affording the future? - ucl · 2018-11-06 · • nations like france, germany and the us spend...

Affording the Future?The role of cost effectiveness thresholds in determining NHS patient access to high quality care in the post-Brexit era

Summary• Worldwide, life expectancy at birth has increased by 30 years in the last 100 years.Newmedicines and

vaccines, combinedwith other health care advances, have accounted for approaching half this progress.Continuingadvances in thepreventionandtreatmentofcancersandtheneurologicalandmusculoskeletaldiseases(aswellasincontrollingcontinuinginfectiousthreats)couldensurethatvirtuallyeveryonewillinthesecondhalfthiscenturybeabletoliveingoodhealthintotheir80s,baringrelativelyrareexceptions.Butthereareconcernsabouttheaffordabilityofnewtreatments,andwhetherornotsocietieswillchoosetofundtheresearchneededtodevelopthemoraffordthecostsoftheiruniversalsupply.

• In cost effectivenessanalysis (CEA) cost effectiveness thresholdscandefine themaximumpayable for anadditionalQualityAdjustedLifeYear(QALY).RecentevidenceindicatesthatNICEnormallyregards‘newQALY’costs (also referred to as Incremental Cost Effectiveness Ratio or ICER values) of up to £30-£40,000 asprovidingsufficient ‘value formoney’ forNHSpatientuse.This thresholdcanvarybutabove it treatmentsare not usually recommended. For comparison, nursing home care for people livingwith a limited qualityof lifeoftencostsover£50,000ayear,whileBritishpublic‘willingnesstopay’basedestimates indicateanincrementalQALYvalueofaround£60,000.

• CalculatingQALYvalues isbynomeansanexactscience,andthere isnoagreedwayofcalculatingcosteffectivenessthresholds.NICEhasaHighlySpecialisedTechnologies(HST)programmethatdoesnotdependon‘costperQALY’estimates.Thelogicofthispartlyrelatestothefactthatwhilethecostsofdeveloping‘ultra-orphan’treatmentscanbeclosetothoseforcommonlyusedproductsthevolumeofQALYsgeneratedwill,givenlimitedpatientnumbers,bemuchlower.ButtheHSTapproachhasbeenusedtoevaluateonlyafewveryrarelyusedtreatments.

• Theprinciple thatcosteffectiveness thresholdsshouldvaryaccording to thecontext inwhichnewQALYsarebeinggenerateddeserveswiderrecognition. It isnot inthepublic’s intereststoexpectthepricesofallinnovativetherapiestofallwithin‘onesizefitsall’parameters.Rigidapproachesdeprivepeopleoftreatmentsthatareinbudgetaryimpacttermsaffordable,especiallywhentotalpharmaceuticaloutlayscanbelimitedbyothermeans.ThePharmaceuticalRegulationScheme(PPRS)capsthecostofallmedicinessuppliedtotheNHSunderitsterms.

• Theuseof narrowlydefinedmeasuresof value combinedwith relatively lowcost effectiveness thresholdscanconflictwiththeNHS’dutytoprovidegoodcareforeveryone.Itsometimesleadstopeoplefeelingthattheyhavetobegfortreatmentsthattheirdoctorsbelievecouldbenefitthem.Well-structuredpoliciescouldandshouldavoidsuchservice failings,not leastbecauseonce thecostsofdevelopingand licensingnewtreatmentshavebeenincurredthemacro-economicsavingsderivedfromnotsupplyingthemtoNHSpatientscanbemuchsmallerthanisoftenassumed.Internationalexperienceindicatesthatamorehumanesystemwouldbeaffordable.

• TheproportionofNHSresourcesspentonpharmaceuticalshasbeenaround10percent forapproaching50years.Theeconomicsofareas likeanti-cancer treatmentsupplyarecomplicatedby the fact thatsuchmedicinesarenormallyfirstusedalonetotreatlatestagedisease.Yettheiroptimum‘costperQALY’valueislikelytostemfromusingthemwithotherdrugsinearlierstagetherapy.Thiscanbewhynovelmedicinesaredismissedas‘merely adding weeks to the end of life’.Researchbasedcompaniesneedtogenerateincomerelativelysooninthelifecyclesofinnovativeproducts,whileintellectualpropertyrightsstillapply.Yetoftentheirproducts’fullvalueonlybecomesapparentaftertheybecomelowcostgenericproducts.Thistensionoftenunderliespricingconcerns.

