFT,
implementation. VBP essentially drops the companies would pursue investment over
the data would have to be available
PPRS and considers an extended role for a long time frame, given that there is a
quickly. This would, in principle, require
NICE type evaluations. This is supple- chance of reward based on a product price
head-to-head studies or indirect compar-
mented with sub-group and risk-sharing set in accordance with achieved health
isons through some form of meta-analysis
analysis. Data availability is the major benefit. It is envisaged that firms will have
of a new product with existing comparator
constraint. Ex post risk-sharing is only an incentive to invest in areas where
therapies. It is unlikely that this infor-
envisaged as a means of supporting situa- achievable health benefits are greatest.
mation would be readily available in all
tions where there is not enough available Areas of high disease prevalence where
situations or clinical trials, increasingly
data for an ex ante consideration. The lag there is unmet need are obvious areas for
designed with a global perspective, tapered
time for the implementation of ex post high returns. However, investment in
to fulfil regulatory criteria in one market
risk-sharing is of obvious interest. Too R&D may be mitigated if these are also
for pricing purposes. There may, in any
short a lag will not overcome data areas characterised by a long lag between
case, be different standard comparator
constraints and will not provide much research and product development or by
therapies in different geographical
incentive to participate; too long could high risks to individual firms. Firms may
markets. Data limitations will therefore be
lead to distortion of the perceived gains in place a lower value on R&D projects than
inevitable, as within the current STA
static efficiency with firms gaining undue society in some areas leading to general
assessments, where there is already great
producer surplus. under-investment.
pressure given the objective of realising a
market price to ensure access to the Non-linear pricing within a VBP envi- Even if VBP leads to a firm adopting a
product under evaluation. NICE however, ronment relies on the greater availability of concentration of investment in those areas
currently lives within these data data and a greater willingness of companies where there is perceived to be greatest
constraints, so it may not be impossible for to accept risky pricing strategies. It is health gain, this may result over time in a
VBP to tolerate such constraints. unlikely that non-linear pricing could narrowing of the general R&D base, with
result in perfect price discrimination,5 subsequent loss in the external economies
NICE allows a considerable threshold of
given the data requirements on sub-groups of scale which tend to characterise larger
between £20,000 (€25,000) and £30,000
which would necessarily have to support R&D establishments. A narrow based
(€37,500) per QALY gained for acceptable
pursuit of such a policy. Indeed, given that focus may tend to cause risk-avoidance
treatment up-take. If this form of analysis
VBP is premised on an incentive with within firms, without the broad base to
is to be used for VBP a stricter threshold
respect to dynamic efficiency that is meant spread risk, which may lead to a lower
value, based on the changing opportunity
to persuade firms to invest in those areas valuation of research projects, in the
cost of new treatments, will be required.5
where health benefit is greatest, it is not absence of external economies, than in
This would only not be the case if sub-
clear that non-linear pricing will neces- society at large. Large R&D programmes
group analysis and non-linear pricing, as
sarily work towards this objective. in the pharmaceutical sector may have
proposed in the OFT report, were permis-
sible. While this could lead to a more Long lead time mitigates against a firm ex inherent advantages through economies of
scale and scope that are difficult to identify
flexible regulatory pricing mechanism, and ante considering non-linear pricing as a
but are nonetheless present.6
in the extreme giving perfect pricing strategy, unless pursuing from the
discrimination with all surplus being beginning of their investment a very The size of a firm may itself encourage
acquired by the company, in most circum- sophisticated data collection and pricing innovation and a wide range of potential
stance this is very unlikely given the data strategy. As investment progresses the firm products. In this sense VBP seems
required to substantiate such claims under would have to pursue evidence on sub- consistent with a narrowing of firms’ tech-
the proposed VBP system. Even substanti- groups and a range of indications, nological capacities as they become more
ating claims across a small number of sub- assuming that it had the foresight to see the specialised in those areas with the greatest
groups would be highly data intensive. aggregate rewards early in the investment potential health gain for their investment
Moreover, if VBP is attached to a risk- cycle. Alternatively if a firm became aware portfolio. This seems to undermine one
sharing analysis, as allowed in the OFT of potential benefits of market segmen- aspect of a productive R&D capability; the
5 Eurohealth Vol 14 No 2

9. PHARMACEUTICAL POLICY
ability to maintain a broad technological
base which would otherwise provide a
form of insurance against inevitable
Pharmaceutical pricing in
research dead-ends. Within the context of
VBP this occurs not only within but also
potentially across companies as they will
France: a critique
have an incentive to compete for areas of
highest health gain.
