Implementation of Value-based Pricing for Medicines

Abstract

Value-based pricing (VBP) is well established in markets for common goods and services, but wide consensus on VBP for pharmaceuticals is lacking. In principle, VBP implies that prices are mainly driven by a drug's value (value for money) and that the impact on budget (sustainability) is a second-order driver of price regulation. Although the literature provides descriptive analyses on regulations governing medicine price negotiation, there are few insights on whether and how price negotiation regulations have been implemented. The goal of this article was to cover this information gap for 5 European countries and the United States. VBP has been applied according to two models: (1) direct models in which cost-effectiveness is a driver; and (2) indirect, multi-attribute models characterized by greater discretion on the integration between the different value domains and the evaluation of consistency between costs and value. In these models, cost-effectiveness is not a driver. In addition, it is hard to evaluate within these models the actual implementation of VBP. Identifying whether and how VBP is applied requires a clear predefined link between added value and the premium price, as well as transparency in the way added value is converted into a premium price. In general, for these countries, it remains difficult to determine whether pricing is mostly driven by value (value-for-money) or impact on budget (sustainability). In instances in which thresholds on the incremental cost-effectiveness ratio are used, it becomes easier to understand whether VBP has been implemented. If VBP relies on a multi-criteria approach, greater transparency on which criteria have been used to assess a new drug and how they have been converted into a reasonable price may help in understanding whether a value-based approach has been used.