• SomeresearchershavearguedthattheincrementalcosteffectivenessthresholdemployedbyNICEshouldbecuttobelow£15,000perQALY.Othersrejectsuchrecommendationsasbeingbasedoninadequatedata,

Embargo – Not for publication before 00.01 hours Wednesday 16 November 2016.

2 Affordingthefuture?

poorlyinterpreted.Evenifwerethecasethat‘newQALYs’onaveragecosttheNHS£15,000,itwouldbeinthepublicinteresttoallocateaboveaveragelevelsofinvestmenttotechnologiesthatcanleadontofurtherchangesinproductivity,andwhenminoritygroupswouldbeharmedbyverylow‘marginalQALY’costceilings.

• Thetechniquesusedtomeasurequalityof lifeandvaluehealthoutcomesaresubjecttomanylimitations.In somecircumstances they riskdiscounting the livesofpeople livingwithmental orphysicaldisabilities.Thereisalsoadangerofsystematicallyexaggeratingtheopportunitycostsofusingproductslikeinnovativemedicinesandvaccines.Unlikelabourintensiveservices,pharmaceuticalproductstypicallydropinpriceaftertheintellectualpropertyrightsawardedtoincentivisefurtherR&Dspendingexpire.CEAsfactorin‘lifecycle’relatedsavings.

• TheNHSwasestablished toprovideequitableandappropriatecare for everyone, rather than toprovidean especially low cost health service. If policymakers are unduly influencedby recommendationsbasedonnarrowvaluemeasures likeQALYscoupledwith lowcosteffectiveness thresholds theywillunderminecommunitywellbeing.Widerdimensionsofvalue,includinggivinghopetopeoplelivingwithconditionsthatarepresently incurableand the long termsocio-economicand industrialbenefits that lifesciences relatedresearchandproductusegenerates,shouldbetakenintoaccount.

• NationslikeFrance,GermanyandtheUSspend1.5-2percentoftheirGDPsonpharmaceuticals.TheBritishfigureisabout1percent.TheUKspends10-20percentlessofitsnationalincomeonhealthandsocialcarethanFrance,Germany,SwedenandTheNetherlands.AmericaspendstwiceasmuchofitsGDPonhealthcarethantheUK.

• ReducingthecosteffectivenessthresholdsusedbyNICEtolessthanhalftheircurrentvaluewouldputUKpatientaccesstoinnovativetreatmentsfurtherbehindthatenjoyedbysimilarlyaffluentpopulationselsewhereinWesternEuropeandNorthAmerica.Drivingdownhealthandsocialcarespendingtolevelsbelowthoseseeninothercomparablywealthynationswithoutchecksontheimproperuseof‘singlepurchaser’marketpowerscoulddamageBritishresearchandindustrialinvestmentinthepost-Brexitenvironment.

• Thereisno‘scientific’wayofsettingcosteffectivenessthresholds.ThereasonwhytheWHOrecommendsthatQALY-likeDisability Adjusted Life Years (DALYs) should be valued at three times per capitaGDP asopposed to theone-to-one ratiopresently usedbyNICEmay relate to the fact that theWHOacts as ahealthimprovementadvocateratherthanarationingagency.EconomistswhoadvocateverylowNHScosteffectivenessthresholdsriskperpetuatingunder-investmentdamagingthewidereconomy.Suchdeficitsmaybedifficulttoproveuntilaftersubstantiveharmhasbeencaused.

• Withitsrelativelystrongresearchbase,Britainstandstolosefromdrivingdownthepricespaidforinnovativemedicinesandvaccinesintheaffluentworld.Butdefendingthevalueofresearchbasedproductsrequiresmeeting the needs of people in poorer communities. Policymakers should support low cost access toessentialmedicines in suchsettings,withoutunethically seeking tocut theprices for innovativeproductspaidby theNHS inorder toavoidmakingproportionatecontributions toglobalpharmaceutical research,developmentandsupplycosts.

