DOES PRICE DISCRIMINATION HAVE A PLACE IN
PHARMACEUTICAL PRICING IN ASIA?
Issues Panel 5: Tues 4pm
ISPOR AsiaPacific conference, Taipei, September 2012
MODERATOR:
Adèle Weston
PhD
Executive Vice President/Senior Scientist OptumInsight, Australia Prof Gilberto de
Lima Lopes
Program Leader for Health Economics and Policy
MD, MBA, FAMS
Johns Hopkins University School of Medicine, Singapore Prof Michael
Drummond
PhD
Mendel Grobler
MBA
Professor of Health Economics
C t f H lth E
Centre for Health Economics, University of York, UK
i U i
it f Y k UK
Director, Patient Access
Pfizer, Australia
Proprietary and Confidential. Do not distribute.
2
1
Price discrimination
DEFINITION:
Price discrimination occurs when customers in different markets are charged
different prices for the same good or service, for reasons unrelated to the cost a.
For example:
• Ability to pay
• Willingness to pay (eg. difference in demand or priorities)
CAVEAT:
Price discrimination is effective only if customers can not profit from re-selling
the goods or services to customers from a different market (eg,
(eg other countries)
a Source:
OECD Glossary of Statistical Terms:: http://stats.oecd.org/glossary/detail.asp?ID=3283.
Proprietary and Confidential. Do not distribute.
3
Ability to pay is highly variable:
Source: World Economic Outlook Database-October 2008, International Monetary Fund - Gross domestic product (GDP) based on purchasing-power-parity (PPP) per capita.
Data refer to the year 2007. Accessed under free license via: http://commons.wikimedia.org/wiki/File:GDP_PPP_per_capita_2007_IMF.png
Proprietary and Confidential. Do not distribute.
4
2
Example
• Sweden = $1000
• Indonesia = $100
• Sweden = $100
• Indonesia = $10???
Proprietary and Confidential. Do not distribute.
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But what is parity?
GDP
Starbucks
Tall Latte
Index
BigMac
PPP
Human
Development
Index
Proprietary and Confidential. Do not distribute.
6
3
Status Quo and beyond
•
•
•
•
International reference pricing
Tiered reference pricing
Value-based pricing
Formalised price discrimination schemes (eg. “Accelerated Access
Initiative” for AIDS therapies: UN & 7 pharmaceutical companies)
• Other
• Advantages, disadvantages, challenges
Proprietary and Confidential. Do not distribute.
Prof Michael Drummond
PhD
7
Professor of Health Economics
Centre for Health Economics, University of York, UK
Proprietary and Confidential. Do not distribute.
8
4
Value-Based Pricing in Europe
An Opportunity for International price
Discrimination?
Michael Drummond
Centre for Health Economics,
University of York
Outline of Presentation
•
•
•
•
•
Background to value-based pricing in Europe
Proposals
p
for VBP in Germany
y and the United Kingdom
g
Challenges in VBP
Opportunities for international price discrimination
Conclusions
5
Some Background
• International reference pricing is still prevalent in Europe, particularly
in the Mediterranean region
• Over the past 10-15 years, a growing number of countries have used
economic evaluation in their pricing and reimbursement decisions
• There is also a growing tendency to negotiate prices based on the
estimate of the value-added by products
• In Germany and the UK, where previously free pricing was allowed,
‘value-based pricing’ schemes are being introduced
Value-Based Pricing Proposal (UK)
• Will apply to new branded medicines launched from January 1, 2014
• Recognition that new arrangements may be required for alreadyalready
existing medicines
• The negotiation would consider:
- the ‘basic’ cost-per QALY threshold
- the burden of illness and unmet need that the medicine focuses on
- the extent of therapeutic innovation
- the wider societal benefits (eg impact on carers)
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Value-Based Pricing Proposal (UK)
• A full assessment of these factors will be used to determine the VPB
• If the company’s
p y p
price is higher
g
than the VBP,, it would be asked to
lower its price, or provide extra justification
• ‘If the company were not prepared to do either of these, it would be
the company’s responsibility to explain to the public why it was not
prepared to offer that drug at an appropriate price’
AMNOG Reform in Germany
• Value dossiers required for all new drugs, with the exception of
orphans
• Benefit
B
fit assessmentt att th
the titime off market
k t access by
b IQWiG
• Consideration of incremental clinical benefit, relative to an adequate
comparator (on a scale 1-5)
• 12 month freedom of pricing whilst the value-based price is
negotiated
• If a VBP is not agreed, the option exists for IQWiG to conduct a full
economic evaluation
7
© Prof. Dr. J.-M. Graf
von der Schulenburg
Folie 15
Challenges in Value-Based Pricing
Defining the dimensions of ‘value’
- health gain only?
- other considerations?
Determining the local decision rule
- explicit cost per QALY threshold?
- general rating impacting on price?
Dealing with multiple indications
- price/volume agreements?
- weighted price?
Determining the level of transparency
- publication of assessments?
- publication of negotiated prices?
8
Opportunites for International Price Discrimination
• Individual jurisdictions would negotiate prices based on their own
assessments of value
• Assessments of value will depend on:
– local attitudes towards health and healthcare
– existing service configuration
– wealth of the country (ie GDP per capita)
• Negotiated VBPs could remain confidential, limiting the opportunities
for international reference pricing
Conclusions
• Value-based pricing is not without its challenges
• In p
principle,
p , it is a superior
p
approach
pp
to international reference
pricing
• The critical issue (for international price discrimination) is whether
negotiated prices can remain confidential or not
• A loss in transparency could be justified if this led to increased
access to pharmaceuticals in middle and low income countries
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Mendel Grobler
MBA
Director, Patient Access
Pfizer, Australia
Proprietary and Confidential. Do not distribute.
