PMA Perspectives July 2015


Hello and welcome to the July 2015 Newsletter from Remap Consulting. Topics covered in this issue include the future changes to the UK Cancer Drug Fund; approaches for payers to fund curative treatments and how drug spending in secondary care will overtake primary care  within 5 years and the implications this has for pharmaceutical companies.

Our recent analysis: “Are Payers Adapting Biosimilar Pricing and Reimbursement Approval Pathways to Optimize Healthcare Savings?” was presented at ISPOR’s 20th Annual International Meeting in Philadelphia and received very positive feedback. Please contact Graham for more details ( The full presentation can be found here:

Graham was recently a guest speaker on the Pharmacoeconomics MSc Module, run at Kings College London. Looking forward, we will be attending the Value Assessment & Pricing in France, the UK and Germany conference in Berlin on the 24th September 2015. Do let us know if you will be attending, as we would be delighted to meet up.

We always welcome your thoughts and opinions on the topics raised here. Do contact us ( or share your thoughts with us on Twitter (@remapconsulting), where you can also find the latest news.

Have a great summer.

Paul Craddy & Graham Foxon
Managing Directors – Remap Consulting

Curative therapies  – who pays and how?

Pharmaceutical companies are now developing curative treatments, in addition to drugs which only manage symptoms and disease progression (e.g. statins for cholesterol control).  Recent examples include Solvaldi for the treatment of hepatitis C (with a cure rate of >90%) and Glybera for the treatment of lipoprotein lipase deficiency (which was approved in 2012 and has a cost of €1,000,000 per patient). The question for payers is how do we pay for these new curative treatments?

The on-going heated discussions regarding the price of Solvaldi are not related to the products effectiveness, but rather towards its up-front budget impact. A three month course of Solvadi costs $84,000 in the US and ~€41,000 in the EU, with payers across the EU and US struggling to find a suitable approach to pay for such curative treatments as a result of these high up-front costs, although future savings may be significant.

The historic payer approach to manage such high budget impact treatments has been to impose substantial discounts or budget caps, as observed in France where the authorities secured ~25% discount on Sovaldi to enable continued patient access in France. In the UK, NICE considered Solvaldi to be cost effective yet patient access has been delayed due to the NHS needing to develop an infrastructure to support the demand for Solvaldi. As a result, a specific Hepatitis C fund has been created, similar to the Cancer Drugs Fund, to fund Solvaldi and other Hepatitis C treatments. The clinical outcome uncertainty is not the main issue with Solvaldi or other curative treatments, it is short-term affordability that poses a problem for payers. How do payers tackle the high upfront costs of a cure that is cost effective?
A number of potential solutions have been proposed:

Pay for performance

Where payers (either government or health insurers) would pay pharma a per patient periodic fee for as long as the treatment works. This could result in payments lasting for several years or even a lifetime. At its simplest this could be achieved with regular health checks to ensure the treatment is still effective.

The main challenge with this approach is for those countries who have multiple health insurers – how do you ensure that the money follows the patient? If a patient switches insurers, the new insurer must agree to continue with the periodic payments, even if the patient is no longer taking the drug treatment (as they have been cured).

Also, how do you measure that the treatment is still effective? For treatments of viral infections, such as Hepatitis C this is relatively straight forward as you can measure the viral load. Yet, how would this work for other diseases? A clear marker needs to be identified to demonstrate that the treatment is still effective. Finally, what happens to the payments if the patient dies of an unrelated cause, do the payments stop?


A payment model to spread the high cost of treatment over a defined period of time. For example, the time over which the benefits are realised. This can be considered as similar to leasing whereby, a third party covers the upfront costs and the healthcare payer, or patient, leases the treatment (plus interest) over a pre-determined period of time. The main challenges here are that the healthcare financial systems cannot currently account for this payment method and it would take considerable effort to change healthcare financial systems to properly account for this payment model.

