• How other countries balance drug prices and innovation (part 2)

    This is the second of two posts reviewing how countries around the world factor patient access and innovation into prescription drug pricing. The previous post reviewed how Canada and Germany navigate this tradeoff.

    Across party lines, Americans generally agree that prescription drug prices in the US are unreasonable. But those high domestic drug prices are part of an incentive structure that drives global pharmaceutical innovation. As Dr. Stacie Dusetzina, an associate professor of health policy and cancer research at Vanderbilt, put it in an interview with The Incidental Economist in February, “if you reduce prices and therefore potential profits, you will lose innovation.” So how can lawmakers balance the priorities of lowering drug prices and maximizing innovation? This post reviews how France and England factor these concerns into their unique approaches to prescription drug pricing.

    France: Assessing Added Benefits

    In France, the independent and financially-autonomous French National Health Authority (Haute Autorité de Santé, or HAS) requires manufacturers that wish to gain market access to produce and submit dossiers analyzing the cost-effectiveness of new drugs. For drugs that are either identified as high-value or projected to have a substantial budgetary impact, a division of HAS known as the Economic and Public Health Assessment Committee (Commission Evaluation Economique et de Santé Publique, or CEESP) assesses the cost-effectiveness of therapies.

    CEESP does not conduct its own independent health technology assessment or appraisal of new drugs; instead, it analyzes dossiers written by manufacturers and then reports on the quality of the evidence submitted. Though CEESP does not require the use of quality-adjusted life-years (QALYs), there is a common understanding that QALYs are the preferred metric of cost-effectiveness in CEESP reviews. At the conclusion of its work, CEESP rates the quality of submitted dossiers based on analytical and methodological issues. This rating ranges from none, meaning the dossier is methodologically sound and presents a sound analysis of a therapy’s cost-effectiveness, to major, meaning that there are substantial issues with the dossier. A 2017 review of CEESP ratings found that 37% of manufacturer-generated dossiers contained methodological issues that “completely invalidated the analysis,” and 89% of reviewed dossiers included “at least one important and/or major methodological concern.”

    Parallel to but completely separate from CEESP’s review, the Transparency Committee (Commission de la Transparence, or CT) of the HAS rates therapies in regard to established clinical benefits (Service medical rendu, or SMR) and in regard to clinical value compared to existing therapeutic alternatives (Amélioration du service medical rendu, or ASMR). SMR is rated on a four-point scale ranging from insufficient to substantial. ASMR is rated on a scale ranging from no additional benefit to major additional benefit. Five years after its initial review of new therapies or whenever relevant new information becomes available, the CT reevaluates the clinical value of drug products.

    Once CEESP and CT complete their respective independent reviews of the cost-effectiveness and clinical value of new drugs, the responsibility for negotiating the prices of outpatient drugs covered by the French statutory health insurance program then falls to the Economic Committee on Healthcare Products (Comité Economique des Produits de Santé, or CEPS). Manufacturers and CEPS then sign a five-year contract stipulating a price for the therapy and forecasting script volumes. If actual prescription volumes exceed this forecast, manufacturers must rebate between 50% to 80% of additional revenues back to the French government.

    After these negotiations, the National Union of Health Insurers (Union Nationale des Caisses d’ Assurance Maladie, or UNCAM) registers new therapies on a list of reimbursable products and sets a reimbursement rate that corresponds to therapies’ clinical benefits rating (SMR): for important benefits, and 100% for major benefits. Since reimbursement rates are set by UNCAM, net price increases do not occur in the five years after drugs initially gain market access.

    The structure of drug pricing and reimbursement in France derives from the indirect health technology assessment and appraisal conducted by CEESP and the comparative clinical value assessment conducted by CT. This elaborate process boils down to a pricing scheme that is based on a mix of cost-effectiveness analysis and product reference pricing. Ultimately, the French drug pricing system is designed to incentivize the development of cost-effective products that add value to patients and the French health system more broadly. By rewarding added value within limits, the French drug pricing system strikes a robust balance between lower prices and innovation.

    England: Embracing the Quality-Adjusted Life Year and Global Budgets

    In England, assessments of the clinical and economic value of prescription drugs are conducted by the National Institute for Clinical Excellence (NICE), an independent and publicly-funded entity that is accountable to the Secretary of State for Health in England. The United Kingdom’s universal single-payer health care system, the National Health Service (NHS), is required by law to reimburse clinically-appropriate prescription therapies that NICE recommends in its assessments.

    The Health and Social Care Act 2012 lays out three core considerations that guide NICE. In the course of its duties, “NICE must have regard to the broad balance between the benefits and costs of providing health services or of social care in England, the degree of need of people for health services or social care in England, and the desirability of promoting innovation in providing health services or of social care in England.” These multifaceted priorities speak to the complex role that NICE plays in deciding how to ethically and efficiently allocate some of the NHS’ limited resources, since costs incurred by the NHS cannot exceed the program’s budget.

    Drug manufacturers submit two sets of evidence for NICE to review: clinical evidence and economic evidence. These submissions and external reports form the basis of how NICE assesses and appraises the cost-effectiveness of new prescription drugs.

    In pursuit of fairness and maximizing the public health, NICE quantifies the cost-effectiveness of prescription therapies using both clinical and economic evidence. NICE specifically uses a metric of cost-effectiveness known as quality-adjusted life-years (QALYs) to “ration” health care, meaning that NICE uses QALYs to compare the clinical value of health care goods and services in a cost-conscious way.* QALYs are a common way of measuring the value of health-related goods and services. As Dr. Aaron Carroll put it in an article in the New York Times in 2014, “if interventions improve quality or add years of life (or both), the number of QALYs goes up. Taking the cost of a therapy and dividing it by the number of QALYs gained results in a measurement of cost effectiveness.”

    NICE ultimately makes decisions about whether therapies should be reimbursed by the NHS based on how cost-effective drugs are. However, cost-effectiveness is not the only factor that NICE considers: the body also takes into consideration whether the product treats a severe disease or is aimed at marginalized or pediatric populations.

    Both in terms of its high-level priorities and specific granular frameworks for evaluating the comparative cost-effectiveness of medical products, NICE factors both patient access and innovation into its drug pricing assessments.

    Another way that England balances prices and innovation is through the Voluntary Scheme for Branded Medicines. Under this commitment, participating drug manufacturers have agreed to pay back the government for sales of brand drugs that exceed an annual growth rate of 2% from 2019 to 2024. Per the website of the Association of the British Pharmaceutical Industry, this “scheme strikes a balance between supporting innovation in the pharmaceutical industry, helping to get the most cost-effective medicines to patients as quickly as possible, and ensuring complete predictability on spend for the entire branded medicines bill for the NHS.” As a supplement to the health technology assessments and appraisals that NICE conducts, the Voluntary Scheme also helps balance the priorities of lowering prices and maximizing innovation under a fixed global budgetary constraint.

    *If “rationing” sounds like an immoral way to allocate limited health care dollars, consider that the US rations health care too. Instead of carefully considering ethics and allocative efficiency, however, the US rations care according to people’s ability to pay

    Research for this piece was supported by the Laura and John Arnold Foundation.