Conclusion
Philippe Sauvage
The design of optimal regulation is not
straightforward. The current discussion of
how to regulate pharmaceutical prices in
the UK highlights this. The existing UK Summary: In France, pharmaceutical pricing relies on an ex ante
regulatory environment has been voluntary evaluation of the medical value of drugs. Prices are negotiated on the
and has allowed high rates of return as an basis of an industry-wide contract between drug manufacturers and
incentive to motivate R&D. The proposed the Health Products Pricing Committee (Comité Economique des
system emphasises that the presumed high Produits de Santé). Together the Committee and the drug companies
prices consistent with these returns have sign a number of contractual agreements, which give the national
eroded consumer surplus. Such a debate
health system a variety of flexible means to monitor prices and drug
brings a clear perspective to the tensions
use, also ensuring that public resources are properly allocated. Some
associated with the pursuit of static and
drugs have different levels of therapeutic value, depending on who
dynamic efficiency concerns. With either
regulation there is a trade-off; with the takes them. These products in particular need close monitoring.
PPRS the trade-off is that static efficiency Rebate policies are one of the tools available to control such spending.
concerns are relaxed to allow the pursuit of The economic efficiency of such rebates should not be overestimated;
dynamic efficiency through the provision in practice they do not significantly decrease spending.
of incentives for R&D investments and,
hopefully, a quick rate of market launch of Keywords: Pharmaceutical Policy, Reimbursement, Rebates, Evalu-
beneficial products. Under the proposed ation, Added Therapeutic Value
VBM the trade-off would be to tighten
static efficiency concerns against the cost of
potentially reduced incentives for R&D.
The actual judgement regarding which is, A few words on pricing and the drug. Although a drug’s therapeutic
of course, an empirical one. reimbursement value does not impact on pricing, it helps
Pricing and reimbursement decisions in determine its reimbursement rate. The
France are taken on a step by step basis. added therapeutic value of a drug is a
REFERENCES relative notion, as it is measured through a
Firstly there is the market authorisation of
1. Office of Fair Trading. The Pharmaceu- a drug at a national or European level. The comparison with the clinical benefits of
tical Pricing and Reimbursement Scheme: product is then evaluated by an inde- existing drugs or therapies. Thus, it repre-
An OFT Market Study. London: Office of pendent scientific committee, prior to sents the ‘added health gain’ or the ‘relative
Fair Trading, 2007. Available at price negotiations. This Transparency effectiveness’ of a drug, compared to its
http://www.oft.gov.uk/shared_oft/reports/ Committee, named after the European alternatives. The main problem in
comp_policy/oft885.pdf Transparency Directive, assesses the ther- assessing this added therapeutic value is
2. Thornton S. Drug price reform in the apeutic value, or clinical benefits of a drug, the time it takes, as well as the lack of
UK: Debunking the myths. Health and proceeds to compare it with existing proper clinical trials against alternative
Economics 2007;16:981–92. therapies. Drugs are evaluated against two products on the market.
3. Towse A. If it ain’t broke, don’t fix it: sets of complex criteria: their therapeutic
Nonetheless, such evaluations are
The OFT and the PPRS. Health Economics value (service médical rendu) and added
necessary and need to take place prior to
2007;16: 653–65. therapeutic value (amélioration du service
any decision on reimbursement. They
médical rendu).