Recommendations

• EnglandandtheotherUKnationsshouldseektoachieveflexibleandhumaneapproachestovaluingandsupplyinginnovativetreatmentswhichpromoteequityandfosterhighlevelsofpublicandpatientconfidencewithout generating unaffordable costs. National and international examples of good practice, includingrecognisedstrengthsof thePPRSandtheachievementsofcountries likeFranceandSweden,shouldbebuiltoninordertocombinegreaterfreedomfor‘casebycase’decisionmakingonthecosteffectivenessof medicines offered for NHS use while assuring overall health care system affordability. Pharmaceuticalassessmentmethodsshouldthemselvesbeascosteffectiveaspossible.

• FuturepoliciesoughttoenableseriouslyillNHSpatientstohavetimelyandassuredaccesstotreatmentssuchasanti-cancerandrarediseasemedicines inwaysconsistentwithtaxpayers’ interests in thequalityand affordability of health care and ongoing industrial investment in R&D and manufacturing. The UK’spharmaceutical sector record has to date been strong. It could become stronger through linking greatersensitivitytohealthserviceuserandwidercommunityneedswithmoreemphasisonconstructivepartnershipworkingbetweenpublicandprivatesectororganisations.

• Economistsmakesimplifiedmodelsoftheworldinordertoaidthepursuitofgreaterwellbeing.Rationallyused,measuressuchasQALYsandICERssupporttheidentificationofefficientandeffectivechoices.Butifhealtheconomists,orothersusingtheirfindingsinareaslikethevalueofreducingpainorextendinglife,cometodogmaticallybelievethattheirworkprovidesanabsoluteguidetoachievingoptimalpatternsofhealthcarefundingandactivitytheymayendangerthehealth,wealthandwellbeingofpeopleinthecommunitiestheyseektoserve.Politicians,healthprofessionalsandotherstakeholdersshouldactivelyavoidsuchrisks.

Affordingthefuture? 3

IntroductionNICE was first formed as the National Institute ofClinicalExcellencea littleoverseventeenyearsago, inApril1999.Somesourcessuggestthatitwasoriginallydestined to be called the National Institute of CostEffectiveness but claim that title was rejected by theNewLabourpoliticiansof thedaybecause itsoundedmoney oriented, as opposed to care focused. Othersdenythatanysuchattemptsweremadeto ‘sugar thepill’ofNICE’sestablishment.

Thetruthorotherwiseofthisdebateisuncertain.However,beneath the surface of these conflicting assertions it isundeniablethatthelanguageofhealtheconomicshassincethestartofthe2000sbecomecommonlyusedthroughoutthe NHS. In large part because of NICE’s internationalreach, it is also being increasingly heard in health caresettingselsewhereinEuropeandtheworld.TermssuchasQALYs(QualityAdjustedLifeYears)andICERs(IncrementalCostEffectivenessRatios)havebecomeafamiliarpartofday-to-day discourse about what treatments should orshouldnotbeseenasofferingenoughvalueformoneytowarranthealthserviceusershavingaccesstothem.

Thisisinsomewaysadesirabledevelopment.Healthcareresourcesare–asinanyothersector–finite.Itisrationaltotrytousethemtooptimumeffect,eveniftheextenttowhichNICEandotherappraisalsascurrentlyundertakencan support the delivery of this goal is questionable.Critics of health economists believe that their work tooofteninvolvesthecreationofsimplifiedmodelsofcomplexproblems in order to permit the exclusion of uncertaintyandthegenerationofsolutionsthatcanbepresentedasbeing ‘scientific’ and hence unquestionable, but are inrealitydisputableandlackinginthedepthofunderstandingneededtoprovidereliableprescriptionsforthefuture.

There are also concerns about how well the costeffectiveness study based findings underpinningdecisions on access to NHS care are understood bystakeholderssuchasthepatientsandcliniciansat theheart of service delivery, or politicians making ‘higherlevel’choicesonbehalfoftheircommunities.Thequalityofmost ifnotallNICE’s1work iswidelyseenasgood.Yetthereisarguablyaneedforgreaterpublicinsightintotheprinciplesandmethodsonwhichcosteffectivenessstudiesarebasedandviawhichtheirfindingsapplied.Otherwiseadangerexiststhatproposalswhichmightbequestionablefromaninformedpublicintereststandpointwill be accepted without critical consideration, whilepotentiallymorebeneficialopportunitiesareneglected.

