Are Emerging Value Frameworks a Path to Implementing Value-Based Pricing?

By Xcenda

Value assessment frameworks (VAFs) are systematic approaches for the evaluation of health technologies that may assist stakeholders in understanding the value of a technology. Existing VAFs are sufficient to account for some value components, but they struggle to account for a changing landscape that may involve the introduction of new indications and new comparators.  We provide an overview of the current challenges and barriers with current VAFs in VBP and to raise awareness of potential opportunities and solutions.


Emerging Value Frameworks as a Path to Implementing Value-Based Pricing? Depends on Your Perspective

By David Campbell, PharmD, MS; Minh Luu, MBBS; and Kristen Migliaccio-Walle, BS
Value-based pricing (VBP) is an explicit attempt to align the price of a health technology based on the relative value, however measured, of that technology. The emergence of VBP in the global healthcare sector in recent years parallels regulatory and market pressures, both in the United States (US) and abroad, to reduce health costs without compromising safety and quality of care. Under VBP agreements, payers and health technology manufacturers agree to link payment to value achieved, rather than volume. Moving away from the traditional efficacy, cost, and safety metrics that define value, VBP aims to define value more holistically across a broader set of factors. Depending on the perspective that these paradigms are designed from, value is relative and truly “in the eye of the beholder.”
Value assessment frameworks (VAFs) are systematic approaches for the evaluation of health technologies that may assist stakeholders in understanding the value of a technology. The designs of VAFs are unique to the objective, perspective, included criteria, and relative weight of criteria. Existing VAFs are sufficient to account for some value components (ie, preference relativity), but they struggle to account for a changing landscape that may involve the introduction of new indications and new comparators (ie, decision relativity). This article aims to provide an overview of the current challenges and barriers with current VAFs in VBP and to raise awareness of potential opportunities and solutions.

Unaffordable and Valuable 

In addition to the challenges of defining value, there are many barriers to the application of VBP and VAF for health technology assessments (HTAs). The first obstacle is for stakeholders to understand that value does not equate to affordability and vice versa. A health technology may be deemed a good value because of the clinical outcomes it achieves relative to its costs, yet remain unaffordable. Conversely, an affordable technology may have limited value. A recent example is the case of Sovaldi for the treatment of hepatitis C. Treatment with Sovaldi is an effective cure for hepatitis C and despite a high list price of $84,000 at launch, studies have demonstrated it is cost-effective through savings from cost offsets achieved by curing patients. However, many countries struggled to manage the short-term budget impact of covering such an expensive therapy for a disease with such prevalence. This situation exemplifies how a cost-effective therapy may not be affordable and can threaten the sustainability of health systems.

Navigating International Reference Pricing

Navigating international reference pricing (IRP) is also a challenge to successful implementation of VBP. Many countries utilize forms of IRP as a means to manage the cost of new medicines by using the price of a medicine in one market as a starting benchmark for pricing negotiations. Some countries (eg, France and Spain) use IRP to form the basis for negotiation between the government and manufacturers; other countries, such as Canada, utilize a median international price comparison test to determine prices for new patented drugs of high therapeutic value. Since the price negotiated in one market can have substantial economic consequences for manufacturers through subsequent market negotiations, manufacturers are highly incentivized to initially come to market with a high price. For manufacturers navigating the IRP process, this often involves a strategy of entering the European market through wealthier northern countries that are more likely able to afford a higher medication list price. In Sweden, the National Health Authority (TLV) takes a value-based approach to medication access via cost-effectiveness assessment, but manufacturers may circumvent this by negotiating confidential access schemes with the country’s county councils. This approach provides manufacturers access to the Swedish market while preserving a higher list price for IRP and is an example of how IRP can affect the successful implementation of VBP systems. Manufacturers have also utilized rebates to payers as a means to avoid IRP and promote product access. However, the rebating approach has recently received significant media attention and criticism in the US, where it is being partially blamed for rising drug prices like the high-profile EpiPen case. Critics claim that pharmacy benefit managers are demanding increased rebates from manufacturers in exchange for favorable formulary placement, which is encouraging price increases. Rebate practices were targeted in President Trump’s Blueprint to Lower Drug Prices, which proposes requiring plans to share a minimum portion of drug rebates with patients, among other initiatives.


Clinically Effective ≠ Cost-Effective

Another challenge to overcome is that clinically effective therapies are not always cost-effective. One scenario in which this can happen is when there are costs associated with providing therapy, such as clinician-administered intravenous infusions, that will outweigh the health benefits achieved from the therapy even when priced at zero. Another scenario that can preclude demonstrating the cost-effectiveness of a therapy, even when priced at zero, is when the therapeutic benefit results in additional time in a health state associated with high resource utilization and/or low quality of life during or after the treatment period. For example, a therapy that is effective in treating patients with chronic kidney disease who require dialysis, but does not reduce time on dialysis—an expensive chronic treatment—may not be cost-effective even when priced at zero. Any successful VBP approach should include a process to manage these situations and value clinically effective therapies at a price that is fair.