4. National Institute for Health and should also fit within the timeframe
Clinical Excellence. Guide to the Single Therapeutic value takes into account the (normally ninety days) to reach a decision
Technology Appraisal Process. London: severity of the illness and the efficacy of on reimbursement set out in the 1989
NICE, 2006. Available at Transparency Directive (Directive
http://www.nice.org.uk/nicemedia/pdf/ST 89/105/EEC). The duration of such eval-
A_Process_Guide.pdf uations have in fact decreased in recent
Philippe Sauvage is Deputy Head of the
5. Claxton K. OFT, VBP; QED? Health years and now meet this requirement,
Cabinet of the Minister of Health,
Economics 2007;16:545–58. while fast track procedures were also
Ministry of Health, Youth Affairs and
introduced to help assess those drugs of
6. Sutton J. Technology and Market Sport, Paris, France.
great significance.
Structure. Theory and History. Cambridge: Email: Philippe.SAUVAGE@sante-
MIT Press, 1998. jeunesse-sports.gouv.fr
Eurohealth Vol 14 No 2 6

10. PHARMACEUTICAL POLICY
There are five levels of added therapeutic rates (so called “k-rates”) for each category products are used by their intended
value (ATV) that may be assigned to a drug of expenditure. When the increase in phar- targeted populations.
after comparison assessing the degree of maceutical expenditure exceeds the
Take a product that was recently included
improvement against existing therapies: respective k-rate, the manufacturer must
in the reimbursement list. It provides a
I – major improvement; contribute via a rebate scheme.
very high level of improvement for a small
II – significant improvement; Rebates are calculated for each company population (population A). Its market
III – moderate improvement ; on the basis of how innovative their authorisation is also valid for a much larger
products are, i.e. their ATV levels and their population (population B), even though it
IV – minor improvement; and
share of the increase in expenditure does not provide them with any health
V – no improvement. (orphan drugs are exempt). Rates are gain, compared to existing, very cheap
ATV is the most influential factor in drug subdivided by category and homogenous therapies. It would obviously have been
pricing. It is re-evaluated every five years groups of products within each category, wrong to ban access to this product for
or earlier, if the committee chooses. In for example, statins. The pharmaceutical population B. But why should the health
most cases, a re-evaluation includes addi- industry contribution can represent a large care system pay a premium on a product
tional assessment of the drug’s therapeutic part of the excess, often 40% or more. that does not give most people any added
value under real life conditions. 65% of rebate payments are proportional medical value?
to turnover and 35% to growth.
It should also be noted that evaluation and There are two options. One can either
price negotiation is carried out before any devise a reimbursement scheme for
The rationale for rebates
reimbursement schemes are devised. In everyone, defining a ‘median price’
In recent years, the pharmaceutical
most cases this is before the drug is industry has undergone great change. between the innovative part and the
launched in the market. There are also Manufacturers now tend to develop more ordinary part of a product, or one could
specific procedures that allow a drug to be complex products, targeted at very specific limit drastically the use of this product
put on a temporary reimbursement list in sub-groups of the population, or some- beyond the small target population.
the case of interventions for life threat- times even sub-groups of a specific disease. Nevertheless, both options call for
ening diseases. These procedures are Now that the most simple of ailments can scrupulous monitoring. Depending on
however used prudently, reflecting the fact be cured by drugs that are becoming ever market share and prices, rebate rates can be
that once an individual is placed on a cheaper (for example, generic drugs), adjusted according to the terms of
course of therapy it then becomes very companies need to find new, often biotech- contracts. Furthermore, rebates are
difficult to interrupt such treatment. Thus oriented solutions, in order to address expected when a manufacturer’s adver-
without care these procedures might more complex medical conditions. tising campaign is not in line with a
provide pharmaceutical companies with product’s characteristics.
considerable leverage in subsequent nego- One consequence is that the characteristics
of the target populations of many The rebate scheme for drugs has recently
tiations on the longer term use of a drug.