1 TheorganisationisnowcalledtheNationalInstituteforHealthandCareExcellence.Thetermscosteffectivenessandaffordabilityaresometimesusedinterchangeably.However,atreatmentjudgedcosteffectiveonanindividualcarefocused‘costperQALYyielded’basismaybeseenasunaffordableattheoverallhealthsystemlevelandvicaversa,inpartdependingonthetotalnumberofpotentialbeneficiariesinvolved.

Againstthisbackgroundthisreportisprimarilyconcernedwith the setting and impacts of cost effectivenessthresholds as used by HTA (Health TechnologyAssessment)bodies.Thesecanbesaidtodefine‘costper QALY generated’ ceilings. Put simply, treatmentswhich create new units of health gain for amounts ofmoneybelowthemaximumlevelsetarerecommendedascosteffectivebyagencieslikeNICE.Thosewithcostsexceedingthechosenthresholdarejudgedunaffordable.

The first sections below briefly explore the nature ofpharmaceuticalproductsaseconomicgoodsandofferan outline of the development of health economicsand cost effectiveness analysis to date, along with adescriptionofhowmeasureslikeQALYsandICERsarederived.Theyalsoprovideobservationsrelatingtohowandwhythemethodsusedfordeterminingthevalueofmedical innovationsandsettingaffordability thresholdsincountriessuchastheUS,FranceandGermanydifferfromtheapproachpresentlyadoptedinBritain.

Oneofthepracticalchallengesfacingthoseseekingtoensurethattheuseofhealtheconomicsbasedtechniquesgeneratesoptimal‘valueformoney’andavoidscausingneedless harm is that there is no theoretically based,orevengenerallyagreed,wayofworkingouthowcosteffectivenessthresholdsshouldbecalculated.Thefactthat,ashasbeenclaimedinrelationtoNICE’swork(seeTimminsetal,2016),theymay‘just emerge’shouldbeacauseforcaution,ifnotadegreeofalarm.ItmeansthatinsomeinstancesNHSpatientscouldbebeingdeniedaccess to life enhancing and/or extending therapiesfor essentially arbitrary reasons. In others there is apossibilityofpaying‘toomuch’fortreatmentsthatmightbeobtainedforless.

Questionsrelatingtofurtherprotectingpublicinterestsininvestinginresearchanddevelopmentandmaintaininga healthy pharmaceutical sector while keeping totalcostsdowntolevelswhichallowoptimalpublicaccesstoexistinghealth technologiesareconsideredtowardstheendofthisreport.Beforethis,however,thereareanumberofintroductorypointstobenoted.Thefirstlinkto the fact that this analysis is not intended toadd tothealreadyextensivetechnicalliteraturerelatingtocosteffectivenessanalysisinthehealthsphere.

The latter isonly fullyaccessible toasmalland insomerespectsisolatedbodyofspecialists.Individualsinterviewedduringthepreparationofthisdocument2saidthatcriticaldiscussionofthethinkingandassumptionsunderpinninghealth economics is largely confined to those whosecareersdependonpracticing it. It isapparent thatmanypeopleresponsibleforkeydecisionsinthehealthservicehavelittleunderstandingofhowcosteffectivenessbased

2 Intotal20semi-structuredinterviewswereundertakenintheperiodbetweenFebruaryandSeptember2016.Mostoftherespondentsinvolvedwerehealtheconomistsorindividualswithrelatedhealthsectorexpertise.


recommendationsaremade.Insomeinstancesconfusionsasbasicasmistakinghigh ICERvalues for theamountsactuallypaidforproductssuchasmedicinesoccur3.Hencethiscontributionseekstoprovideanoverviewofhowthecurrentsituationhasevolved,andtheimportanceofissueslikethesettingofcosteffectivenessthresholdsfornotonlyindividuals like Ministers but also to members of healthprofessions and the wider public interested in achievingbetterhealthandhealthcare.

