New: Pay-for-Performance for Drugs and Incentives for Innovation

Posted on 27 February 2012 by OHE News Editor

They conclude that “pay-for-performance offers an important way forward to handle uncertainty around expected value in routine clinical practice”. Interest is growing in schemes that involve “paying for pills by results”, that is, “paying for performance” rather than merely “paying for pills”. Despite its intuitive appeal, this approach is is highly controversial and is disliked by many health care providers, policy makers, and pharmaceutical companies.

In this paper, the authors define pay-for-performance and the related terms used in discussions about these schemes; set out a framework for understanding and interpreting them; explore existing schemes, providing examples; discuss the benefits and weaknesses of such schemes; and consider their value as an incentive for innovation.

Download Towse, A., Garrison, L. and Puig-Peiró, R. The use of pay-for-performance for drugs: Can it improve incentives for innovation? Occasional Paper. 12/01. London: Office of Health Economics.

Previews of Forthcoming Publications

Posted on 27 July 2011 by OHE News Editor

OHE is making available as Occasional Papers drafts of two important chapters that will appear in the Oxford Handbook on the Economics of the Pharmaceutical Industry due out in 2012.

In ‘Drugs and vaccines for developing countries‘, the authors describe the context of the problem of insufficient affordable medicines in developing countries and detail policies and proposals intended to increase access to global medicines. With respect to neglected diseases, the paper examines policies intended to stimulate development of new medicines — in particular, ‘push’ mechanisms that subsidize research inputs and ‘pull’ mechanisms that reward research output. The authors discuss whether an optimum mix of approaches can be identified.

Towse, A., Keuffel, E., Kettler, H.E. and Ridley, D.B. (2011) Drugs and vaccines for developing countries. Occasional Paper. London: Office of Health Economics.

In ‘Measuring value with pharmacoeconomics‘, the authors outline the evolution of cost-effectiveness analysis (CEA) through its use as part of HTA. They also explore the theoretical and practical issues that have arisen as the result of using CEA of drugs to make decisions about resource allocation, pricing and use. Recommendations are offered for addressing some of the critical challenges discussed.

Towse, A., Drummond, M. and Sorenson, C. (2011) Measuring value: Pharmacoeconomics in theory and practice. Occasional Paper. London: Office of Health Economics.

Please note that both papers will be available via the links above only until the book appears in print.

Differential Pricing — A Win-Win Solution?

Posted on 2 March 2011 by OHE News Editor

OHE has just released an Occasional Paper that examines the potentially positive impact of differential pricing in Europe and the overall negative effects of international reference pricing measures.

Increasing financial difficulties in some European Union Members States has led to greater use of international reference pricing (IRP), whereby prices in one country are established based on the price in one or more other countries. Countries with both lower incomes (e.g., Greece) and higher incomes (e.g., Germany) introduced new IRP measures in 2010. The EU Commission is facilitating the exchange of information on prices in EU Member States in support of IRP.

Does International Reference Pricing Work?

Although IRP may indeed reduce prices and costs to the health system in the short term, its full impact is far from positive. As the authors point out, ‘the policy provides an incentive to companies to delay launch [of a new product] in low price countries until higher prices have been established elsewhere’ thus delaying access by patients to new medicines. In extreme cases, companies may decide to not market a medicine at all in a particular country when a low price there would pull down prices in other countries through IRP.

Moreover, companies may strive to negotiate higher prices in lower-price countries than they would if the impact of IRP on prices elsewhere was not a concern. As a result, because of IRP, lower price countries may actually pay more relative to income than do higher price countries.

Finally, lower prices mean less income for pharmaceutical companies, translating ultimately into less investment in innovation. The authors note that IRP ‘will have a negative impact on incentives for R&D and ultimately will reduce the availability of innovative products for all EU citizens and the competitiveness of Europe in bioscience’.

Is Differential Pricing a Solution?

IRP drives price toward a single, uniform price. That provides incentives for companies to set this price high and sell the product only in the richer segments of the European market. Differential pricing assumes that consumers should not all pay the same prices, but pay according to ability to pay. This allows companies to sell at lower prices in lower income markets. The result is to allow patients the earliest possible access to new medicines while providing the revenues essential to increasing investment in R&D, which also helps strengthen the bioscience base in Europe.

