Innovative Pricing: An Introduction

Innovative Pricing has become a popular subject over the past few years in the pharmaceutical industry. Ever restricting Payer budgets, coupled with increasing competition for treatments and patients has brought into sharp focus the need for a fundamental change in the way we value, price and pay for drugs.

I am not going to try and outline the entirety of the drug pricing landscape in this short article (you will be please to read), however I thoroughly recommend Luca Dezzani’s (Novartis) article on the ‘Cost of Medicines in Context’ (click here). While the examples used here are from our American cousins, the same broad principles apply to the UK market with a couple of additional factors. Firstly, the UK is a reference market for a significant number of other countries. Secondly, we have the NHS. Centralised negotiation of pricing, NICE and the complex interplay budgets between the national level, Clinical Commissioning Groups (CCGs) and Trusts creates a landscape all of its own, that is super-imposed over the top of the broad strokes outlined by Luca.

What this has resulted in is a metaphorical ‘tug of war’ on an epic scale. For a long time NICE has negotiated hard to get the pricing it wants, essentially being the gateway to the UK market, and generally speaking, pharma has gone along with this. However, this might be changing. In a recent BBC article the Association of British Pharmaceutical Industry raised the prospect that if new drugs are not prescribed by the NHS when they are launched, they will have to re-evaluate if studies are run in the UK. A chilling thought for those of us in the research portion of the industry but also a potential delay in access to innovative new treatments for UK patients.

The solution to this stand off was meant to be the Accelerated Access Review (AAR) which was published in October of last year (2016). Along with a number of proposals, one of the key points was a push to take a proper look at Innovative Pricing Schemes.

Innovative Pricing Schemes are, in sweeping terms, encompass anything where the price is not fixed (where the price is dependent on an outside factor, such as patient outcomes). A more useful definition is to split them into four main ‘families’ of schemes:

Outcome Based Schemes

These are schemes where the price is based on the outcomes experienced by the patient. These can be further split into two main types. The first are based on a clinical indicator. An example might be for an Asthma drug, whether the patient is controlled by their Royal College of Physicians Asthma Control Score (RCP3). If the patient doesn’t achieve control, the pharma company pays back the cost of the treatment (rebate) thus far. The advantage of these schemes are that they can be staged, with variable pricing for different parameters on the indicator scale.

An alternative to using an indicator is to base a rebate on, is whether the patient switches to another treatment within a certain window. The inference being that the patient didn’t get on with the treatment, either due to side effects or lack of effectiveness. This is potentially easier to implement than the indicator version, and allows you to take account of more variables (or possible outcomes).

Try before you buy Schemes

One of the major hurdles for new treatments to get over (particularly within quite crowded market places such as Diabetes), is to get physicians to try the new treatments with their patient.

‘The patient may already be reasonable controlled on the existing medications, so why change them to something that is more expensive that might not work?’

The “Try before you buy” scheme is designed to share some of that risk with the pharmaceutical company, giving the physician some flexibility to try a patient on the treatment to see if the outcomes might be better. Usually they operate along the lines of, ‘have the first 4 weeks for free, and we will only start billing you after that’.

Dose/time Cap Schemes

Another option is to limit the cost of a potential treatment based on how long, or how many doses, it should take to have the desired effect. If the guidelines say this treatment should take 10 doses, the pharma company will say, you only have to pay for 10 doses even if it takes 12. This is a step towards single price for outcome based pricing.

Advanced Rebates/Discounts

This is the portion of innovative pricing that has been most explored to date. Applying a rebate or discount to the treatment price either as a flat rate, volume based, or some other derivative.

Of course the challenge isn’t really designing these schemes, or even negotiating them with the payer (after all it is in the interest of both pharma and the payer to care what happens after the medication is taken). The real challenge is how to implement these types of schemes within the UK healthcare system. How do you track which patient need to be rebated, and which don’t?:

If you would like to learn more about how this is possible, why don’t you get in touch:


Adam Marsh