Investing for the future via current care provision

Other introductoryconsiderationsrangefromthescaleof the future health gains that bio-pharmaceuticalsciencebasedadvancesinfieldssuchasgeneticsandepigenetics will eventually generate through to, in thepresentUKcontext,theimplicationsoftherecent‘Brexit’voteforhealthcareandtheoverallBritishsciencebase.If, as some fear, the consequences of leaving the EUwillinthemediumtolongtermleadtoreductionsinthecapacityofthiscountrytofundpublicenterprisestherewillfurtherdownwardpressuresoncostsofalltypes.Atworst,providersofhealthrelatedgoodsandservicesintheUKwill have to facecontinuing ‘austerity’coupledwithincreasedculturalisolation.Yetagainstthisrestoringthe performance of the economy is likely to demandincreasedpublicandprivateinvestmentinresearchanddevelopment in high technology areas, conducted inwaysthatallowgoodcommunicationandjointworkingwith‘cuttingedge’centresthroughoutEuropeandotherworldregions(FreemanandKwarteng,2013).

To put today’s challenges in the wider humandevelopmentcontext,inthecenturyorsobetweenthestart of the 1914-18 conflict and the present day theworld’spopulationrosefour-fold,fromaround1.7billionpeopletoover7billion.Againstthis5billionplusincrease,theUK’stotalpopulationexpandedby20million.Inthesameperiodlifeexpectancyatbirthhasbeenextendedbyapproaching30yearsinrichandpoorcountriesalike.Suchdramaticgainshaveledtopopulationageing,andtomajorchanges in thenatureof thedemands facinghealthcareprovidersliketheNHS.

Thisprogresshasbeenachieveddespitetragediesrangingfrom wars to the impact of tobacco smoking on worldhealth,andtheburdenofdeathanddisabilitycausedsince1980by theHIVpandemic.Even insub-SaharanAfrica,with its continuing burdens of highmaternal, infant andchildmortality,theaveragenew-borngirlorboycantodayexpecttoliveabout60years.Thisisadecadelongerthan

3 Itispossible,forexample,foramedicinetohaveanIncrementalCostEffectivenessRatio/ICERvalueof,say,£50,000perQALYbuthaveanactualsupplycostofunder£5,000percourseifthecomparatorinterventionusedisalowcostgenericproduct.Insuchcircumstances,criticsclaim,usefulandmodestlypricedinnovationscanbeexcludedfromuse,andwholeareasofresearchexposedtoaCEAstudyinduced‘blight’.

theaveragelifeexpectancyatbirthrecordedinEdwardianBritainattheheightofitsImperialpower.

Environmental and allied improvements, from betteraccess to clean water to enhanced food availability,have played a dominant role in driving demographicandepidemiologicalchange.However,bettermedicinesandvaccineshavealsobeen important.Togetherwithadvances in areas such as surgery, products rangingfrom antibiotic, antiviral and antihypertensive drugsthroughtopolioandotherformsof immunisationhaveprobably accounted for approaching 50 per cent oftheglobalhealthgainsseenoverthecourseofthelasthundredyears(Craigetal,2014).

Notwithstanding concerns about the extent to whichpoorer individuals and populations have sufficientopportunities to benefit from modern treatments, thisrepresentsa fundamentalcontribution to thewellbeingof humanity. The affordability of the ‘pharmaceuticalrevolution’ has in part been assured because wheninitially expensive new medicines and vaccines loseintellectual property protection and manufacturingtechnologies become more efficient their prices fallmarkedly.At thesametimeknowledgeabout thebestuseofpharmaceuticalproductsincreasesastheyreachmarketmaturity,notonlyamongsthealthprofessionalsbutalso–asandwhencounter-productivebarriers towiderpubliclearningcanbeovercome–amongsttheirend-pointconsumers.

Such factors help account for the relative stability ofNHSpharmaceuticalcostsascomparedtogrosshealthserviceoutlaysshowninFigure1.Ithasbeenpredictedthat during the current century nearly all prematuredeathsamongstchildrenandadultsinmiddleandearlylaterlifecould,baringeventssuchasaccidents,becomepreventable(Peto,2015).However,achievingthishistoricturningpointwill require not only the establishment ofadequately resourced universal health care systemsthroughout the world. It will also needmuch ongoingresearch and development investment in generatingbettertechnologiesforthepreventionandtreatmentofconditionssuchasvasculardiseasesandthecancers,togetherwithimprovedtherapiesfordisorderslike–forinstance–multiplesclerosisandAlzheimer’sDisease.

