Expert insight:

How pharma can provide more ‘value’ to payers and patients

By Gary Johnson, expert-trainer of the 2-day course Value Pricing for Market Access - The Fundamentals.

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What is value?

In order to decide how to provide more value to payers (and patients), we have to think about what value is. The famous investor, Warren Buffett, puts it like this: “Price is what you pay. Value is what you get.”
So, what do payers and patients want to get from a pharmaceutical? Broadly, there is only one thing they want: effectiveness (health improvement). Everything else a pharmaceutical delivers (side-effects, inconvenience of dosing etc.) is not wanted and is called the drug’s “burden”. A pharmaceutical provides value by increasing effectiveness and/or decreasing burden (relative to the current standard of care).

Can we measure value?

We can measure the net increase in value by measuring all the changes in effectiveness and burden using a single measure. This measure is called “utility”. Market researchers and health economists both have ways of measuring utility – although they are not both using the same type of utility.

Market researchers measure utility using a tool called conjoint analysis. It can be very useful in assessing how much, if any, increased value a pharmaceutical delivers (and hence what price can be charged). Payers are cautiously accepting that conjoint studies with patients can identify outcome measures that are relevant to patients, so-called patient-relevant outcome measures (PROMs).

Health economists measure utility using a variety of instruments (the most famous is the “EQ-5D”). They then collapse changes in quality of life (measured by utility) and quantity of life (measured in years) into a single measure called the quality adjusted life-year (QALY). The QALY can measure improvements in health for any pharmaceutical and we can therefore compare the value delivered by, say, a new asthma drug with the value from, say, a new cancer drug.

Are our measures of value stable or do circumstances affect payers?

In theory, all QALYs are created equal and payers should be prepared to pay the same amount for a QALY irrespective of how it is delivered. As a result, some payers set thresholds (limits) to how much they will pay for a QALY. In the UK, for example, NICE (the National Institute for health and Care Excellence, the UKs cost watchdog) says it will generally pay £20-30k per QALY.

However: “In theory, theory and practice are the same. In practice they are different.” Payers are not, in practice, prepared to pay the same for any QALY – this is true of even payers who say they use health economics as their primary price setting tool. Payers will pay much more for some QALYs than others. Two examples: payers value a QALY more highly (and, hence, will pay more for it) when it is delivered by a drug that targets a small pool of patients. This is why orphan drugs are often so expensive. Payers will also pay more for drugs that treat younger patients. We can understand and quantify how the value of a QALY to payers varies according to circumstances (like patient numbers and patient age, just mentioned) by analyzing a large number of past payer decisions.

Is it easy to prove value to payers?

Of course, value is associated with an assumed level of clinical benefit. That benefit has to be proven to payers before they will accord value to a product. Payers can be very sophisticated  - particularly the “apex” payers that control pricing or reimbursement at a national level in advanced countries. These payers conduct detailed health technology assessment (HTA) before taking decisions on pricing, reimbursement and market access.  Pharmaceuticals often stumble at this stage because their evidence package is not tight enough. Typical failings include: Dosing in trials for a new product or the comparator that are in line with their labels; a failure to extrapolate credibly from the trial setting into the real-world setting; and a failure to measure outcomes that translate into value for payers.

This is a very brief taste of some of the issues impacting value to payers and patients covered at C.E.L.forpharma’s 2-day Value Pricing for Market Access – The Fundamentals course . Gary’s course is a must-attend for any executive concerned about providing more value to payers and patients. You will learn the following:

  • How do we define value in the context of providing more value to payers and patients?
  • How does conjoint analysis work, a tool market researchers use to measure how much increased value a pharmaceutical delivers (and hence what price can be charged)?
  • How does health economics work and how is it used to set prices?
  • How can past payer behavior be analyzed, using econometrics, to predict how payers values will shift according to circumstances?
  • A helicopter view of the main types of pricing and reimbursement systems in the advanced countries and the main traps when trying to prove value to payers there.


Last update: August 2017

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