The value of innovation under value-based pricing

Achieving dynamic efficiency in pharmaceutical innovation: Identifying the optimal share of value and payments required

It has been argued that cost-effectiveness analysis of branded pharmaceuticals only considers static efficiency, neglects dynamic effects and undermines incentives for socially valuable innovation. We present a framework for designing pharmaceutical pricing policy to achieve dynamic efficiency. We develop a coherent framework that identifies the long-term static and dynamic benefits and costs of offering manufacturers different levels of reward. The share of value that would maximise long-term population health depends on how the quantity and quality of innovation responds to payment. Using evidence of the response of innovation to payment, the optimal share of value of new pharmaceuticals to offer to manufacturers is roughly 20% (range: 6%-51%). Reanalysis of a sample of NICE technology appraisals suggests that, in most cases, the share of value offered to manufacturers and the price premium paid by the English NHS were too high. In the UK, application of optimal shares would offer considerable benefits under both a public health objective and a broader view of social welfare. We illustrate how an optimal share of value can be delivered through a range of payment mechanisms including indirect price regulation via the use of different approval norms by an HTA body.

How innovation can be defined, evaluated and rewarded in health technology assessment

BACKGROUND

What constitutes innovation in health technologies can be defined and measured in a number of ways and it has been widely researched and published about. However, while many countries mention it as a criterion for pricing or reimbursement of health technologies, countries differ widely in how they define and operationalise it.

METHODS

We performed a literature review, using a snowballing search. In this paper, we explore how innovation has been defined in the literature in relation to health technology assessment. We also describe how a selection of countries (England, France, Italy, Spain and Japan) take account of innovation in their health technology assessment frameworks and explore the key methodologies that can capture it as a dimension of value in a new health technology. We propose a way of coming to, and incorporating into health technology assessment systems, a definition of innovation for health technologies that is independent of other dimensions of value that they already account for in their systems, such as clinical benefit. We use Spain as an illustrative example of how innovation might be operationalised as a criterion for decision making in health technology assessment.

RESULTS

The countries analysed here can be divided into 2 groups with respect to how they define innovation. France, Japan and Italy use features such as severity, unmet need and therapeutic added value as indicators of the degree of innovation of a health technology, while England, Spain consider the degree of innovation as a separate and additional criterion from others. In the case of Spain, a notion of innovation might be constructed around concepts of `step-change', `convenience', `strength of evidence base' and `impact on future research & development'.

CONCLUSIONS

If innovation is to be used as operational criteria for adoption, pricing and reimbursement of health technologies, the concept must be clearly defined, and it ought to be independent from other value dimensions already captured in their health technology assessment systems.

Measurement and valuation of the attributes of innovation of healthcare technologies: a systematic review

OBJECTIVE

Innovative technologies (e.g. treatments) play a pivotal role in improving patient's well-being and in consequence population health outcomes. However, there is lack of consensus and comprehensive summary what constitutes innovation. Additionally, valuing them using traditional cost-effectiveness analysis is unlikely to capture the full range of benefits of these innovative technologies. This review aims to understand how innovation attributes were measured and/or valued in healthcare.

MATERIALS AND METHODS

We systemically searched four databases, PubMed, Embase, PsycINFO, and Econlit, from inception to April 2021. Studies were included if they measured and/or valued the attributes of innovation for healthcare identified in our previous systematic review. Any other potential recommended methods to measure and/or value the innovation attributes were also extracted.

RESULTS

Of 546 articles, a total of 17 articles were finally included in this review. If attributes were measured and traded-off relative to costs, then it was considered as valuation of those attributes. Two specific attributes of innovation, i.e. substantial benefits and convenience and/or adherence were measured using adherence rate and life year or QALY gain. When innovation attribute was non-specific it was described as "overall innovation" and measured using overall innovativeness scale (e.g. point/binary scale). QALY-based cost-effectiveness analysis (CEA) was commonly used to assess and value substantial benefit attribute. Other valuation approaches were (i) rating, (ii) the economic value of life year gain, (iii) multiple criteria decision analysis (MCDA), (iv) incremental net health benefit (INHB), and (v) quality-adjusted cost of care (QACC). ICER threshold adjustment and multiple-criteria decision analysis (MCDA) are two common recommended approaches to capture the innovation comprehensively. We found that MCDA approaches often promoted and discussed but were sub-optimally used to incorporate different value attributes into decision-making.

CONCLUSIONS

Existing methods used by payers to measure and value the innovation component of a new product do not reflect the full range of health and cost impacts. They generally do not consider the alternative perspectives of patients, providers, caregivers, and society. Key challenges remain to appropriately measure and value innovation attributes and incorporate them into HTA decision making.

Estimating the shares of the value of branded pharmaceuticals accruing to manufacturers and to patients served by health systems

Previous studies have estimated that patients served by health systems accrue 59-98% of the value generated by new pharmaceuticals. This has led to questions about whether sufficient returns accrue to manufacturers to incentivize socially optimal levels of R&D. These studies have not, however, fully reflected the health opportunity costs imposed by payments for branded pharmaceuticals. We present a framework for estimating how the value generated by new branded pharmaceuticals is shared. We quantify value in net health effects and account for benefits and health opportunity costs in the patent period and post-patent period when generic/biosimilar products become available. We apply the framework to 12 National Institute for Health and Care Excellence appraisals and show that realized net health effects range from losses of 160%, to gains of 94%, of the potential net health benefits available. In many cases, even in the long run, the benefits of new medicines are not sufficient to offset the opportunity costs of payments to manufacturers, and approval is expected to reduce population health. This cannot be dynamically efficient as it incentivizes future innovation at prices which will also reduce population health. Further work should consider how to reflect these findings in reimbursement policies.