ComplexcommunitiessuchasmodernBritaininevitablyhavepotentiallyconflictinginterestsinspendingenoughon pharmaceuticals to drive desired levels of privateand linked public investment in high risk developmentprojectsand,againstthis,inkeepingdrugandvaccineprices and gross spending as affordable as possible.This tensionunderliesdebatesonhow ‘fair’ prices formedicinal and allied goods can best be determinedand explains why concerns relating to the setting ofcost effectiveness thresholds in HTA evaluations haveimportantimplicationsforeveryone.


Medicines in a Complex Policy EnvironmentTheavailableevidenceindicatesthatNICEhasinthelastfew years regarded £30-£40,000 as being the ceilingamountthattheNHSshouldpayforanincremental–asdistinctfromanaverage–QALY(Dakinetal,2015),albeitthecosteffectivenessthresholdsusedvarybyupto50percentbetweensettings.Forreasonsdiscussedbelowthereis,forexample,inmanycountriesawillingnesstopay more for each unit of utility/benefit generated bytreatments for rare conditions than there is forQALYsderived fromother therapies.NICEhasalsoappliedahigheraffordabilitythresholdinthecontextofendoflifecare.

However, recent MRC supported investigations byUniversityofYorkandotheracademicshavearguedforalowerhealthsectorcosteffectivenessthreshold.Yorkbasedhealtheconomists,mostnotablythelateProfessorAlanWilliams,wereinthepastcentraltodevelopingthe‘costperQALY’basedapproach tocosteffectivenessanalysis and in lobbying for its use in the UK andelsewhere. Williams himself suggested a ceiling figureofaround£18,000per incrementalQALY inthe1990s(Williams,2005).ThesubsequentworkofProfessorKarlClaxtonandothersatonetimefavouredtheimpositionofacosteffectivenessthresholdof£13,0004,althoughafigureof£15,000hassincebeenmorewidelyquoted(Claxtonetal2015a,2015b,2016).TheseauthorssaythatlivesarebeinglostintheUKbecausemoneybeingspent on pharmaceuticals could bemore productivelyallocated.

The validity of such claims and the approach used tocalculate this loweredcosteffectiveness thresholdandtheconsequencesoffailingtoadoptithasbeendisputed

4 AtonestagethecalculationsundertakenbyClaxtonatalsuggestedanICERfiguresimilartothatofAlanWilliams‘cockshy’of£18,000,whichwastheUKpercapitaGDPintheearly1990s.

byothercommentators(Barnsleyatal,2013;KarlsbergSchafferetal,2014).Intheworld’sotherleadingindustrialnationsthereislittlelikelihoodofsuchrecommendationsgainingcredence.Butifitwereacceptedinthiscountryit would dramatically cut NHS willingness to pay formedicinesandothermedicaltechnologies,andputUKpharmaceuticalsectorpoliciesatanincreaseddistancefromthoseoftheUS,JapanandotherpartsofWesternEurope.

The UK vote to leave the European Union may, asalreadyindicated,leadtoafurtherincreasetheperceivedneed forcost reductions throughout thepublic sector.Recentactiontakeninrelationtoinstitutingcompetitivetendering forHepatitisC treatments (seeBox1)couldcome toexemplify the typeofcostsaving interventionthatwillbeincreasinglyemployedinthepharmaceuticalarena. Theymay risk undermining NICE decision andthe functioningof thePharmaceuticalPriceRegulationScheme5.However, theestablishmentandworkoftheAcceleratedAccessReview(AAR,2015)hasillustratedgovernmental level awareness of the importance ofthe life sciences to theUK’s economic future and thevalueofappropriateinvestmentinpharmaceuticalR&Dfundedviacompanyearnings,aswellasbydirectStatepayments.

This report does not attempt to speculate aboutthe possible impacts of the AAR, or on how theresponsibilities of, and interfaces between, NICE, thePPRS, NHS England and other agencies should infutureevolve.Butitisworthemphasisingthatinraisingquestions about the strengths and limitations of ‘costper incremental QALY’ basedmethods in determiningwhatmedicines or other innovative products theNHSshouldbepreparedtoafforditisnotintendedtosuggestherethatthereoughttobenolimitsontheamountsthatpubliclyfundedhealthcareproviderspayforsuchitems.

