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Case studies report

October 2015

International pricing and

reimbursement schemes

Prepared for Wellcome TrustStrategy& | PwC International Pricing and Reimbursement Schemes - Case Studies Report

Introduction

Strategy& has been engaged by The Wellcome Trust to support part of the Accelerated Access Review, which is looking at how the funding of health technologies can be integrated and accelerated in the UK

The primary objective of our work is to develop recommendations regarding new pricing and reimbursement models that are applicable to the UK

This project is funded by the Wellcome Trust but the information contained within this document has been

collated independently of the Wellcome Trust and the Accelerated Access Review

Our approach

• We have investigated the ways in which medical

technologies, which include pharmaceuticals,

medical devices and digital products, are priced

and reimbursed in international markets

• Through a combination of primary and secondary

research we have profiled a number of different

pricing and reimbursement schemes, drawing

from international markets including Australia,

France, Germany, Italy, The Netherlands and

Spain

This report and our next steps

• This document contains profiles of the

international pricing and reimbursement

schemes, including examples of where these

schemes have been implemented and a high-

level indication of which schemes may be

applicable to the UK

• This research will inform the development of

more detailed pricing and reimbursement models,

that will be created in consultation with a variety

of stakeholders, and will be outlined in our final

report in November

1October 2015


We have profiled our case studies of international pricing and reimbursement schemes under three main categories:

We have identified examples of international pricing and reimbursement schemes that could be applied in the UK

Schemes that directly influence medical

technology pricing or reimbursement levels, or

help to control spend

Schemes that tie payments to results or health

outcomes, or require the collection of further

evidence for pricing and reimbursement re-

evaluations

Models that exist in other industries or have not yet

been consistently applied in the pharmaceutical / healthcare industry

Pricing and

reimbursement controlsOutcomes schemes Hypothetical schemes

In line with the remit of the Accelerated Access Review we have not included models that specifically

require changes to the calculation of the QALY or the use of cost-effectiveness within the UK. These

types of schemes, however, have not been numerous in our search. When looking to examples that

may be applied within the UK we have assumed that these schemes would not be applied under the

current arrangements of the Pharmaceutical Price Regulation Scheme

2October 2015


The schemes we have profiled need to be considered in the context of the payer environment they are used in

We have illustrated here the broad national archetypes for payers and the criteria that drive decision making in the countries we have focused on through our work. The decisions of national payers may not align with the focus of payers at a regional level, who place a greater emphasis on cost-containment and budget impact

Comparative effectiveness markets

Markets where pricing and reimbursement

decisions are made on the basis of the

comparative clinical effectiveness against the

existing standards of care

Cost effectiveness markets

Markets where pricing and

reimbursement decisions are made

on the basis of a cost-effectiveness

calculation (e.g. cost-per-QALY)

Budget impact

Budget impact markets make

decisions around the pricing and

reimbursement of new medical

technologies largely around cost

and the future budget. They may

have national budget caps in place

3October 2015


Scheme Example markets / industry Feasibility for UK

Pri

cin

g &

Reim

bu

rse

me

nt

Co

ntr

ols

Price Volume Agreements High

Tendering & Negotiation at Scale High

Therapeutic Reference Pricing Low

Disease-specific Pricing & Reimbursement Pathways Medium

Wider Value in Cost-effectiveness Low

Budget Capping Medium

Dose Capping High

Ou

tco

me

s

Sc

he

me

s

Conditional Reimbursement High

Outcomes-based Payments High

Hyp

oth

eti

ca

lS

ch

em

es

Buy Now Pay Later Medium

Guaranteed Revenue Model Medium

Indication-based Pricing Medium

Product-Service Bundling Medium

Our longlist of schemes outlines 13 potential options for products launched in the UK

4October 2015


• A price volume agreement is a method of limiting a payer’s total spend

on a product. The price per unit is lowered as the total quantity of units

purchased increases. There is also a maximum quantity specified after

which a risk-share is negotiated, as it is unlikely that a manufacturer will

pick up the entire cost above a specified volume

• In practice, price volume agreements can be implemented in different

ways, corresponding to the exact relationship between the unit price and

the quantity of units purchased. For example, the price may stay

constant until a certain threshold is reached, at which point the price per

unit drops linearly as additional units are purchased. An alternative

approach is to implement stepped price reductions as various volume

thresholds are reached

• Price volume agreements are commonly entered into as a standard

element of pricing and reimbursement negotiations, particularly in

healthcare systems where drugs are purchased by a centralised payer

Price volume agreements

Description

Gilead in France

• In France, as part of a range of budget controls

concerning high cost Hepatitis C drugs, Gilead

entered into an agreement to cut the list price of

Sovaldi by €5k per treatment (27% discount from

original price) based on a fixed volume (undisclosed)

• PVAs are very often used in combination with other

schemes that aim to increase affordability across the

whole healthcare system. They are often combined

with budget caps, performance-based payments and

could be combined with Buy Now Pay Later schemes

• For example, France’s PVA with Gilead (above) was

supplemented by a performance-based payment

agreement, with rebates if there was no cure.

• To implement a form of indication-based pricing,

payers may wish to negotiate a PVA based on the

weighted average price of a product for multiple

indications

Australia

• As part of the process for listing a drug to be

reimbursed as part of the PBS, a price volume

agreement can be negotiated

Examples

Fit with other schemes

Price per unit

Quantity of units

purchasedVolume threshold where price

begins to decrease

Additional agreements

(e.g. risk-sharing)

Source: Australian Pharmaceutical Benefits Scheme (PBS); Strategy& interviews and analysis

Pricing and reimbursement controls

Outcomes schemes Hypothetical schemes

5October 2015


• PVAs reduce the financial risks associated with product demands exceeding forecast

• PVAs can decrease the total budget impact of indications with large populations

Pros in the UK context

In a new system, price volume

agreements could be

negotiated in parallel with

NICE’s evaluation process.

