The COVID-19 relief package passed in December 2020 contained provisions related to drug pricing transparency, including reporting by health plans on the cost of their highest-spend drugs and the impact manufacturer rebates have on premiums.
In March 2021, the American Rescue Plan Act of 2021 eliminated the Medicaid rebate cap provision, the first legislative measure under the Biden administration on drug pricing. As the Biden team works through a new, $2.3 trillion infrastructure and jobs package, lawmakers are looking at targeting drug prices as one source for potential savings to offset spending.
As lawmakers and White House are searching for solutions to lower drug prices, it may be helpful for the industry to take notice of how pricing and cost control measures for branded drugs have evolved across the pond in England.
Background
England has a National Health Service (NHS) that covers the entire population funded mainly through general taxation. The Department of Health (DOH) is the national pricing and reimbursement decision-maker.
After obtaining marketing authorization, manufacturers are free to set prices. However, prices of branded pharmaceuticals supplied to the NHS are controlled through a combination of statues and voluntary scheme aimed at controlling branded pharmaceutical spending growth, Health Technology Assessment (HTA) tying effective launch pricing to product value, and a Budget Impact Test aimed at medicines that will incur significant opportunity cost to the health system.
From Price and Profit Control to Budget Control Through a Voluntary Scheme
The Voluntary Price Regulation Scheme was first introduced in the 1950s and mutated over the years into the Pharmaceutical Price Regulation Scheme (PPRS), a voluntary, non-contractual agreement negotiated between the UK government and the Association of the British Pharmaceutical Industry. The agreement lasts five years, and controls the pricing of all licensed, branded drugs sold to the NHS throughout the United Kingdom.
The original principles of the scheme were to allow freedom of pricing for new products while controlling manufacturer profits earned on branded pharmaceutical sales to the NHS. Before 2014, the scheme employed both list price cuts and capping manufacturer’s rate of return. Price cuts applied to drugs already marketed and did not affect launch price. Earned profits beyond a tolerance of 50% above the target rate of return (on sales or capital) must be returned through future price cuts or a rebate paid to the UK government.
Starting in 2014, the Voluntary Scheme capped total branded pharmaceutical spending. Manufacturers agreed to make up the difference between the DOH pharmaceutical budget and actual sales by paying rebates on their sale revenue. Changes in 2014 transformed the Voluntary Scheme into a system of budget control. Firms that did not join the Voluntary Scheme were regulated under a statutory scheme that most firms found to be financially less favorable.
Budget controls are a powerful cost-containment tool because they take into account not only prices but also the volume purchased and the mix of drugs prescribed. It has had the largest effects on controlling the growth of branded drug spending in the UK thus far.
National Institute for Health and Care Excellence (NICE) Controls Effective Launch Price through Cost-Effectiveness Threshold
In 1999, the United Kingdom created NICE, a specialist in HTA, to evaluate the clinical effectiveness and cost-effectiveness of new drugs. NICE only reviews significant new medicines and indications including all new cancer drugs (starting April 2016) that have a formal request for review from the Secretary of State for Health. NICE’s decisions are binding. NHS England and Clinical Commissioning Groups (CCGs) must comply with positive NICE recommendations within 3 months of the recommendation publication.
NICE appraisals use the incremental cost per quality-adjusted life year (QALY) as a measure of a technology’s cost-effectiveness compared with an alternative. A cost per QALY in the range of US$26,227–$39,340 (£20,000–£30,000) is loosely recognized as the upper threshold for NICE considering a product to be cost-effective. Higher cost-effectiveness thresholds are given to life-extending treatments at the end of life (e.g., treatments for advanced cancers) and highly specialized technologies (e.g., very rare diseases). NICE appraisals focus on allocative efficiency (cost-effectiveness) and do not consider budget impact.
When NICE finds that a branded drug is not cost effective, manufacturers can either forego nearly all NHS sales or propose a Patient Access Scheme (PAS) which effectively lowers the price of the drug through confidential discounts to within NICE’s cost-effectiveness threshold.
The advantage for companies is that they remain free to set a list price which can be referenced by other countries in Europe and elsewhere, while selling to the NHS at a lower, but confidential price. However, some countries such as Germany, are already asking companies to give them the net price in the UK rather than the list price.
NICE listed 207 commercial arrangements on its website in February 2021.
NHS England’s Budget Impact Test – Lessons Learned from Sovaldi Launch
In 2014, Gilead priced its hepatitis C drug, Sofosbuvir (Solvaldi), at £34,983 for a 12-week course of treatment (and £69,966 for a 24-week course of treatment), which NICE found cost-effective based on its standard cost-effectiveness threshold. At this cost-effective price, it would’ve cost £1 billion to the UK health system.
Anticipating the substantial demand for Solvaldi, NHS England requested NICE to delay the requirement for implementation from the normal 3 to 6 months, later restricted access to patients in most immediate need only while others received less costly and less effective treatments.
Learning from the Hep C lesson, in 2017, NHS England adopted a policy to seek further discounts or restrict access for drugs expected to have a significant budget impact despite being cost-effective: for those drugs forecasted to cost more than £20 million annually (approximately 20% of new drugs), if the manufacturer does not offer sufficient discounts, NHS England can ask NICE to restrict the medicine’s use for up to 2 years to certain indications. It is unknown how many firms reduced prices.
Summary
Pricing and cost controls for branded pharmaceuticals have evolved over time in England. At the UK level, starting 2014 the Voluntary Scheme has shifted from a system of profit regulation into that of a budget control for marketed branded pharmaceuticals. The application of cost-effectiveness thresholds and the use of Patient Access Scheme tie effective launch prices to product value while allowing manufacturers to keep list prices confidential. Starting 2017, for medicines with anticipated large budget impact, further price discounts or access restrictions are sought by NHS England.
These policies collectively controlled the growth of branded drug spending in England, with the largest effects following budget controls in 2014.
References:
Elimination of Medicaid Rebate Cap in the Latest COVID-19 Relief Package—The First Legislative Action on Drug Pricing Under the Biden Administration, 3/9/21, White & Case LLP, https://www.lexology.com/library/detail.aspx?g=91155dd2-193e-4333-b0e4-32eca3bcbfc2 (Accessed 4/10/21)
Lawmakers are once again eyeing drug prices—and this time, the threat to pharma is real: analysts, 3/26/21, FiercePharma, https://www.fiercepharma.com/pharma/after-covid-stimulus-lawmakers-turn-their-attention-to-drug-pricing-analysts-see-real-threat (Accessed 4/10/21)
Health Systems in Transition, United Kingdom Health System Review, Vol. 17 No. 5 2015, European Observatory on Health Systems and Policies
PPRS evolution and what does it mean for pharma? 2/4/2019, pharmaField, https://pharmafield.co.uk/in_depth/pprs-evolution-what-does-it-mean-for-pharma/ (Accessed 4/10/21)
Rodwin MA. How the United Kingdom Controls Pharmaceutical Prices and Spending: Learning From Its Experience. International Journal of Health Services. March 2021
Steve Morgan, Summaries of National Drug Coverage and Pharmaceutical Pricing Policies in 10 Countries: Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland and the U.K., Working Papers for the 2016 Meeting of the Vancouver Group in New York, NY
NICE, TA330, Sofosbuvir for treating chronic hepatitis C, 2/25/2015, https://www.nice.org.uk/guidance/ta330 (Accessed 3/21/21)