Cost-Effectiveness of Ivacaftor Therapy for Treatment of Cystic Fibrosis Patients With the G551D Gating Mutation

OBJECTIVES

Cystic fibrosis (CF) is a rare genetic disease with no cure. Until recently, treatment has targeted symptoms of the disease and not the disease-causing genetic defect. Ivacaftor is included in a new class of breakthrough drugs targeting the genetic defects of CF. We sought to estimate the long-term cost-effectiveness of ivacaftor from a US payer perspective.

METHODS

We developed an individual-level microsimulation model that followed a cohort of heterogeneous US CF patients over a lifetime. The primary outcome of interest was quality-adjusted life years (QALYs). We also compared unadjusted life years, count of acute pulmonary exacerbations, and count of lung transplants over a lifetime between patients treated with ivacaftor plus best supportive care and patients treated with best supportive care alone. We conducted one-way and probabilistic sensitivity analyses to test the impact of various model inputs and uncertainties.

RESULTS

We found a substantial increase in QALYs, life years, and treatment costs over a lifetime for patients treated with ivacaftor plus best supportive care versus best supportive care alone. Discounted results for ivacaftor were 22.92 QALYs and $8 797 840 in total lifetime costs compared to 16.12 QALYs and $2 336 366 lifetime costs for best supportive care alone. The incremental cost-effectiveness ratios (ICERs) were $950 217 per QALY. Results from the probabilistic sensitivity analysis indicated a 0% chance that ivacaftor was cost-effective at a willingness-to-pay (WTP) threshold of $500 000 per QALY.

CONCLUSIONS

Treatment with ivacaftor plus best supportive care versus best supportive care alone is not cost-effective at or near commonly accepted WTP thresholds.

Right Ventricular Outflow Tract Reintervention in the Transcatheter Era: Outcomes and Cost Analysis

Surgical pulmonary valve insertion (SPVI) for re-entry right ventricular outflow tract intervention (RVOTI) remains an established and reproducible approach. Fast-track in patients undergoing RVOTI of the comprehensive valve program targets early ICU and hospital discharge (Hd). Feasibility study for outcome and cost analysis was undertaken. Between January 2015 and December 2016, 34 patients underwent re-entry RVOTI. Seventeen had SPVI and 17 transcatheter PVI (TPVI). Surgical perioperative fast-track protocol was used. Echocardiographic evaluation preoperatively (TTE-1), after RVOTI (TTE-2), at hospital discharge (TTE-3), and follow-up (TTE-4) were obtained. Cost Analysis included procedural and hospital costs. Mean follow-up period was 11.3 ± 6.9 months. All patients were extubated prior to ICU arrival. Mean age was 8.5 ± 7.8 for SPVI [vs 28.5 ± 8.6 years for TPVI] (p < 0.05). There was no hospital mortality or 30-day readmission for SPVI (versus 1 for TPVI).Mean hospital length of stay (LOS) was 4.1 ± 1.1 days for SPVI [vs 1.1 ± 0.7 days for TPVI] (p < 0.05). Number of prior sternal re-entry had no influence on outcome. RV systolic pressure referenced to LVSP (rRVSP, %) and diastolic dimension (RVEDDi, z score) showed sustainable improvement (TTE-2, TTE-3, TTE-4) in both groups compared to TTE-1 (p < 0.05). Mean total hospital cost was $5475.86 ± 2503.91 lower after SPVI (p = 0.09), 21.7% procedural cost reduction. Patients undergoing RVOTI can be safely stratified, based on a customized concept, towards SPVI or TPVI. Standardized strategy can advocate a fast-track path. SPVI is associated with comparable mid-term outcomes to TPVI although SPVI is delivered in younger patients. Despite longer LOS SPVI is associated with reduced hospital cost. Multisite studies might help determine suitability for each strategy on cost containment/quality of life basis.

The price of innovation - the role of drug pricing in financing pharmaceutical innovation. A conceptual framework

The debate on drug prices has reached new heights with the controversy around the role of prices in promoting innovation. Critics claim that prices of innovative drugs are excessive and argue that lowering prices will not harm the flourishing innovation. On the opposite end, the pharmaceutical industry insists that restrictive pricing policies will have a detrimental impact on their ability to generate innovation. Amid these two divergent positions, this manuscript presents a conceptual framework to better understand the role played by drug prices to influence the ability of pharmaceutical firms to raise money in capital markets and hence finance pharmaceutical innovation. We argue that deviations from established value-based pricing principles, by either firms or payers, will distort access by firms to capital and lead to an undesirable level of innovation in the long term. We hope that this framework helps policy-makers anticipate the impact of their proposals, and ultimately guide policies towards setting optimal drug prices as a means to maximise social welfare.