Reflecting cross-country effects, public sector R&D and industrial policy objectives when setting pharmaceutical prices to reflect innovation effects
Theme 1: Empirical and conceptual work relating to medicines pricing
During EEPRU II we undertook research to develop a framework to assess the long-term implications of payment levels for new pharmaceuticals, taking into account the effects of pricing on innovation and, therefore, future health, and also the health opportunity costs associated with different pricing levels. This framework and the empirical evidence allowed for the estimation of an optimal share of the long-term value of new pharmaceuticals that should be assigned to manufacturers in order to further different health sectors or broader objectives. This work is described in detail here and summarised here, and a manuscript is being considered for publication.
An important consideration highlighted by this work is how pharmaceutical pricing policy design should appropriately account for the global innovation effects of national pricing policies. One approach is that countries unilaterally pay only for the dynamic benefits they receive. However, this would lead to low investment in innovation as the external benefits accruing to other countries are completely discounted. Another approach, as taken in our existing work, is to assume a global multilateral policy or that individual countries internalise all external effects on other jurisdictions. However, this represents a departure from the perspective applied for other policy evaluations across government, and the way in which it distributes the costs and benefits of innovation across jurisdictions is unclear. The existing work focused on private sector R&D as the primary driver of pharmaceutical innovation, and did not provide a detailed consideration of how industrial policy objectives might be appropriately reflected within pharmaceutical pricing policy.
We propose to develop the existing quantitative framework to assess different approaches for addressing the externality (benefits to other jurisdictions) associated with national-level pharmaceutical pricing policy, to incorporate the role of public sector contributions to R&D and therefore innovation when determining appropriate pharmaceutical pricing policy, and to assess how industrial policy objectives can be appropriately reflected when developing pharmaceutical pricing policy.
Aims
To assess how pharmaceutical pricing policy design can appropriately account for the global effects of national pricing policies under different policy objectives
To assess how pharmaceutical pricing policy design can appropriately account for public sector contributions to R&D under different policy objectives
To assess how pharmaceutical pricing policy design can appropriately account for industrial policy impacts under different policy objectives
Project Team
Beth Woods, Carlos Rojas Roque, Karl Claxton, Mark Sculpher
Contact
Beth Woods beth.woods@york.ac.uk
Plain English Summary
Background:
An important question for health systems is how much they should pay for new pharmaceuticals. The UK has established methods for linking prices for new pharmaceuticals to the additional health gain they offer above and beyond existing treatments. However, the price paid per unit of health gain is based on historical precedent rather than a consideration of the implications of different payment levels for population health.
Paying more for new drugs may increase incentives for manufacturers to invest in to researching and developing more new drugs. However, devoting more NHS budget to new drugs means that these monies are not available to address other health priorities. Published research by EEPRU has developed a framework for estimating the implications of alternative payment levels for pharmaceuticals for patient health and health care costs.
Developing appropriate pharmaceutical pricing policy is complicated by the fact that the number and quality of new innovations will depend on pharmaceutical pricing policies in multiple countries and the research and development activities in both the private and public sectors. In addition, policy makers may be pursuing multiple objectives when setting pharmaceutical pricing policy, including promotion of patient health and wider effects on the economy of investments in the pharmaceutical sector. This raises important questions about the trade-offs associated with pursuing economic goals using the NHS budget.
Aims and objectives:
In this research we will further develop our framework for appropriate payment levels by considering different approaches to reflecting the effects of national pricing policies on other countries, the role of public sector research and development activities, and potential effects of pharmaceutical pricing that go beyond population health including effects on the UK economy.
Methods:
We will develop quantitative frameworks informed by reviews of empirical studies. We will estimate the effects of different pricing policies on outcomes such as health outcomes measured in quality adjusted life years (QALYs) which account for quality of life and life expectancy benefits, health system costs, impacts on the wider economy and international effects.
Policy relevance and dissemination:
This research will inform future pricing policies for new pharmaceuticals to better promote population health, and consider the trade-offs associated with pursuing economic goals using the NHS budget. For example, we will be able to show how appropriate payment levels change when investment in public sector R&D is accounted for. We will disseminate the research findings via peer reviewed publications, a workshop with relevant stakeholders and policy briefings.