important drugs are becoming ever more grown more complex. Increased access to
similar to those for orphan drugs. The hospital drugs has been granted through
General agreements and rules
sheer cost of many of these drugs makes it the creation of an ‘additional list’. It
Following the determination of added
crucial for the public health authorities to registers expensive and innovative hospital
therapeutic value, the Health Product
ensure that they are prescribed only to drugs that may be reimbursed by hospitals,
Pricing Committee negotiates with the
those who can benefit from their use. on top of diagnostic-related group
drug manufacturer. The Committee
Physicians, of course, play a crucial role payments. The reason for this scheme is
follows a number of guidelines defined
when it comes to ensuring that these new that it is necessary to provide general
either by law or by general agreement with
drugs are prescribed correctly. France has access to expensive drugs. Yet such drugs
the pharmaceutical industry. All negotia-
devised a number of schemes to encourage may be used for very different purposes
tions are contractual and may include
appropriate prescribing practices. Yet drug from one hospital to the other, depending
provisions regarding volume limitations,
manufacturers also play a large part in how on the nature of patients being treated. For
rebates and price re-evaluations.
their products will be used. That is why example, a world-renowned cancer
There are, however, two main rules: (1) the agreements they conclude with the specialist may need to resort to more
ATV level V drugs can only be added to Pricing Committee can include provisions expensive drugs for complex cases,
the reimbursement list if they allow on the volume of prescriptions, dosages compared with an oncologist in a less
savings for the social security system; and and advertising campaigns. Companies are specialised hospital. If both hospitals
(2) prices of drugs which offer consid- also held accountable for the correct use of receive the same level of funding the more
erable improvement over existing therapies their products. difficult cases will not necessarily get what
(levels I to III) must remain stable for the they need. And if both hospitals are given
Interestingly, French physicians tend to be
subsequent five years, and in line with the same access to expensive drugs, they
heavier prescribers of drugs than most of
other major European markets. will not have incentives to control their
their European counterparts. France’s
costs.
The agreement between the pharmaceu- pharmaceutical history and culture, as well
tical industry and the Pricing Committee as the comparatively low price of many To go back to the earlier example, if a given
also includes a general payback procedure. widely used drugs (i.e. aspirin and parac- drug is more expensive than its competitor
Every year, parliament votes to approve a etamol), have led to a situation where 90% in the B market, so much so that its
prospective budget for the public health of doctor-patient appointments end with a competitor does not feature in the addi-
insurance system, defining target increase- prescription. It is critical therefore that all tional list, hospitals would have an
7 Eurohealth Vol 14 No 2

11. PHARMACEUTICAL POLICY
incentive to use the drug in both A and B
markets, since they do not need to pay for
it. Resources, in such a case, are not effi-
Can Europe afford innovation?
ciently allocated. The solution is to restrict
access to the additional list as much as
possible, and monitor the use of the
product.
Thomas B Cueni
Let us complicate things a bit further and
consider that one such drug shares the A
market with another expensive drug. If
both drugs are authorised for the whole Summary: Finding a balance between reward for innovation, improved patient
target population, they will spill into the B access to innovative medicines and controlling budgets remains a challenge for
market without their manufacturers decision-makers, patients and industry in Europe. The industry has a clear pref-
having to face any rebates. This is the erence for market-based pricing, yet, the predominance of administered pricing in
reason why it was recently made possible most European countries, given, alternatives need to be explored. Today, Europe
to limit use to a given volume of products.
sees health care innovation too much as a cost rather than an asset. There is a
need for constructive dialogue on what constitutes the value of new medicines
Conclusion
These examples demonstrate that rebate
and how added therapeutic value should be rewarded.
schemes are necessary to limit price
increases in France and to monitor drug Keywords: Innovation, Value Based Pricing, Pricing, Reimbursement, Added
use. However, their impact should not be Therapeutic Value
overestimated. Prices are essential in any
regulated market to send the right message.
Many factors in the system may lead to Pricing – an unpredictable lottery? by each country, often in a black box
spontaneous price adjustments without the Finding a consensus among different fashion where country reimbursement
need to resort to rebates. stakeholders on what constitutes ‘value of authorities set prices to ensure access and
innovation’ is almost like squaring a circle. control costs. This results in an unpre-
All in all, rebates in France do not account
From an industry perspective, it appears dictable lottery for companies who have
for more than 1% or 2 % of the total
that payers are primarily interested in brought a product to market through a
expenditure on pharmaceutical products in
controlling costs, are unwilling to grant series of regulatory hurdles and still do not
any given year. This is somewhere in the
premiums for innovative new medicines know what the final reimbursed price will
range of €500 million per annum, a sum
and are delaying patient access to thera- be.”1 Now, the question of what consti-
which seems considerable in its own right.