According to the authors, transferring low prices from low income countries to high income countries through arbitrage (e.g., parallel trade) or copying other countries’ prices (through IRP) undermines differential pricing. A dialogue about how best to implement differential pricing across the EU is essential, they argue, building on the 2010 report by the Belgian Presidency of the EU that endorsed differential pricing as a way to ensure equity in access to medicines across the EU.

Download Garau, M., Towse, A. and Danzon, P. (2011) Pharmaceutical pricing in Europe: Is differential pricing a win-win solution? Occasional Paper 11/01. London: Office of Health Economics.

New Antimicrobial Drugs: EU Policy Options

Posted on 4 October 2010 by OHE News Editor

Priya Sharma

Antimicrobial resistance (AMR) to drugs, a natural and unavoidable consequence of treating infectious diseases, is a growing global public health threat. AMR reduces the chances of successfully treating patients with infectious diseases, thereby increasing the probability of complications, morbidity and mortality. The World Health Organization estimates that infectious diseases are the third leading cause of death in the European Union (EU).

In 2009, the EU emphasized the importance of encouraging the development of new antibacterials by releasing a commissioned report and holding an expert conference. The EU Commission has been tasked with developing comprehensive proposals by the end of 2011. OHE has just released an OHE Occasional Paper, authored by Priya Sharma and Adrian Towse, that is intended to provide additional input into policy discussions.

The working paper reviews AMR’s implications for the burden of disease, the causes of AMR, the current state of the antibiotic development pipeline and the reasons antibiotic R&D has been de-emphasised by biopharmaceutical companies. Encouraging the development of new antibiotics requires understanding current disincentives. The authors identify four key sets of factors: (1) low returns in the market because of the availability of generics, the effects of HTA, the short duration of treatment, and aggressive price controls, (2) scientific challenges in antibiotic discovery, including the relative lack of success in using target-based approaches, (3) the regulatory environment, such as the uncertainty surrounding the clinical trial requirements in different countries, and (4) restrictions on antibiotics use that are wisely intended to minimize AMR, but also reduce incentives to develop new ones.

Sharma and Towse note that many of the disincentives that pharmaceutical companies face in the market for antibiotics are similar to those for: neglected diseases in developing countries; orphan drugs in developed countries; countermeasures for chemical, biological, radiological and nuclear threats; and evidence for paediatric drug use. The policies enacted or proposed to correct for these market failures may suggest workable solutions for antibiotic development.

Missing to date from policy discussions, however, has been an estimate of the size of the various incentives needed to increase the attractiveness of antibiotic development relative to other disease areas. This working paper develops a model that is then used to assess the push, pull and hybrid approaches that might be applied. In particular, the model is used to determine the size of the various incentives needed to encourage antibiotic R&D compared to other therapeutic drug classes. These approaches include advance market commitments, priority review vouchers and fast track options, intellectual property rights extensions, incentives similar to those for orphan drugs, and a ‘call option’. Potential savings from an effective set of incentives to develop new drugs to counter AMR would be very cost-effective, according to the authors’ calculations; they urge that further research be completed on potential lives saved.

Based on these analyses, Sharma and Towse express a preference for a hybrid push-pull policy similar to that used for orphan drugs. An alternative might be upfront payment for registration (rather than for volume of use) in the form of an advance market commitment ‘prize’, a priority review voucher or a transferable intellectual property extension. Each of these incentives would reward the launch of an effective drug, making actual volume of use less relevant.

Since AMR is global, the response to its challenges must be coordinated across continents. The authors recommend that the EU and the US continue the TransAtlantic Task Force dialogue with the objective of maximizing the synergies possible from adopting complementary incentives and to address any regulatory issues. Developing and effectively implementing incentives for developing new antibiotics, however, requires the continuing involvement of a broad range of countries and stakeholders, including the pharmaceutical industry. As the authors note, ‘Without full participation of all concerned parties, very little can and will be done to address the growing threat of AMR’.

Download Sharma, P. and Towse, A. (2010) New drugs to tackle antimicrobial resistance: Analysis of EU policy options. OHE Occasional Paper. London: Office of Health Economics.