Licensing model

Similar to the approach used by the IT industry. Here healthcare payers would pay a fixed monthly licensing fee per patient for use of the intellectual property of the medicine, irrespective of the amount of medicine used.
This approach would make it possible to set the license fee by indication, based on the value the treatment offers for each indication and to change the license fee dependent upon the GDP of the country. The main disadvantages of this approach is that healthcare financial systems are not currently set up for this approach and that there is a risk of fraudulent use of medicines to treat additional patients without cost. Each patient will have to be closely tracked to ensure medication use can be captured.
Similar to the previous models, the licence agreement would have to have clear criteria highlighting when the license expires e.g. when the treatment is no longer effective, or if patient dies from an unrelated cause.

Disease-related group (DRG) pricing:

This system is already used by hospitals to costing and paying for non-pharmaceutical healthcare interventions. The system could be expanded to include costs for pharmaceuticals, whereby price is set by indication relative to the value the medicine delivers for that indication.
This will enable payers a greater degree of certainty over their budget impact (as the same fee will be applied to each patient irrespective of the amount of drug utilized by that patient). It also has the added benefit that the majority of healthcare systems currently have, or are adopting, a DRG approach.
The main disadvantages are that there is a risk of fraudulent use of medicines and that it takes considerable time for a new DRG to be created. The other major challenge is that this approach will not, necessarily, remove the initial high budget impact costs for novel curative treatments such as Solvaldi, as payments are likely to be linked to drug usage per indication rather than the length of treatment outcomes.

In the near term it is likely that payers will continue to use the blunt instruments of budget caps and price cuts to manage their healthcare budgets, as changing the pricing mechanisms to one where a pack or vial does not have intrinsic value would be virtually impossible for current healthcare systems to manage.  

However, these new pricing mechanisms can provide benefits to both the healthcare payers and to pharmaceutical companies. To further develop these novel payment solutions pilot schemes will be required to enable the practical challenges to be addressed. The question remains, however, as to who will take the initiative of driving these new drug payment models forward?

Recommended articles that caught our attention

  • Update on UK Market Access environment: Our presentation to the EUCOPE June P&R meeting, which stimulated an interesting debate regarding the value of NICE’s new office of market access.
  • Speedy drug approvals have become the rule, not the exception: Interesting article which highlights that there are now more drugs approved via the expedited process than the normal route.
  • US drug prices ‘not rational’: Recent research highlights that there is limited linked between clinical benefit and price for oncology drugs within the US.
  •  Access to new medicines in Europe: Thought provoking report from the WHO suggesting pharma companies need to be more transparent with price setting to ensure patient access to new medicines.

The future of the Cancer Drug Fund – NICE to see you again?

The recent board minutes from NHS England have proposed that NICE should take a more direct role in determining which products should be included / removed from the Cancer Drug Fund (CDF). How has NICE managed to secure management of a fund that was initially set-up to fund cancer treatments that had not been reviewed or rejected by NICE?

Since its inception in 2010, the CDF in the UK has never been far from the headlines. Originally established to provide access for patients whose individual circumstances imply they will benefit from cancer drugs not approved or reviewed by NICE, the fund received a significant number of requests and quickly utilized the £200m annual budget. Since then, the CDF budget has been increased twice, most recently to £340m for 2015/16.

Why has the CDF generated such controversy?
The CDF was initially set up by politicians to appease the public’s concern over the lack of access to novel cancer treatments, given the high rate of NICE rejection to cancer drugs. Once established, the CDF came in for a significant level of criticisms, notably from NICE, for being a poor use of money compared to other treatments which had demonstrated cost-effectiveness and thereby not an efficient use of NHS healthcare resources. In contrast Pharma companies saw the CDF as a great tool to gain access to the UK market and have, unsurprisingly, been a key supporter of the CDF.

Originally, the CDF did not conduct clinical or economic value assessments for the products to gain access to the fund. In 2014, the UK government announced that the fund must conduct clinical effectiveness assessments and price discussions, as a condition for receiving increased funding in 2015. Assessments are now being conducted on all current and future CDF drugs. Drugs which do not meet the assessment criteria are being excluded. To date this has resulted in 16 drugs covering 25 indications being excluded from the CDF.

What is the future of the Cancer Drug Fund?
In December 2014, a working party was established, tasked with identifying a long term, sustainable solution for the CDF from April 2015. The working party identified that the current process “has also enabled some pharmaceutical companies to bypass NICE cost-effectiveness assessments” and “a solution is needed that ensures patients have routine access to a greater range of cancer drugs, including earlier access to innovative drugs, while ensuring that cost-effectiveness is maintained”. Any future solution should enable “NHS England to confirm clinical utility of the drug, whilst managing within a defined budget, and should be aligned with NICE appraisal processes.”