This would allow all players to

come to a price-volume

decision that optimises uptake

and still feeds into decisions

regarding the cost-effectiveness

of the treatment

• PVAs are most applicable for products that are bought in bulk for large patient

populations (e.g. Cardiovascular disease, COPD, asthma) but can be used for many

product types

• Products that have a large budget impact are mostly likely to warrant price negotiation

via a PVA. Conversely low budget impact disease areas, where patient populations are

small, for example rare diseases, are unlikely to be negotiated via PVAs. It is likely that

the diseases with small patient populations will be better managed under other pricing

and reimbursement schemes (e.g. via budget caps or through disease-specific pricing

and reimbursement pathways/funds)

Feasibility for the UK

Applicable product types

• To support tracking against PVAs, consumption data needs to be collected across

points of care in the UK, posing a data infrastructure challenge

• PVAs do not apply to parallel imports, and so the volume purchased directly by the

payer from the manufacturer may not be the true volume used

• Products negotiated under a PVA would need to be negotiated centrally under special

commissioning, which could impact local uptake due to misaligned incentives

• If budget caps are applied on manufacturers there will be little incentive for

manufacturers to apply additional PVAs to their products

Challenges in the UK context

Fit with policy objectives

Price volume agreements

Source: Strategy& interviews and analysis



Increases affordability

Increases access

Shares risk around outcomes

Enables budget predictability

Aligns with integrated care

6October 2015


• Alternate methods of tendering are employed in international markets

and offer different mechanisms to the route of hospital tendering and

special commissioning that is present in the UK. Tenders in EU markets

are typically focused on off-patent, retail and high-cost hospital drugs

• Tendering can be performed at multiple levels that offer purchasing

power on different scales:

− Hospital Level (e.g. Germany, Netherlands)

− Regional Level (e.g. Denmark, Spain, Italy, Netherlands, Germany by

sick funds like AOK)

− National Level (e.g. Italy, Spain, CMU in UK)

− Pan-National level (e.g. Netherlands and Belgium)

• Tenders can also be variably awarded to single manufacturers or

multiple manufacturers – though this varies by market. The mechanisms

through which tenders can be run also vary. Payers may also consider

alternative tendering methods such as tendering around specific disease

areas or for portfolio agreements with a single provider

Description

Pan-national tendering

• The Netherlands and Belgium are

participating in a pan-national tendering process with

a focus on procuring orphan drugs

• The success of this tender may encourage the use of

pan-national tendering in the future

Pan-Canadian Pharmaceutical Alliance (pCPA)

• The pCPA is an organisation that pools the

negotiation power of the Canadian provinces (ex.

Quebec)

• As of August 2015 the pCPA have completed 79 joint

negotiations for branded products. In 2014 it was

estimated that the pCPA had saved CAD$315m

annually through their negotiations

Examples

• Any negotiation between a payer and a manufacturer

can be carried out at a larger scale by payers joining

together. Therefore, tendering and negotiation at scale

can be combined with the majority of other schemes

• Negotiating different schemes at scale may impact

how they are implemented: e.g. data will have to be

centralised across all involved payers

• When tendering, products could be bundled with

services that support the implementation of required

changes to the clinical pathway


Tendering and negotiation at scale

Tender agreed

Hospital Level

£ Tender agreed

Regional Level

£ £Tender agreed

Regional Level

Tender agreed

National Level

£

Source: Reuters; pan-Canadian Pharmaceutical Alliance; Strategy& interviews and analysis



7October 2015


Tendering and negotiation at scale



• The principle of tendering can be applied to almost any product type but will only be

beneficial in product areas where there is sufficient market competition for pricing to

become competitive. Tendering may therefore not be suitable for disease areas where

there are minimal solutions and therefore a high unmet need

• Tendering is already in place in the UK for a variety of product types. For example

payers in the North of England have come together to put out a joint tender for anti-

TNF treatments (including biosimilars), which has imposed a price ceiling on the drug

• Tendering could also be successfully applied to other medical technologies like in-vitro

and companion diagnostics. Tendering could also be applied to product bundles, which

could be commissioned in regions to serve specific patient populations


• Tendering and negotiating at scale increases purchaser power by combining the influence of multiple payers and providers

• One negotiation covers multiple payers, so there is reduced price disparity compared to individual agreements

• Tenders can disadvantage smaller or newer players due to the time taken to complete and the requirements for previous experience and assurance of financial stability

• Longer-term tenders can disadvantage payers if more cost-effective or clinically effective products are launched into the market during the term of the contract

• Bodies who negotiate jointly with manufacturers must align their requirements and processes to enable effective collaboration

• UK has a strict interpretation of EU competition laws, leading to tenders for products without competitors



Tendering and negotiation at

scale is already practiced in the

UK through specialised

commissioning for relatively

expensive but uncommon

conditions and vaccines.

Further negotiation at scale for

innovative funding models will

ensure that benefits are widely

spread and not limited to

specific CCGs. Moreover there

is room for optimisation in the

existing system (e.g. around

single supply tender)





Increases access




8October 2015


• When an initial pricing and reimbursement assessment is being

performed, comparators are identified and used to benchmark the price

or reimbursement level of the product being assessed

• Benchmarks can be used to establish a price in a variety of ways, such

as taking an average of comparator prices, or even the lowest within the

group

• Different healthcare systems typically choose comparator products in

one of two ways:

1. Drugs of the same pharmacological class

2. Drugs that treat the same condition

• The choice between the two options will lead to different results, with the

second option giving a larger range of comparator drugs than the first

Description

Therapeutic reference pricing in Germany

• Drugs that are off-patent, or not determined

to have significant therapeutic advantage, are grouped

according to their active ingredient

• The maximum price reimbursed by a sickness fund is

determined by a reference based on the weighted

average of products in the same reference group

Examples

• In clinical-effectiveness markets, therapeutic

referencing is used at the start of the pricing process,

and could inform the approach taken to negotiating

under other schemes

• Treatments that are benchmarked against existing

standards of care could be tied to a performance-

based-payment contract that rewards manufacturers if

their product outperforms existing standards


Therapeutic reference pricing in

The Netherlands

• The Netherlands operates a system of reference

pricing based upon the therapeutic equivalence of

drugs

• Drugs are compared against a set of comparator

products that are used to treat the same condition

Therapeutic reference pricing

9

Drug being

assessed

Compared withDrugs of the

same

pharmacological

class

1.

