The wake up: A value-based pricing revolution is coming to Life Sciences

A value-based pricing revolution

External challenges are forcing pharma companies to change from ‘sales push’ to a value-based approach.

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The wake up – A value-based pricing revolution is coming to Life Sciences

External challenges are forcing pharmaceutical companies to change business models from ‘sales push’ to a more value-based approach. Drug-makers need to prove efficacy to payers and regulators – but also that the price versus established products is justified by improved outcomes. 

We know that constant innovation from pharma companies leads to a flow of new (often expensive) products – such as Glybera, one of the first gene therapy drugs released in Europe. But fiscally constrained Western economies have limited room to grow healthcare spending.

“Populations are ageing and medical advances offer more options for treating chronic diseases that a generation ago would have been hopeless cases,” says Hilary Thomas, KPMG Partner and its Chief Medical Adviser in the UK. This led to public and political pressure on pharma companies and new consideration of alternative payment models such as value-based pricing. Based on our on-the-ground experience with payers, healthcare providers and pharma companies in many countries, we believe that value-based pricing models can be an adequate response to stakeholder concerns.

What do we mean by value?

Value-based healthcare is defined as the health gains (outcomes) created for patients per unit cost by healthcare interventions. Various outcome measures have been developed around the world, and outcomes data is collected and shared with clinicians and the public.

A good example is the Centers for Medicaid and Medicare (CMS) in the US, which reports hospital 30-day risk-standardised mortality, complication and readmission measures for acute myocardial infarction and heart failure. Combined with cost information for the pathway, this data can provide insight on the value provided for acute cardiovascular care.

“By opening up the entire clinical supply chain, from R&D to patient sign-off, it’s possible to create value opportunities that life sciences businesses could use to fund innovation – and provide enhanced services in silos currently being neglected, such as post-operative care,” says Hilary Thomas.

Value-based pricing considerations

A value-based pricing strategy is complex to design, however. Factors include product- and market-specific factors such as commoditization and current revenue size; external circumstances such as the policy environment and reimbursement pressures; and the implementability of value-based pricing.

And not all products are suitable for value-based pricing. There needs to be measurable outcomes of application of the product (otherwise it’s impossible to measure the value to the patient); and no generic versions of the product are already, or will soon be, available in the market – other products can compete on costs or brand value rather than outcomes.

That means we need to evaluate products for value-based pricing depending on position in market, external challenges and feasibility. Consider the following aspects:

  • Is there a need to differentiate from competitor products? If yes, value-based pricing could be ideal.
  •  Value-based pricing is resource intensive– so does the product have a cost or level of sales big enough to justify the cost?
  • A squeeze on the payer’s ability to pay for the drug may be an indicator that it would be amenable to alternative pricing strategies.
  •  Value-based pricing msy represent a politically more palatable solution for payers as it concentrates on improved outcomes for patients.
  • Are there any insurmountable barriers to the decision – usually the availability and quality of the required outcomes data.

To read the full article, download Rethinking Life Sciences digital magazine

 

Based on the KPMG paper, Pharma shifts towards value, by Dr David Ikkersheim, Dr Annemarije Oosterwaal and Dr Thishi Surendranathan.

Rethinking Life Sciences

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