peutic advances. From a payer perspective, tutes a “just price” has been debated since
But it is still small, compared with the €25
it may look as if pharmaceutical companies Saint Augustine but it is interesting to note
billion that France spends on drugs every
expect to recoup their investments into a statement from Vice-President
year. Such a modest share in the total
research and development (R&D), irre- Verheugen, Commissioner in charge of
health care budget means that one cannot
spective of added therapeutic value, want DG Enterprise, who said, “to begin with,
accuse rebate schemes of distorting prices.
to meet or better exceed shareholder the pricing for innovative products in
Yet rebates still represent a crucial tool to
expectations for hefty profits, and are not Europe…needs to be improved.”2
control the use of very specific products.
concerned about escalating health care
In some cases, the fact that they potentially
costs. Innovation – driver of economic growth
may be used is more important than their
The underlying problem is that the
actual use. They allow the public health The truth may be somewhere in the
European health care debate focuses too
care system to monitor marketing, adver- middle and the problem for companies is
much on regarding innovation as a cost
tising and use. less the requirement to justify higher
factor. Medical progress is seen as burden
prices with added value than the lack of
In conclusion, rebates do play a part in the rather than an asset, and the concern is
predictability and erratic changes in
correct allocation of health-insurance often about the high cost of new medicines
national pricing and reimbursement
resources. The general rebate also helps to rather than about the burden of disease.
systems. This is reflected in the World
devise a more accurate estimate of annual Such an approach is short sighted. In
Health Organization’s report on Priority
pharmaceutical expenditures. An emphasis modern economies, innovation, i.e. tech-
Medicines for Europe and the World: “at
should be placed on the importance of the nological progress, is the most important
present, reimbursed prices are determined
ex ante evaluation of any drug: it provides driver of competitiveness and economic
the health care system with a large number growth. The effect of R&D activities on
of tactics to control drug spending. Thomas B Cueni, is Secretary General, economic growth and productivity gains
Moreover, it also facilitates access to very Interpharma, the Association of Swiss has been proven by numerous empirical
innovative drugs by those patients in most Pharmaceutical Research Companies, studies. The main difference between the
need. Basel, Switzerland. He is also Chair of the success story of market economies and all
European Federation of Pharmaceutical other economic systems “is free-market
Industries and Associations Economic and pressures that force firms into a continuing
Social Policy Committee. process of innovation, because it becomes
Email: thomas.cueni@interpharma.ch a matter of life and death for many of
Eurohealth Vol 14 No 2 8

12. PHARMACEUTICAL POLICY
them…It seems indisputable that inno- people from industry are impatient with and Japan. This method not only creates
vation accounts for much of this enviable the slow process of implementation of the controversies about the measurement of
growth record,” is how William J Baumol, recommendations of the G10 Medicines costs but is neither efficient, nor effective.
the eminent US economist, put it.3 High Level Group5 or the Pharmaceutical Cost-based pricing rewards input (invest-
Forum, legislative measures such as the ments) rather than outcomes (better cures).
We live longer and in better health Supplementary Protection Certificate Whereas market-based pricing rewards the
The crux of today’s health care debate is (SPC) restoring lost patent term, the successful innovator handsomely and
that pharmaceutical innovation focuses on setting up of an efficient European market penalises failure, cost-plus pricing inher-
the needs of the patients whereas the health approval system with the European Medi- ently favours risk-averse research and can
policy debate is dominated by numbers cines Agency (EMEA), improved regula- lead to perverse results.