Drug being

assessed

Compared withDrugs that treat

the same

condition

2.

Source: Dylst et al. 2012, Generics and Biosimilar Initiative Journal; Strategy& interviews and analysis



9October 2015


Therapeutic reference pricing


• Therapeutic reference pricing could be applied to products with no additional clinical

benefit (e.g. me-toos) to disincentivise crowding in specific therapeutic areas and

encourage the development of products that demonstrate incremental or

groundbreaking therapeutic improvement

• For high-cost products, manufacturers would likely resist prices being set via

therapeutic reference pricing. However therapeutic reference pricing may increase the

affordability of more innovative therapies (e.g. cell therapies), particularly if they are

benchmarked against existing standards of care in more traditional therapeutic

modalities (e.g. drugs)

• It will be challenging to apply therapeutic pricing to medical devices and digital tools,

where the selection of comparators and establishment of benefit is more complex

Applicable product typesFit with policy objectives

Introducing therapeutic

referencing pricing formally

would be a major change to the

UK’s reimbursement process.

However, it may form a useful

part of a negotiation or

benchmarking process, prior to

establishing other types of

pricing agreement


• Therapeutic reference pricing means that payers only pay premium pricing for

treatments that make a big impact, by offering major therapeutic advantages over

existing treatments

• This scheme also encourages R&D into areas where there are few marketed products


• Therapeutic reference pricing is not part of the cost-effectiveness evaluation and would

therefore be challenging to incorporate into NICE’s evaluation

• If therapeutic reference pricing were adopted questions around how products would be

adopted locally and how comparators are selected would need to be addressed





Increases access




10October 2015


Pan-Canadian Oncology Drug Review process

• pCODR is an independent organisation that controls

the reimbursement recommendation for all oncology

drugs

• However, the final funding decision is made by the

individual provinces, as with all other drugs, and the

ultimate funding source for oncology drugs is identical

The Cancer Drugs Fund in England

• The Cancer Drugs Fund is a means by which

cancer patients can get access to drugs that have not

met NICE’s criteria for reimbursement

• A separated fund is available to reimburse oncology

drugs, and the conditions of reimbursement are less

stringent than those on non-oncology treatments

• For diseases that are high-profile or have particularly high cost of

treatment, an alternative pricing and reimbursement pathway may be

developed where treatments for the disease are judged according to

adapted or additional criteria from the normal process

• This pathway may or may not be linked to an alternative source of

funding for the treatments that will be reimbursed under the adapted

criteria:

Description

Disease-specific P&R pathways

2. Disease-specific pathway

and treatment funding – a

disease area has a separate

pricing and reimbursement system

and a different fund for treatments

1. Disease-specific pathway

only (same funding source for

all diseases) – a separate pricing

and reimbursement decision from

the same funding source

£

Payer

£

Standard P&R

process

£

Disease-specific

P&R process

Manufacturer Manufacturer

££

Standard

pathway

Illustrative oncology

drug pathway

£

Alternative

payer / fund

£

£

Manufacturer Manufacturer

£

Standard

pathway

Standard payer

£

£

Standard P&R

process

Disease-specific

P&R process

Illustrative oncology

drug pathway

Source: International Society for Pharmacoeconomics and Outcomes Research; Strategy& interviews and analysis

Examples

• Through the establishment of a disease fund

numerous other schemes could be employed to

establish coverage for specific products or bundles

(e.g. pay for performance scheme for a product

bundle in the specified disease area)

• Disease funds may also lend themselves to

alternative financing for expensive drugs and could

use mechanisms such as Buy Now Pay Later




11October 2015


Disease-specific P&R pathways


• High profile diseases with high unmet-need (e.g. rare disease) may be suitable for the

creation of disease-specific P&R pathways and funds. Such pathways and funds have

been previously established, for example for Cancer in Canada and the UK

• Disease funds are also applicable to diseases that are high on political agendas as a

result of their high social and economic burden (e.g. Dementia Drugs Fund)

• Although these pathways and funds are highly applicable to drugs they could also be

established to increase access to other medical technologies, such as life-saving

medical devices or diagnostics. The appropriateness of these pathways for digital tools

is currently unclear, particularly until the appetite to pay for these tools changes among

payers


The Cancer Drugs Fund trialled

a disease area specific

reimbursement pathway in

England, to mixed success.

However, if the challenges can

be overcome then disease-

specific P&R pathways may

offer the flexibility to approach

high-impact diseases in a

tailored way


• Disease-specific P&R pathways can be designed to meet the specific needs of

diseases with unique characteristics, and especially high-impact or high-profile

diseases

• A separated fund can enable integrated care targeted to a specific disease


• The establishment of different criteria for different diseases is politically sensitive and

high profile. Budget overspend or controversial coverage decisions will attract

additional scrutiny from multiple stakeholders

• A separated pathway and fund will increase the administrative burden on the system





Increases access




12October 2015


• Pricing and reimbursement decisions that incorporate wider

considerations of value are more frequently being used in the pricing and

reimbursement process of international markets

• Different markets are taking into account different measures of value.

