Pharma sector forced to seek new pricing model
Focus to shift to health benefits
GLOBAL pressure on health spending is forcing the $1 trillion (R13.6trln) a year pharmaceutical industry to look for new ways to price its products: charging based on how much they improve patients’ health, rather than how many pills or vials are sold.
In the US, both parties promise fresh action on prices whoever wins the White House. In Europe, economies are stalled. And in China and other markets, governments are getting tougher with suppliers.
Pricing drugs based on clinical outcomes is one way to ensure that limited funds bring the most benefits to patients now and pay for the most promising medical advances.
Change
But shifting the overall industry to a new model required improvements in data collection and a change in thinking, said drug pricing experts.
“We are going to get there,” said Kurt Kessler, managing principal at ZS Associates. “But it is a long, tough slog because it’s difficult to get the right data and agree on… outcomes are to measure.”
In the past, governments and insurers made room in their budgets for new drugs by switching to cheap generics as patents expired on older drugs. But today generics account for nearly nine out of every 10 prescriptions in key markets such as the US, and fewer big drugs are going off patent.
That leaves little headroom for pricey new medicines for cancer and other hard-to-treat diseases. The US Food and Drug Administration has approved 16 new drugs this year.
Investors got a wake-up call on the issue last Friday when $10 billion was lopped off the market value of Novo Nordisk as the diabetes firm warned of falling US prices. Pharmacy benefit managers administering US health plans are pushing back by excluding some drugs deemed too expensive.
The chief executives of Novartis, Eli Lilly and Glaxo Smith Kline (GSK) have warned that pricing would become increasingly challenging across the board. Accounting for 40 percent of global drug sales, the fate of the US market is front and centre in the minds of drug company executives.
Curb prices
Hillary Clinton and Donald Trump have suggested new measures to curb prices, including allowing imports from lower-cost countries.
The aim is a flexible pricing system that rebates healthcare providers when a drug does not work as planned and charges more when it works well.
GSK’s chief executive, Andrew Witty, saw this outcomes-based approach slowly becoming the norm in more disease areas and geographies.
“Whoever wins the election in the US, and also in Europe, we will see those conversations play out over the next few years,” he told Reuters.
The pharmaceutical industry’s European trade association is discussing ways to shift to outcomes pricing, following price curbs in Germany that have caused some companies to pull products off the market, and effective rationing in Britain, where strict cost-effectiveness rules apply.
Authorities in Asia’s two biggest markets, China and Japan, are also intervening in new ways to cap runaway costs.
“Overall, it is the right direction but there are many practical difficulties,” said Helen Roberts, a specialist in healthcare at Bonelli Erede.
$10bn Lopped of Novo Nordisk’s market value last Friday