Getting Tired of "Value-Based Anything" in Healthcare? Beware of the Alternative
"Value-based pricing", "value-based assessment", "value-based healthcare", "value-based insurance design", "value-based purchasing"... I recently saw a "value-based marketplace" although I'm unsure about this one. OK, we get the message, healthcare funding decisions must be based on value. But doesn't it sound like a bombardment of truisms? Yes, but sometimes truisms are worth saying,
In the case of pharmaceutical pricing, I see the "VBP invasion" as a balancing act. A call for action to move away from all the other idiotic, pharmaceutical pricing techniques which are enforced around the world and across segments of public and private care. If like me you have been involved with pharmaceutical pricing for some years, there must have been plenty of diners with friends or relatives asking you to explain why and how is drug pricing so different than the pricing of any other good. When I'm asked, I am trying to pick an example people can relate to - " See the new iPhone for example. There must have been some meeting at Apple to decide if the larger screen and extended battery life justify a price tag crossing the $1,000 line, right? Well, that is the exact opposite of what is happening in the pharma industry."
So what is really happening the often-fantasized world of pharmaceutical pricing? Here is a short list, surely not exhaustive, in plain language, of the things that can only be seen in drug pricing, sorted by random order of value-denial:
- External Reference Pricing (ERP) - a mechanism by which country A sets the price of product X at the exact same level as seen in country B. Just like for their UEFA Euro 2004 surprise triumph, the Greeks are the undisputed champions at ERP, more agile and more creative than anyone else to constantly check that no product is more expensive in Greece than anywhere else. It is a bit like saying that as of today, by national decree, parmesan will replace feta in all greek salads by virtue of external referencing to Italy. Weird.
- Internal Reference Pricing (IRP) - a mechanism by which product X gets the same price as product Y because it belongs - more or less - to the same therapeutic class. Important methodological note: the fact that product Y launched in 1946 is linked to often fatal renal toxicity is not factored in the decision, which is made by the country's top-notch chemical engineers. As occasionally seen in Germany.
- cost-based methods - the price of product X is set at the level of its cost plus a little something. The definition of what is included in "cost" varies. Less and less used by governments with some resistance in Asia, this heating fuel-inspired pricing method is oddly more and more self-inflicted by the pharmaceutical industry in a desperate attempt to use R&D costs to justify drug prices. See here.
- PBM target rebate-based pricing - a sophisticated retro-engineered pricing mechanism by which the price of product X is set high enough so that Pharmacy Benefit Manager A can negotiate a substantial rebate from drug company B that he can pass on to his commercial Health Plan client C who will in return show their appreciation to PBM A. A US-only scheme and a strong competitor for the all-time winner of the value-denial grand prize, now that it's getting more publicity. See here for instance.
- CPI-based pricing - a mechanism that limits year-on-year price increases of Product X to the same level as the Consumer Price Index increase, also called "inflation". Introduced by payers, this rule is being reinterpreted as we speak by the pharma industry as the "10% pricing pledge". Another self-inflicted PR faux-pas from the industry ignoring the fact that this represents around 5x the inflation.
- Profit-regulation pricing - a complex multi-year mechanism by which the price of product X will be cut by a factor Y if its marketing company's profit exceeds a pre-agreed level Z, regardless of any benefit or harm to the patient. A European technocratic masterpiece and for all rugby fans, another England vs. France crunch. I've been trying to explain their respective "PPRS" and "accord-cadre" to my US colleagues forever.
Why a pharmaceutical product, instead of being priced based on its features and the value it provides to its customers, has to be priced according to these rules, all worthy of the Ministry of Silly Walks? If I believe that seeing my pictures in a larger format, and not having to worry about charging my battery for a full day, justifies spending more money on a new smartphone, then so be it. That's value-based pricing.
The only silver-lining I can see in this mayhem is that the value-denial syndrome used to be broadly shared between payers and the industry, and now they both seem to come to the same realization that value-based pricing is the only way. Easier said than done, but that's a start.
*** reposted from inbeeo.com - inbeeo helps life science companies rethink value ***
Director at Bristol Myers Squibb
7 年Thanks for sharing. The question is who is paying and how ? What is the perceived value to the patient (True customer ) vs the Payer (Real Payer) vs the Strategy (Seller)
Health Economist
7 年I think the criticism of the various payment models is off-the-mark. It happens in many other sectors as well. E.g. reference pricing being the same as when you say "I'll buy the new iPhone online because the price is lower in another country". As for value-based XXX: Payers and industry don't necessarily expect it to work the same way. And that is what should be studied further.
Market Access and Pricing Strategy with Inbeeo | Founder
7 年Fran?ois Haas your comments are spot on. VBP may mean a price increase for some products delivering value, but it also means a potential for cutting the price of some older products. This is where the "10% pledge" becomes an even bigger nonsense. The fundamental right of governments and public insurers to manage their budget is not questioned. The question though is more on the "how" they achieve their goal of delivering more health under a strict budget constraint.
Head of Ethics & Compliance Systems at UCB
7 年While it makes sense to shed light on the creative ideas from payers to impact drug pricing, it would be worth doing an introspection analysis too. Because drugs are financed in many countries by limited public money, pharma companies owe a bit more transparency on how they price their drugs than Apple with their iPhone. Also, VBP makes a lot of sense but only if applied to all drugs with pharma companies accepting to reduce the price of old drugs in case of lesser value. When observing constant price increases of old drugs in the US, I am wondering if pharma companies are ready for VBP.