Some of these measures include:

− Wider societal value – where the impact of a drug on society and

other sectors is also taken into consideration

− Recognition of innovation – where the novelty of a new product is

taken into consideration

− Recognition of investment – in some markets the level of

investment a manufacturer is undertaking in that market is taken into

consideration

• Products that can demonstrate greater impact – like superior clinical

effectiveness and a reduction in formal and informal care requirements –

are most likely to benefit from the incorporation of these calculations

• If the cost reductions to a healthcare system or other payer are great it is

possible that the cost of a product can be offset by the wider benefits,

yielding a net cost reduction for the payer

Description

Societal perspective in Sweden

• As part of the reimbursement decision-making

process the LFN take into account ‘societal

perspective’, where the impact of the drug on aspects

like productivity and social care are incorporated into

the cost-effectiveness calculation. However the

methods for this calculation aren’t clear

Examples

• Wider value could be considered as part of a

performance-based payment scheme or under

coverage with evidence development, provided that

the measures of wider value can be agreed and they

are relatively easy to track and collect

• Wider value could also be incorporated into Buy Now

Pay Later schemes, where agreed impact measures

could be used to adjust repayment amounts or terms


Wider value in cost-effectiveness

Patient

Product

Expected health

improvementExpected fewer

hospitalisations

Incorporated into

P&R decision

£Cost Savings

Use of therapeutic algorithm

• AIFA are revising their use of a therapeutic

algorithm that takes into account the level of

innovation of a product

• Investment in clinical trial research is also viewed

favourably during this decision making process

Source: Swedish Pharmaceutical Benefits Board (LFN); Agenzia Italiana del Farmaco (AIFA); Strategy& interviews and analysis



13October 2015


Wider value in cost-effectiveness


• Incorporating wider value acknowledges the impact of products on the economy and

society as well as incentivising the development of high-impact products

• It may be easier to incorporate measures of wider value on a small scale in specific

regions where care is more integrated and budgets are capitated


• New reimbursement pathways being developed for digital products may include some

wider considerations of value than are used with medicinal products, especially

considering the large consumer and wider population focus of many digital health

products

• Medical technology that increases quality of life for disabled people might similarly be

assessed by taking into account such metrics as the impact of the patient returning to

the workforce. Therefore medical devices may also benefit from considerations of

wider value during pricing and reimbursement decisions


• Reliable and measurable data must be available to judge the impact of products

• Social and health care budgets are mostly siloed, making it difficult for benefits yielded

in either area to carry over to the reciprocal budgets

• The incorporation of wider value could have an impact on QALY thresholds but is

beyond the scope of the AAR



Judging wider value when

evaluating cost-effectiveness

would require vast amounts of

data and would involve

changing the foundation of the

UK reimbursement process.

However, elements may be

included when considering

individual pay-per-performance

schemes





Increases access




14October 2015


Enbrel in Australia

• In Australia, any spending over AUS$100m

on Enbrel (etanercept) will be rebated by Amgen

Examples

• Manufacturers enter into an agreement with payers that limits the total

amount of money that the payer will pay to the manufacturer. This can be

performed at product level or manufacturer level:

− Product budget capping – a limit is placed on the total spend by the

payer on a particular product, across the whole patient population.

Once this limit is reached, the manufacturer must continue providing

the product at no extra cost to the payer. Under this type of budget

cap it may be easier to track and monitor spend, and may allow a

finer degree of control than a blunt cap on manufacturers

− Manufacturer budget capping – similar to a product budget cap, but

applied across the full portfolio of products owned by a company, to

impose a limit on the maximum amount that will be paid by a payer to

one particular manufacturer

Description

• Budget caps are well combined with other schemes,

particularly when considering how expenditure is

managed beyond the level of cap

• For example a budget cap could be established with

manufacturers that introduces a pay-for-performance

contract above the budget cap, where the payer is

only liable for reimbursement if the treatment is

successful in patients


Budget capping

Payer spend

on product /

manufacturer

Time

Additional cost of

treatments is covered by

the manufacturer

Total payer

spend is

capped

Budget cap

Pharmaceutical company clawback

arrangements in Italy

• Pharmaceutical companies are allocated an annual

budget by AIFA, and rebate a proportion of the

overspend on their products compared to the budget

Rare disease in New Zealand

• New Zealand have identified $25 m of funding

over five years for rare disorder medicine funding

PPRS in the UK

• The PPRS defines a cap to growth in drug

spend and prospectively adjusts clawback for

manufacturers

Source: Centre for Health Economics, University of York; Pharmac.nhealth.nz; Strategy& interviews and analysis



15October 2015


Budget capping

Source: Centre for Health Economics, University of York; Strategy& interviews and analysis

• It is likely that product-level budget caps are more suitable than manufacturer-level

caps for the UK. Budget caps can be negotiated for a variety of products but would be

best applied to groups of products where spend is high (e.g. high cost drugs and high

cost devices) or where there is high unmet patient need

• It may also be desirable to implement budget caps on innovative treatments to allow

access for patients while the efficacy of these treatments is under examination. For

example, for new stem cell therapies and regenerative medicines, a budget cap could

be established to allow manufacturers to collect further data on the efficacy of their

treatments, while allowing expenditure on the treatment to be contained

• Budget caps could also be combined with PVAs to serve rare and high-cost diseases,

as well as discrete patient cohorts


The PPRS acts as an effective

budget cap for the UK. Budget

caps could be implemented on

a product by product level but

issues around the transparency

of cost-savings and the tracking

of budget caps make these

challenging to implement in the

UK environment


• Budgets caps give payers a greater degree of budget predictability over spend in

specific disease areas and is most effective in disease areas where demand is well

established (e.g. haemophiliacs)

• Overspend can be shared between payers and manufacturers (e.g. under a risk-share)


• Determining optimal levels for the cap requires accurate patient forecasting data as

well as accurate sales information to monitor expenditure

• Managing overspend has historically been challenging (e.g. for Hep C and the CDF)