Price
discrimination:
i di
i i
i
Reconciling payer and supplier
needs
Mendel Grobler
19
Australia
10
Overview
The issues
Formal price discrimination:
GDP as an exchange rate
• How much of GDP? One size or all?
•
Supply side effects
g
g the debate
progressing
Summation and p
Issues that need to be addressed
Affordability
 Value of life
Whi h nation(s)
ti ( ) set(s)
t( ) th
h
k
 Which
the b
benchmark
 Precision and validity of QALY
 Dynamic versus static efficiency

GDP as the ‘exchange rate’ between
countries
 The
much
buy??
Th standard
t d d good:
d how
h
h life
lif tto b
 Controlled versus market dynamics
 Supply side impact

11
GDP as the exchange rate
Level of development and health needs
•
Less developed: generally different spectrum of health need
e g sanitation,
sanitation infection,
infection injury,
injury etc
e.g.
•
•
Patents usually expired for the most needed or urgent
medicines: more health can be bought for less
•
•
•
No need to provide universal access to specialised treatment
until that level of development reached e.g. targeted biologics
for rare diseases
p
g
g HIV ( hence AAI))
Exception
urgent
need e.g.
The general conclusion, “spend to size”: spend is relative
and linear e.g. (k x GDP) per unit of health
Caveat: assumes relative health needs match relative GDP
GDP plus?
Level of health and development needs
•
•
•
•
Poor health is a brake on economic development
•
i
bilit tto b
i ll active
ti
compromises
ability
be economically
•
consumes family or society resources
•
Bigger impact in less developed nations (health wealth cycle)
Health and health spend can be a factor in multinational
competitiveness
The general conclusion, spend relatively more i.e. higher
multiplier of GDP per unit of health e
e.g.
g (k x GDP) + (catch
up factor) if you are a less developed nation
Caveat: spending on something else could have a bigger
return e.g. roads, electricity.
12
How much health?
Top down approach: what multiple of GDP to use?
•
Concept of using GDP as basis for relative affordability has
appeal i.e.
i e pay within means
appeal,
•
But if (k x GDP), what is the right ‘k’
•
Broad guidance available, but national sovereignty is important
•
•
‘k’ could be determined nation by nation based on development
needs
Critical pre-condition (the consequences are lasting):
•
that the correct multiple is chosen (1x
(1x, 2x 3x GDP) and delivers the
strategy
•
Must address development need - not purchasing power
•
lower investment = slower development
How much health to buy
Bottom up: maximise welfare
1.
2.
3.
4.
Determine how much health is needed in a year i.e.
how many QALYs must be bought
Allocate a budget and set the cut off price per QALY
or set a desired QALY and then find the budget
Reconcile allocative and technical efficiency.
Alternatively scour the literature for the right QALY
cut-off
13
How much health to buy
Bottom up: maximise welfare
1.
2.
3.
4.
Determine how much health is needed in a year i.e.
how many QALYs must be bought
Allocate a budget and set the cut off price per QALY
or set a desired QALY and then find the budget
Reconcile allocative and technical efficiency.
Alternatively scour the literature for the right QALY
cut-off
•
Much opinion
opinion, many methods
methods, many answers
----→ Top down...
How does the system respond?
Supply side effects....
14
Suppliers: flow on consequences
Investment decisions in a therapeutic area
generally influenced by unmet clinical need,
i other
h d
l
expertise,
developments,
etc
• Investment decisions in a therapeutic area are
subject to commercial rules
•
• E.g.
CAPM i.e. investing capital must generate equal
or greater return than alternatives
• Therefore
price
Th f
i is
i a kkey variable
i bl iinfluencing
fl
i where
h
to invest
• QALY threshold sets the price
Medical innovation over time
Economic growth
arises from use of
new goods and
services
→ Basic research builds a
g
foundation of knowledge
→ From this, potential
treatments are developed
→ Experience with new
treatments informs next
stage of basic research
→Process is a path to
progress
→Cost is correlated
Drug
Development
Drug
Development
Clinical
Experience
Basic
research
Clinical
Experience
Basic
research
15
Markets, prices and innovation
Supply and demand curves
Price
• Perfect markets balance
supply and demand and set
th ideal
id l price
i ((efficient
ffi i t
the
price).
• Perfect markets, through
reacting to change, price
innovation
• Imperfect markets invite
government intervention
• An HTA market is a market
– but the demand curve
that informs price is
replaced
Equilibrium price
Supply
Demand
Quantity
Markets, prices and innovation
• The supply
pp y curve still
exists
• The QALY thresholds
chosen determine the
price
• Setting the price at a
point has a consequence
on supply including R&D
investment and future
supply
Price
Supply and demand curves
Supply
Quantity
16
R&D investment: key challenges now
Diminishing returns in major therapeutic areas
•
Incremental efficacy gains getting smaller in some
areas
• Top
of curve in some, gap in science in others (see below)
More targeted complex molecules
• Treat
a smaller fraction of the population
development costs and increased cost of manufacture
• Same
Global shift to centralised technology assessment
and cost reduction
•
•
HTA markets interconnected
One country’s actions can affect an industry over time
In summary and what next?
General principle of GDP as a guide is logical
But setting fixed rules may be
counterproductive
• Sovereignty still rules
• Supply side issues becoming a shared
responsibility
•
• Cross-border
spillover
• Trade issues may arise over time
• E.g.
Between countries that host clusters of suppliers in a
technology and others
• Solvable
with care e.g. international treaty
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QUESTION TIME
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