The current proposal, which is out to public consultation, would see the CDF evolve into a ‘managed access’ fund for new cancer drugs, under the remit of NICE. In practice, rather than the current failure to recommend, the drug would be given a ‘conditional approval’ by NICE and the drug funded for a defined period whilst additional real world evidence was collected. After the defined period, the drug would go through an abbreviated NICE appraisal, with the outcome being either a positive or negative recommendation. Positive recommendations would be funded on the NHS, whilst negative recommendations would see the drug moved out of the CDF.

These proposal address a number of key issues that have plagued the CDF, such as lack of cost effectiveness assessments and duplication of responsibilities with NICE. It would also provide a clearer, more transparent process for cancer drugs. At the same time, a return to cost effectiveness assessments may not be in pharmaceutical companies best interests, as cancer drugs have always struggled to demonstrate effectiveness. This proposed approach may result in more drugs initially being funded in the short term to gain additional ‘real world’ evidence, but in the longer term many cancer drugs are likely to have their funding removed as they will be unable to demonstrate that the treatment is cost-effective to the NHS.

Secondary care to become the primary source of drug spend? – The rise of speciality products

Over the last decade, pharmaceutical companies’ portfolios have broadly shifted from being focused on small molecule drugs for chronic conditions (e.g. statins and ARBs) to more complex speciality products (e.g. oncologics, orphan indications and biologics). The reasons behind this shift include the ability to use more complex manufacturing techniques, increased ability to demonstrate clinically meaningful results and less crowded therapy areas. This has resulted in pharmaceutical companies being able to charge significantly higher prices as these products are addressing areas of high unmet need. While this has been a profitable shift for pharma, what impact has this had on the healthcare systems, particularly the UK clinical commissioning groups (CCGs)?

The current UK NHS drug spend is ~£830 million, with £500 million spent in the primary care sector and £300 million in secondary care. The total UK NHS drug spend is expected to increase to £1.2 billion by 2020. However, growth rates differ hugely between primary and secondary care settings, with growth of only 2-3% in primary care but ~15% in secondary care. The main reason for this is that drug savings from off patent molecules do not match the drug spend for new treatments, especially within the secondary care setting.

Recently one CCG clinical commissioner that Remap Consulting spoke to clearly highlighted the issue: “In five years’ time, our CCG will be spending more on hospital (secondary care) drugs than community (primary care) – this is a paradigm shift and I’m not sure the hospital infrastructure is able to manage this shift.”

“We are also observing capacity issues within hospitals, as a lot of high cost drug treatment needs to be administered here. Hospitals are not set-up for repeat prescriptions; historically they only focused on acute conditions. It is not clear how this will be managed – where will patients go to pick up prescription, and how will the drug be funded?”

The challenge is not only for existing drugs. Formulary committees are facing increased pressure to provide formulary access to an increasingly large number of speciality (particularly oncology) treatments that are currently being approved by regulatory authorities. The key issue here is to understand the real value of these treatments, not just the drug acquisition costs.

Whilst NICE can determine if a drug is cost-effective to the NHS, it is the responsibility of CCGs to manage their local drug budgets and these cost-effective treatments can still have a huge impact on local healthcare budgets. It is not solely drug costs that are important to CCG commissioners, they also consider additional costs directly related to the treatment, such as the cost of administration or adverse effect monitoring. When these additional costs are factored in, they can have a significant impact on the overall cost of treatment and on the CCG’s resources. In addition whilst these treatments may reduce staff or bed time, it is highly unlikely that CCGs will be able to shut hospital wards or reduce medical staff.

Whilst pharmaceutical companies have successfully made the transition to speciality products, it is clear that the CCGs and the NHS are still struggling with the transition. There are a large number of structural, resource, financial and logistical issues faced by healthcare systems as pharmaceutical companies develop ever increasingly complex treatments which shift administration to the secondary care setting. Companies needs to work more closely with secondary care to ensure effective implementation and management of new treatments to help address the capacity and financial challenges that are being faced.

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