• There can be difficulties estimating cost savings for budget-capped drugs as the

impact on price when a risk share is negotiated above the cap may not be transparent





Increases access




16October 2015


• Dose capping agreements impose a limit on the number of doses of a

treatment that will be reimbursed for a particular treatment in a certain

period of time

• Once the limit has been reached, further doses required by the patient

will be fully or partially paid for by the manufacturer. Hence dose capping

offers a way of limiting the total cost that a payer will spend on the

treatment of individual patients

Description

Roche in Germany

• Roche entered into an agreement with several

German insurance companies, setting a dose cap for

Avastin

• If the dose cap is exceeded within a set period, Roche

will reimburse the patient’s treatment either partially or

fully

Examples

• Dose capping can be combined with performance-

based payments so that additional doses are only

reimbursed if the treatment is successful in a

particular patient

• Dose capping could also be combined with a potential

indication-based pricing where a limit on the number

of doses is variable according to the indication for

which the treatment is prescribed


Novartis in England

• For Novartis’ treatment Lucentis, up to fourteen

doses per treated eye would be reimbursed by the

NHS

• For any further doses required by the patient, Novartis

agreed to reimburse the treatment, as long as it was

administered at the recommended frequency and in

the recommended conditions

Dose capping

Decision flow for dose capped reimbursement by payer or

manufacturer:

Payer

reimburses

treatment

£

Provider Patient

Dose cap

reached?

No

Yes

Manufacturer

reimburses

treatment

Source: NICE; Hogan Lovells analysis; Strategy& interviews and analysis



17October 2015


Dose capping

Source: Centre for Health Economics, University of York; Strategy& interviews and analysis

• Dose capping is likely to be more applicable to acute conditions rather than those that

require chronic treatment over long periods of time. This is both a result of the

feasibility of tracking dose management over long time periods and a result of the

political implications of limiting treatments for chronic patients

• Therefore dose capping lends itself well to acute cancer conditions, where

manufactures with treatments that provide only marginal benefits may be required to

carry more of the costs of treatment if patients do not see the benefit and remain on

treatment. It also gives payers the opportunity to manage patients onto more effective

therapies after a specified number of doses. Dose capping may also be effective in

paediatric conditions where the demographic impact on dose (e.g. via the mg / kg

calculation) could place pressure on payers. Dose capping is challenging to apply to

medical devices and digital tools


Dose capping has previously

been used within the UK

environment (e.g. for Revlimid

in Cancer) but wider roll-out will

require greater prescription and

dose tracking at a local level for

implementation to be

successful


• Dose capping offers another way for payers to manage spend on specific products

• Dose capping also offers an opportunity for payers to contain cost in disease areas

where the demographics of the population may impact the duration of the treatment

(e.g. in circumstances where mg / kg doses are used)


• Requires close tracking of product usage and the relevant infrastructure to support

feedback when a cap is reached and continuity of supply

• Has the potential to be misconstrued by the public as limiting access to medicines

• Dose capping has also been used off-label (for anti-TNF products) so clear distinctions

will need to be made between an official scheme and off-label use






Increases access




18October 2015


When the effectiveness of a treatment or medical device is not fully

established, the technology can be reimbursed whilst further data is

gathered. There are two broad approaches*:

Description

Conditional reimbursement

2. Periodic

adjustment – Reimbursement

level is agreed and then periodical-

ly adjusted as data is collected,

according to pre-determined criteria

£Initial

reimbursement

decision

£

Outcomes data

collection

Price adjustment

(based on pre-

agreed rules)

Fix

reimbursement

level£

1. Re-evaluation after

evidence collection – The

technology is reimbursed

temporarily before the reimburse-

ment process (or some variation on

it) is repeated with additional

evidence taken into account. Prior

to the re-evaluation, the technology

may be offered at a discount

£Temporary

reimbursement

decision

Outcomes

data

£Permanent

reimbursement

decision

Reimbursement re-evaluation

in The Netherlands

• In The Netherlands, drugs with a lack of evidence on

effectiveness (e.g. some orphan drugs) have a re-

evaluation of reimbursement after four years

• In this time, data is gathered for cost-effectiveness

assessment. However re-evaluation decisions aren’t

always implemented due to public / political pressure

Examples

• Conditional Reimbursement can be combined with

other pricing and reimbursement schemes but is most

likely to be used as a new product comes to market

• This scheme could be combined with budget caps that

serve to limit expenditure on this particular product or

on a certain disease area


Bosentan in Australia

• When Bosentan was reimbursed in Australia, a

registry was set up to monitor patient mortality

• If the observed mortality rate was shown to be higher

than originally claimed, the reimbursement level of

Bosentan would be lowered accordingly, managing

the payer’s risk of drug failure

* In Germany, although not strictly conditional reimbursement,

coverage and free pricing is granted for products before a decision is

made. This alternative model grants temporary coverage for the product for

one year until a pricing and reimbursement decision is made

Source: ‘Governance of conditional reimbursement practices in The Netherlands’, Boon, Martins and Koopmanschap; Centre for Health Economics, University of York; Strategy&

interviews and analysis



19October 2015


Conditional reimbursement

Source: Gov.uk; Strategy& interviews and analysis

• Payers have the ability to re-evaluate pricing and reimbursement for products based on a greater evidence base and an improved understand of product efficacy

• Manufacturers can collect evidence to support better prices or wider product coverage• Patients can benefit from earlier access to products where unmet need is high


• Conditional Reimbursement schemes are applicable to products that require further testing after they have reached the market. These products are likely to be those where clinical trial populations have been relatively small or where clinical effectiveness has been marginal. These schemes may also be suitable for products where the need for new therapeutics is high and access should be increased (e.g. in areas of high unmet need like chronic kidney disease, multiple sclerosis, mental conditions). These schemes are also well applied to medical devices and digital tools where there is a need to collect evidence regarding the clinical efficacy of the products, and where less data may be initially available– although there is a need to clarify how this may align with tendering

• The frequency of re-evaluations will need to be tailored to the product type and payer need (e.g. evaluation cycles could be shorter for high-cost products or where the benefits are unproven)


• Requires the collection of data, as well as the effort and time to re-evaluate products• De-listing of drugs requires follow through but can receive public scrutiny and requires

that patients are transitioned to appropriate alternatives• Although conditional reimbursement is permitted under PPRS uptake has been low• To prevent an impact on reference pricing manufacturers may wish to launch at high

prices with additional rebates• There will be a need for NICE to develop new capabilities and methodologies for real

world data to be incorporated into the current cost-effectiveness evaluation



Conditional Reimbursement

could be implemented within

the UK system, provided that

the relevant data collection

infrastructure is established.