and cost containment. Today, we can tions for data exclusivity, incentives for
Other methods to value new medicines
expect to live thirty years longer than one research into orphan diseases, better incen-
include therapeutic comparison (value
hundred years ago. Huge reductions in tives for research into paediatric medicines
based pricing), where clinical relevance and
mortality (for example, in HIV/AIDS, as well as the most recent Innovative Medi-
cost effectiveness are taken into consider-
many cancers or cardiovascular diseases) cines Initiative (IMI) all aim to make
ation, or country baskets (price comparison
and a significant progress in the quality of Europe more innovation-friendly for
with certain reference countries). Such
life are the results of some big and many patients and industry alike. However, the
country baskets are primarily driven by
small steps in biomedical research. predominance of Member States’ more
political considerations, since a
Contrary to common belief, higher life serious concerns about health care budgets
comparison with prices in other countries
expectancy does not inevitably lead to has limited the positive impact of some of
is always a comparison of different pricing
degenerative disease and ever longer stays these EU-driven industrial policy initia-
and reimbursement policies based on the
in nursing homes because we cannot only tives, which explains why the EU was
concern that a country does not want to
expect to live longer but we get older in unable to regain relative attractiveness for
pay more than a neighbour or an econom-
better health. Higher blood pressure and pharmaceutical R&D investments over the
ically comparable country. Companies
cardiovascular disease can be controlled past decade.
naturally adjust to pricing signals. If they
with antihypertensive drugs and choles- know, for example, that rich countries are
terol-lowering drugs, knee or hip replace- No progress on pricing and
unlikely to accept a higher price than poor
ments keep us from wheelchairs, and some reimbursement
countries, they will adjust their European
cancers can be controlled or even cured Whereas progress in the regulatory area is
price bands accordingly. This also leaves
thanks to newer targeted medicines. Yet, undeniable, the main issue impacting the
open the question of how to determine
there remain huge challenges in areas such economics of the industry has not been
prices in the ‘first’ Member States that will
as Alzheimer’s disease, multiple sclerosis, addressed. In many instances, pricing and
serve later as the reference point.
many cancers or orphan diseases. reimbursement still remains an “unpre-
dictable lottery”. The debate on an indus- Accepting the reality of administered
Cost containment, however, dominates the trial policy for the pharmaceutical industry pricing in most European countries, value-
debate in a majority of countries. in Europe has led to a broad agreement based pricing, i.e. reimbursement on the
Reference pricing, budget ceilings, tough that inadequate reward for innovation and basis of comparative effectiveness is
generics policies and price cuts are the significant delays in patient access to new certainly the most interesting and politi-
most widely used cost containment medicines play a major role in Europe’s cally relevant approach. Criteria which
measures. Often, new policy measures are declining competitiveness as a location for should be considered when assessing value
initiated before the success or failures of pharmaceutical R&D. However, it is include:
their predecessors are evaluated. Indeed, obvious that progress will only be possible – Does the innovation address a high
Jaime Espin and Joan Rovira recently if a balance can be struck between the unmet medical need?
concluded that it was difficult to assess the objectives of rewarding innovation,
effectiveness of many of these policies improving patient access to innovative – Does it reflect a major, important or
since the (positive) impact on budgets has medicines and controlling health care moderate clinical improvement?
to be weighed against the (negative) impact budgets. – Is there an alternative treatment
on patient access to innovative treatments.4 available and if so, is the superiority of
The first issue is how to put value to a new
Nonetheless, it would be unfair to state the new treatment plausibly demon-
medicine? In principle, market-based
that the picture is all bleak. Many govern- strated?
pricing is the most efficient way to allocate
ments are trying to square the circle resources and reward innovation. – Is there sufficient choice to allow all
between rewarding innovation and However, where there is a single patients to be treated?
improving patient access while main- government payer, there is no functioning – Is there a favourable cost-benefit ratio?
taining budget control. In a number of market. Thus, alternatives to market-based
European countries such as Ireland, France pricing are needed. To an economist the – What is the impact on public health?
and the UK, framework agreements recurrent theme of cost-based pricing is – What is the broader societal benefit and
between the government and industry amazing. Critics of the industry ask how cost?
have been signed, and the EU can we put a price on a product if one does
Commission’s agenda has generally been not know the cost of manufacturing, or the Added value merits reward
driven by an attempt to find a good cost of research and development? Cost- The pharmaceutical industry has to accept
balance between health policy and indus- plus pricing was used historically in a that it can only receive a higher price for
trial policy objectives. Although some number of countries such as Spain, Italy better value. Whereas a patent, by defi-
9 Eurohealth Vol 14 No 2