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UK Move Towards Value-Based Pricing Part of Wider Trend

For market access and HEOR professionals, one of the most significant changes in the UK pharmaceuticals market to be brought about by the Coalition’s Health and Social Care Act will be the adoption of Value-Based Pricing as a
universal standard in purchasing.

Health and Social Care Act 2012

Despite the Government’s recent renewal of its budgetary commitment to preserve levels of NHS funding, an aging population and improved healthcare innovation means that the NHS will be under mounting fiscal pressure. Switching from the old ‘payment by results’ system to VBP was recommended by the Office of Fair Trading as a way to achieve greater cost-effectiveness. From 2014, reimbursement
levels for branded pharmaceuticals purchased by the NHS will be set using VBP.

This is not an isolated development in the global healthcare market. In the US, hospital VBP was introduced in late 2012 after being enshrined in law through the Affordable Care Act. Australia and Sweden have also used the system.

The introduction of VBP has been viewed as injurious to pharma companies’ interests. Germany’s recent wholesale adoption of this approach has been blamed for the decision of companies like Novartis and Eli Lilly to either withdraw or not introduce products in the German market. When AstraZeneca cut 400 staff from it’s German office, a statement from the company assigned responsibility in part to “Massive state intervention in the pricing of innovative medicines”.

Whilst pharma companies are not necessarily against the concept of VBP, there are strong concerns about how the new system will work and what the effects will be. The Government has been criticised for being slow to release details, with the House of Commons Health Committee stating that:

“Failure by the UK government to reveal details of its new value-based drug pricing (VBP) regime is having a detrimental impact on the pharma industry, patient groups and clinicians.”

Another worry is the knock-on effects in other markets; up to 25% of world pharmaceuticals sales reference UK prices. The relatively low cost of pharaceuticals in the UK means that purchasers in Europe often import drugs rather than buy locally.

Price pressures exist throughout the global marketplace, and as pricing systems come under review, pharmaceutical, medical device and diagnostics companies will need to work harder to make sure that payers are persuaded of the value of their products.