The UK could adopt the models

of nations like The Netherlands

and require manufacturers to

run their own data collection

trials. There will be a need to

reconcile how this scheme

aligns with existing cost-

effectiveness evaluations





Increases access




20October 2015


• The drug price or reimbursement level is tied to the patient’s clinical

response. This can be implemented in multiple ways:

− Outcomes-based rebates – the payer pays the full cost of the drug

up-front, but the manufacturer rebates the cost (partially or fully) if the

treatment isn’t successful

− Payment-upon-success – the payer pays no money up-front, but

pays for treatments that were successful in patients

• In practice the agreement may combine both models, with the cost

partially covered up-front and a mixture of rebates and additional

payments

• A further model that may be employed is that after evidence has been

gathered, coverage of a product only continues for patients who respond

to treatment

Description

Aclasta in Germany

• An agreement between Novartis and two

sickness funds in Germany entails that Novartis will

recredit the money spent on Aclasta, an osteoporosis

drug, if the patient breaks any bones within twelve

months

Fampyra in Spain

• In one of the first national risk-sharing

agreements in Spain, Biogen Idec paid for the first two

weeks of treatment with MS drug Fampyra for every

new patient

• If the response was acceptable, determined by a

standardised walking test, then the Ministry of Health

would start reimbursing the treatment

Examples

• Outcomes-based payments can readily be used in

conjunction with other pricing and reimbursement

schemes and contains similar performance incentives

like schemes such as dose capping

• PVAs may be contracted with additional terms that

guarantee payment only upon successful patient

response. Equally, dose and budget caps could be

applied only to responding patients


Outcomes-based payments

Payer

£

Manufacturer Provider

£

Product

Patient

Product

£

Payer

£

Manufacturer

Outcomes

data

Manufacturer Provider

Product

Patient

Product

£

Payer

£

Manufacturer

Outcomes

data

Source: Cattaneo-LIUC University; Hogan Lovells; Simon Kucher; Strategy& interviews and analysis



21October 2015


Outcomes-based payments


• The reimbursement of products is directly tied to their success in the real-world. This

provides

− Payers with value for money for the products and services they commission

− Manufacturers with fair prices for effective products and services they provide


• Outcomes-based payments can theoretically be applied to all product types. However they are most likely to be agreed between payers and manufacturers for products that have a significant impact on patient outcomes (e.g. curative treatments). Outcomes-based payments could also be applied for treatments where the patient population is stratified, and therefore the response to treatment is likely to vary (e.g. for personalised medicines for cancer or for new generation treatments for Hepatitis C). Patient response to treatment can be used as the determinant for treatment reimbursement

• Outcomes-based payments will be challenging to implement for products for conditions where clinical endpoints (or biomarkers) are not clear, where outcomes are difficult to measure (e.g. some neurological disorders, mental health) or where clinical manifestations fluctuate (e.g. relapsing-remitting in MS). This difficulty also applies where benefits are not easily attributable – e.g. if a product is combined with a service to treat a patient


• Outcomes-based payments require robust real world data collection infrastructure and

agreed measures of success. Moreover although reimbursement can be agreed on

surrogate endpoints there is a need to track longer-term patient outcomes

• Requires a movement away from free pricing under PPRS to closely tracking prices on

a product-by-product basis. Price setting may also affect prices in reference markets

• Outcomes-based payment agreements can be time-consuming to negotiate

• Incentives need to be in place for providers to collect the data to support the schemes



The UK can learn from the

introduction of outcomes-based

payments schemes

internationally and within other

areas of the healthcare system.

Moreover the existence of

outcomes-based patient access

schemes demonstrates that this

scheme could be adopted more

widely within the system





Increases access




22October 2015


Buy Now Pay Later models are widely employed in other sectors, such as

automotive and retail, and some hospitals have been financed this way.

Under these schemes consumers can spread the payments over a pre-

agreed period of time for a surcharge on the original price

These models have not yet been specifically employed in the

pharmaceutical industry but could be well suited to products that are high in

cost. Spreading payments over longer periods of time could allow payers to

offset the cost of initial treatment against a reduction in future healthcare

system burden where products are highly effective clinically

Description

Private finance initiatives

• Private finance initiatives are partnerships between

public and private organisations, in which public

infrastructure developments are funded with private

capital

• In return for the initial investment, private

organisations make a return on investment over a

number of years. In this way, a large upfront cost is

spread over a longer period of time for the public body

• However, some PFIs have attracted controversy due

to claims that they have costed more money to the

tax-payer in the long term

• Buy Now Pay Later schemes can be applied in

conjunction with other pricing and reimbursement

schemes. For example the repayment terms could be

tied to performance, where payment is made faster as

health system cost savings from more effective care

are realised

• Equally the prices set for a product under a Buy Now

Pay Later scheme could also be negotiated under

tender or PVA contracts

Examples


Buy Now Pay Later

Illustrative model:

