Affordable innovation: future directions in pharmaceutical policy

Prices of new medicines are a global problem. In the USA, prices of new cancer medicines
have risen in real terms by 10% per year since 2005 10], such that the entry price of recent new molecules – for example, ipilimumab for
melanoma – is now estimated to be USD120,000/patient/course of treatment – approximately
twice the average annual income. Some perverse incentives in the US legislation maybe
contributing to the high prices, but mostly they appear to be due to ‘what the market
will pay’. So the medicines for hepatitis C, sofosbuvir and the combination with ledipasvir,
marketed by Gilead, have public prices of USD1,000 per pill in high income countries.
We have estimated that, at this price, the cost of treating even a small proportion
of the total Hep C infected patient population is unaffordable for most high income
countries. Even medicines for orphan disease, where arguably higher prices might be
justified on the basis of small market volumes are setting new price records, despite
public funding of a significant proportion of the development costs in some cases
for example, ivacaftor for cystic fibrosis 11].

In most high income countries, a number of policies are used to manage prices of medicines
and expenditure. The choice of policy has to be set in the context of the balance
between health and industrial imperatives, but usually includes some, or all, of:
price-setting techniques (reference pricing, profit ceilings, cost-plus pricing and
value-based pricing), control of supply chain prices and mark-ups from ex-manufacturer
to dispensing, managing purchasing (through lists, tenders, price volume agreements
and pooling procurement) and price signals, through co-payments, or premiums to promote
generic completion and prescribing.

In low and middle income countries, although medicine prices are often reported to
be high, there is less control of the supply chain and use of price setting techniques.
As a result, especially in countries without comprehensive coverage or insurance,
out of pocket payments can be catastrophic for individuals. While direct evidence
of the effect of pricing policies in LMIC is limited 12], it would seem reasonable to assume that controlling prices and mark-ups would have
the same effect on price as it does in high income countries. How to take control
of a market is a much more difficult question.

Newer approaches to managing prices are also developing. A number of high income countries
are using policies such as ‘risk sharing’, ‘managed entry’, ‘pay for performance’
and ‘coverage with evidence development’ 13,14]. The impact on access and prices these types of schemes will have is not clear, but
there are certainly questions to consider: for example, if measurement of patient
outcomes is required for payment, does that require a separate registry for each disease?
And if so, how are the data managed and analysed? Who decides what will be measured?
Who protects patient privacy and how?

Similarly, the use of confidential rebates and discounts appears to be increasing
2] such that the public prices listed are almost meaningless. If prices are negotiated
behind closed doors, what principles are used to ensure an appropriate or fair price
and how should it be done? Cost-effectiveness thresholds are one approach but can
have a distorting effect if budget impact and affordability are not explicitly considered.

But the public anger over what is perceived as corporate greed 15] is likely to push for at least one change, which is much more transparency about
the basis for pricing. GSK has provided one recent example of transparent cost-plus
pricing, for their new malaria vaccine. Luzzatto et al. 9] suggest the same principle should apply to prices for medicines for orphan diseases.
Differential pricing has been tried by Gilead for its products for hepatitis C, but
without consideration of budget impact, which has been proposed as an alternative
16] or countries’ willingness to pay. So to be able to afford innovation, we need to
change our approach and bring all of these strategies together: we need to consider
international price negotiation, with fair profit margins and transparent understanding
of all production costs, as well as quality use of medicines. Stiglitz may be right
about value-based pricing as a solution – but the challenge is how to get there.