Combination pricing

Therapeutic Advances Require New Solutions

Combination pricing
High-cost yet curative orphan drugs, increasing use of combination therapy, and more complex regimens are driving the need to better align pricing with not only the clinical benefit but the value these advances bring to patients. Combination regimens, particularly in oncology, are increasingly being utilized to improve clinical outcomes. These combination regimens, however, often result in incremental gains in efficacy that are not proportional to the sum of the monotherapy prices. Ideally, VBP allows for indication-specific pricing that reflects the value of medicines across each indication—and use (alone vs combination)—to better align the value with price. As technology continues to advance the armamentarium of therapeutic options, we need greater flexibility to achieve VBP, not less.
Combination pricing
Several value frameworks have emerged in the US to help estimate and determine the value of medicines and other therapeutic options. These include the National Comprehensive Cancer Network (NCCN) Evidence Blocks, Memorial Sloan Kettering Cancer Center (MSKCC) Drug Pricing Lab (formerly DrugAbacus), Institute for Clinical and Economic Review (ICER) evidence reports, and American Society of Clinical Oncology (ASCO) Value Framework. Each of these value frameworks utilizes different definitions of value and different stated aims; however, only the ICER Value Framework and Drug Pricing Lab provide value-based price estimates. Nevertheless, in the pursuit of aligning price and cost with value, these current frameworks are not sufficiently fit for the purpose of evaluating new and emerging technologies that provide curative and disease-altering outcomes.

ICER evidence evaluations include assessments of short-term affordability and long-term value for money. “Pricing benchmarks” are used to determine VBP or estimate the discount needed from the current net price to be cost-effective; products with budget impacts that exceed $991 million over 5 years are subject to an “alert.” The long-term value is estimated using incremental-cost effectiveness ratios with thresholds from $100,000 to $150,000 per quality-adjusted life-year (QALY). The Drug Pricing Lab tool, in contrast, provides a more singular focus on the prices of health technologies. The aim stated is to provide a “rational approach to drug pricing” and “a way of thinking about how to determine appropriate prices for drugs.” User preferences regarding various modifiable price components are used to determine a drug’s value-based price.

Outside of the US, the National Institute for Health and Care Excellence (NICE) has been helping England and Wales balance access to innovative therapies with budget limitations since 1999, though it too has been challenged to achieve VBP. Over time, NICE’s approach to HTA has evolved to broaden the cost-effectiveness threshold from a single point value to a range of acceptable values (£20,000–£50,000) based on a number of factors including burden of illness, the wider societal impact, certainty of the cost-effectiveness ratio, health-related quality of life, innovative nature of the technology, and other non-health objectives of the National Health Service (NHS). Following further consultation in 2017, NICE adopted changes to its approach to better align societal value with its approach to appraisal and reimbursement. These new changes include fast-track approval for drugs under £10,000 per QALY, automatic price negotiation if the budget impact exceeds £20 million over 3 years, delaying implementation when budget impact cannot be mitigated, and implementation of a QALY modifier for highly specialized technologies.

Opportunities and Solutions

While there are certainly barriers and challenges to the implementation of VBP and value frameworks, it is critical that health systems continue to advance strategies that better align spending with value. In this effort, there are 4 keys to successful implementation of VBP.

Keys to Successful VBP

  • Keep patients first
  • Institute a learning healthcare system
  • Implement flexible value assessment tools
  • Develop case examples/studies for best practices
The first rule is to remember to keep patients first. VBP should be structured in a way that aligns HTA appraisals and reimbursement with patient preferences and values. There is opportunity to advance patient-relevant outcomes that inform clinical efficacy assessment and regulatory decision making.

Second, institute a learning healthcare system that connects the current value to price and reimbursement. Since the value of a healthcare technology is constantly evolving as new evidence becomes available, a learning healthcare system is necessary to capture the current value of the technology. It is much more important to understand the evolution of value over the entire life cycle of a therapy than to make a 1-time judgment of value at the time of HTA assessment.

Third, flexible value assessment tools should be implemented and be able to evolve. As discussed earlier, the NHS of England has evolved to adopt a dynamic cost-effectiveness threshold that considers additional factors. A World Health Organization report suggests that as an alternative to a single fixed cost-effectiveness threshold, flexible guidance that includes fairness in the decision-making process or multi-criteria decision analysis are worth consideration. 

“The use of cost-effectiveness ratios in decision making remains an area without consensus. Our view is that a fixed cost-effectiveness threshold should never be used as a stand-alone criterion for decision-making.”

There is no externally validated formulaic shortcut to easily solve decision making. It is complex, and a set of flexible tools are necessary to incorporate the many perspectives and values of different stakeholders.

Lastly, it is important to develop case examples for study and to guide further development of best practices. There are many challenges and barriers to the implementation of VBP with no simple solutions. Through the study of case examples, we can better appraise the value of new and increasing complex therapies. Though the rapid development of seemingly competing value assessment frameworks may appear to make the achievement of VBP more complex for health systems and manufacturers, the dialogue and questions that it has prompted have contributed to evaluating and improving the tools that we have today. Ultimately, this should continue to advance us more quickly toward decision-relevant HTA. 

The article should be referenced as follows: 

Campbell D, Luu M, Migliaccio-Walle K. Emerging value frameworks as a path to implementing value-based pricing? Depends on your perspective. HTA Quarterly. Spring 2018. June 21, 2018.

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