Manufacturers supply product to providers up-front while

payers agree a contract to pay manufacturers for the

cost of the treatment over a pre-agreed period of time

Payer

£Repayment over time

Patient

Provider

Product £

1 / 3 cost

£

1 / 3 cost

£

1 / 3 cost

Manufacturer Manufacturer Manufacturer

Public / private partnership


Public / private

partnership



23October 2015


Buy Now Pay Later


• Could improve access to highly effective but high-cost products for patients

• Allows payers to spread the cost of reimbursing expensive treatments for patients


• Buy Now Pay Later Models are mostly likely to be applied to products that are high

cost and thus require an alternative form of financing. The scheme would apply well for

curative products for conditions such as infectious diseases where front-loaded

investment would reduce future spread of the disease and therefore total cost over a

longer period. This scheme could also be applied to innovative treatments like cell-

based therapies or even to high-cost medical devices (e.g. scanning equipment or

organs manufactured through novel 3D printing techniques) or digital tools with high

infrastructure requirements (e.g. sophisticated digital decision support tools)

• There is also the possibility that deferred payments could be tied to cost savings,

provided that suitable key performance indicators can be agreed upon. This makes

these schemes unsuitable to low cost products and products where the impact on the

patient outcomes and therefore cost in the healthcare system is minimal


• Buy Now Pay Later schemes, although providing a new financing option for payers

challenge existing annualised budgets and requires a paradigm shift in the way

healthcare budgets are established (including at the local level)

• Revenue recognition among manufacturers may also pose a challenge to this financing

structure, as does the cost-of-capital which favours governments paying up front.

These challenges could be mitigated by bringing in third-party financiers and

securitising against the debt to provide additional returns on the investment

• Contracts negotiated centrally will need to be aligned with local provider prescribing



Buy Now Pay Later could be

implemented in the UK but

would require a fundamental

change in the way healthcare

budgets are typically drawn up.

However there is interest from

industry in entering into these

agreements under scenarios

that could reduce cost to the

NHS





Increases access




24October 2015


• Guaranteed Revenue is a contractual arrangement that helps de-risk

volatility in pricing and revenue streams by agreeing fixed revenue

streams for projects that require large amounts of R&D investment

• Under this agreement payers agree a minimum price for a product,

regardless of market uptake, up to an agreed limit. Above this price limit

any price surplus is not passed on to consumers

• This model has not yet been implemented within the pharmaceutical or

healthcare industry but could applied to products where market uptake is

not predictable or where supply is restricted

• This model could be applied to the development of new antibiotics where

entry into the market would need to be staggered, but a price guarantee

with manufacturers could be made over fixed period. You could also

apply a cap and collar above the minimum price guarantee to help

payers control budget spend on the launched product

Description

EDF Energy in the UK

• The UK government and EDF Energy have

entered into a 35 year contract to share risk around

energy prices

• This protects consumers from price volatility in energy

while also guaranteeing revenue streams for

infrastructure developers over the course of the

contract

• The success of this contracting structure has recently

attracted Foreign Direct Investment from China in the

Hinkley Power Station

• Guaranteed Revenue agreements are longer-term

contracts making them more challenging to combine

with other pricing schemes

• However revenue guarantees to manufacturers could

be combined with a performance-based component

where government tops ups are only provided where

the product is successful at meeting the clinical

expectations

Examples


Guaranteed revenue modelNuclear

energy

Revenue

Time

Minimum

revenue

guarantee

Government tops up to

meet minimum revenue

guarantee




25October 2015


Guaranteed revenue model


• Manufacturers are incentivised to continue investing in the development and

manufacture of products with uncertain or limited demand

• Budgets become more predictable for payers


• Guaranteed Revenue models are well applied to products which are of high unmet

need but where there is a need to restrict or manage entry to the market (stewardship).

For example in pandemic flu and antimicrobial resistance where

− The need for new antibiotics is high – as new strains of antibiotic-resistant micro-

organisms prove harder to treat and pose a higher risk to public health

− Antibiotic manufacturers are not incentivised to investigate new antibiotics – as the

volume potential of a new product is limited by the necessity to restrict use to

prevent further resistance

• Guaranteed Revenue models may also incentivise research and development in

challenging scientific areas, such as Dementia


• Contractually challenging to arrange and the long-term nature of the agreement puts

parties at risk from any new products that may enter the market and change the market

dynamics

• In R&D there is a risk that products do not make it to market, however the government

/ manufacturer could securitise against this risk

• This model tests payer annualised budgets and manufacturer revenue recognition

• There may be concerns from manufacturers regarding the type of data around R&D

products that would need to be shared with payers to negotiate the contract



Guaranteed Revenue models

have been applied in the

energy sector in the UK,

indicating an appropriate legal

framework. However this

contract would be challenging

to implement in the healthcare

industry, particularly as the

contractual process is lengthy

and complex, and the risk of

pipeline failure is challenging to

predict





Increases access




26October 2015


• Indication-based Pricing operates for medical technologies that can be

applied to multiple indications. For example a cancer drug could be used

to treat a variety of different cancers, but may be more clinically effective

at treating one cancer compared with another

• Indication-based pricing could be implemented in one of two ways:

1. A weighted average is calculated based on alternative prices for the

same product treating different indications. This could be negotiated

nationally

2. Separate prices are set on an indication by indication basis for the

same drug. This would be challenging to calculate and difficult to

track consumption by indication, including off-label use of the product

Description

HEOR Group, Memorial

Sloan-Kettering Cancer

Center, USA

• Although indication-based pricing is yet to be

implemented, academic studies regarding the

principles of this pricing scheme have been published.

• In a preliminary analysis of cost per year of life gained

for the same product in different indications, Bach

developed a pricing framework that more closely tied

the price of the treatment to the value in a particular

indication

Examples

• Indication-based pricing could be combined with pay-

for-performance contracts, whereby payers enter into

agreements with the manufacturer on an indication-

by-indication basis

• Indication-based pricing could also be combined with

price-volume agreements so that volumes around

specific indications can be controlled and a weighted

average calculated


Indication-based pricing

Product

Patient with

Indication A

Patient with

Indication B

Patient with

Indication C

Patient with

Indication D

Price W

Price X Price Y

Price Z

Pharma

• Though not a pure example of indication-based

pricing, different contracts have been negotiated

for Erbitux. For example, under a Patient Access

Scheme for the metastatic colorectal cancer indication

only, a manufacturer rebate of 16% was arranged

Source: Bach 2014, Journal of the American Medical Association; Strategy& interviews and analysis



27October 2015


Indication-based pricing

Source: Bach 2014, Journal of the American Medical Association; Strategy& interviews and analysis

• Payers could pay less for products that are less effective for different indications• Manufacturers are rewarded according to the efficacy of their drug, allowing them to

gain more competitive prices for drugs that are highly effective


• Indication-based pricing is most applicable to drugs, particularly those that have

variable efficacies at different indications. This is most applicable to therapeutic areas

such as cancer. For example Abraxane is more effective at treating metastatic breast

cancer than non-small lung cancer

• Indication-based pricing can also be applied to other therapeutic areas such as

inflammation (e.g. drugs used for rheumatoid arthritis, psoriasis, Crohn’s disease and

ulcerative colitis) and central nervous system (e.g. drugs that have been used as

antiepileptic drugs are used for conditions like neuropathic pain)

• Indication-based pricing could also be applied to repurposed medicines to give

medicines with new indications value that is relevant to their clinical benefit


• This may increase cost as manufacturers seek to increase price when adding new indications, unless price reductions are negotiated against original indications

• Standardised comparative measures of value will need to be developed and agreed• Infrastructure is required to collect real world evidence regarding the efficacy of

products in a real-life setting, so that product prices can be appropriately adjusted. Moreover there will be a need to accurately track prescribing on an indication-by-indication level to feed into ongoing pricing calculations

• Pricing decisions by indication are likely to change prescribing behaviours, which requires local changes in physician behaviours



Indication-based pricing is

theoretically possible though

challenging to implement within

the UK. Agreement around

measures of value and data

collection infrastructure will be

required. Pricing by indication

also introduces additional

complexity into the pricing

system by requiring multiple

prices per product





Increases access




28October 2015


• Product Bundling is common in the retail space, where services that

are sold separately are sold as a package for a discounted price

• This model is not commonly applied in the pharmaceutical / medical

devices sectors, though supplementary services are sometimes provided

with high cost drugs.

• Care could be bundled along a particular disease pathway to provide a

single patient with continuous products and services according to the

evolution of their disease. Manufacturers could be incentivised to

collaborate to provide an overall solution to patients or the offering could

be co-ordinated by a central provider

Description

Utility warehouse

• Utility warehouse provide a single

point of entry for consumers to bundle

media and energy bills

• They offer convenience to consumers and discount

their packages with greater adoption of their own

services

Examples

• Product bundling can be combined with multiple other

pricing and reimbursement schemes

• For example the price of a product-service bundle for

a particular disease could be negotiated as part of a

budget cap against the expected bundle uptake

among a patient population

• Product bundles could also be offered as part of

regional tenders, addressing local problem diseases

and tying them to outcomes


Product-service bundlingRetail MediaPharma

Illustrative model:

A bundled service that gives patients access to

relevant services and treatments, tailored to

their disease and is also provided at a discount

to the cost of the goods bought separately

Patient

Medication

Additional

services

In-home care

£100 / month

£100 / month

£100 / month

Unbundled products

and services

Bundled package

Patient

Additional

services

In-home care

Medication

£250 / month




29October 2015


Product-service bundling


• Bundling could assist in providing patients with a more integrated care package

• Could offer a price discount to the NHS if a large enough number of products and

services can be bundled


• Product and service bundling is likely to be most applicable to conditions that require

more complex care management. For example:

− Cancer – where treatment can require multiple service types (e.g. Chemotherapy,

radiotherapy, diagnostic services etc.)

− Diabetes – where insulin injections could be combined with additional services

around nutrition and exercise education

• Product-service bundling could be applied to diagnostic services or companion

diagnostics for a particular disease. In the case of medical devices or digital products

where the product’s success requires a change of pathway or HCP behaviour, the

manufacturer may provide a change management service, in addition to the product, to

ensure that implementation and adoption of the new technology is successful


• Manufacturers rarely own enough products on their own to be able to bundle an entire pathway, which will disadvantage smaller manufacturers and require them to collaborate or co-licence products

• Bundles of products or services will need to meet regulatory requirements and conform to anti-competition laws

• There is a lack of transparency around the cost of the components within a bundle, making it difficult to assess their individual value

• Bundles that involve medical devices or digital products may require a larger degree of implementation support to help re-design clinical pathways and local uptake



Product bundling is technically

feasible within the UK though

product and service providers

would need to collaborate

around new offerings. New

decision-making processes

would need to be established

for the approval of bundles

within care pathways and for

price setting





Increases access




30October 2015


About the Authors

Jo Pisani leads the Pharma & Life Sciences practice in Strategy& U.K. and focuses on strategy

across the pharma value chain and particularly new business models and digital

Jo Pisani

Partner

[email protected]

Dr. Myrto Lee is a Director and focuses on Pharma and Life Sciences within Strategy& and

specifically pricing, market access, regulatory and medical affairs

Dr Myrto Lee

Director

[email protected]

Dr. David Weston is a Senior Associate focusing on the Pharma and Life Sciences sectors in

Strategy& with a special interest in pricing, market access and R&D strategy

Dr David Weston

Senior Associate

[email protected]

31October 2015


This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not

act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or

implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC

does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in

reliance on the information contained in this publication or for any decision based on it.

© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see

www.pwc.com/structure for further details.

32October 2015

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