Whenevermonopsonist(single)orotherverylargehealthcarepurchasersaredealingwithprivatepharmaceuticalsuppliers who are – by virtue of patents and otherintellectual property rights granted to promote publicinterests in funding research and developing betterproducts– temporarymonopolists, therewill inevitablybe tensions and disputes. The occurrence of suchphenomena should not be taken as evidence of afailing system, or necessarily of fault on either side.But they underline the need for values, procedures,rules and regulations that help maintain a reasonablebalancebetweenincentivisinginnovationandpreventingexcessivespending.

5 ThePPRSisnegotiatedbetweentheDepartmentofHealth(actingonbehalfofalltheUKnations)andpharmaceuticalindustryrepresentatives.IthasduringthelasthalfcenturybeencentraltocontainingoverallpharmaceuticalspendinginBritain.Itisnormallyre-negotiatedeveryfiveyears,withtheAssociationoftheBritishPharmaceuticalIndustry(ABPI)representingtheinterestsofparticipantmembercompanies.

Figure 1. NHS Medicines Spending, 1970-2015

Sources:OHEandtheKingsFund


Box 1. Curing Hepatitis C

There is presently no vaccine for Hepatitis C, a viralinfection first identified at the end of the 1980s. Itpresentlyaffectssome150millionpeopleworld-wide,oroneineveryfiftymembersoftheglobalpopulation.It ismostcommon inEgypt,wherepastattempts tocontrol schistosomiasis (a parasitic condition whichcan sometimes leadon tobladder cancer) caused ittobespreadviathere-useofcontaminatedneedles.ButitisalsofoundinaffluentsettingssuchastheUS.AboutthreemillionAmericansarelivingwithachronicHepatitisCinfection.

The virus is mainly spread through blood to bloodcontact.ThismeansthatincountriesliketheUKratesarehighestingroupssuchintravenousdrugusersandpeoplewhohavereceivedconcentratedbloodFactorproductsderivedfromdonors’contributions.However,other routes, includingmother to baby transmission,also exist. About three quarters of those infecteddevelop a chronic liver infection. In this group 5-10percentofthosewhoareuntreatedwillultimatelylosetheirlivesasaresultofcirrhosisorlivercancer.Hencetherecentmarketingofmedicinessuchassofisbuvar(Solvadi), dasabuvir (Exviera) and ombitasvir andgrazoprevir (Zepatier) is of considerablepublic healthsignificance.

DependingontheHepatitisCgenotype involvedandthe availability of diagnostic resources and additionaltreatments, these new therapies (Solvadi becameavailableduring2014)cancurewellinexcessof90percentofcases.Before2014,medicinescostingabout$50,000intheUScouldsuccessfullytreatonlyabout35 per cent of those chronically infected HepatitisC patients offered them. This resulted in a ‘cost percure’ofapproaching$140,000 (Scannell,2015).TheavailabilityofSolvadicutthisfigurecloserto$90,000.

Even so, it was widely alleged that the cost ofnew Hepatitis treatments would make health careunaffordableinAmericaandelsewhere.Solvadi’squotedlaunchprice(notincludingdiscounts)was$85,000per12 week course. Although the cost per incrementalQALYgeneratedby using sofisbuvarwas even at itsfull listprice inavarietyofclinical instances relativelylow, many commentators feared it was excessivelyexpensive. Aminority of campaigners claimed (citingearlier problems encountered in the HIV pandemiccontext)thatitshowedthatgrantingintellectualpropertyrightsforinnovativepharmaceuticalsisunsustainable.

However, without provisions such as patents it isdoubtfulastowhetherornottoday’srangeofantiviralmedicines would exist. It should be also noted that

in countries such as Egypt Solvadi is available (on aRamseypricingbasis–seemaintext)atabout$300per course. Because later stage chronic infectiontreatment ismore or less as effective as early stagetherapy it is in addition worth recording that theentire cohortofpeoplewith livingwithHepatitisC ineconomicallyadvancednationsneednotbetreatedinanyonedecade,letaloneanyoneyear.

In fact, competition between alternative innovativemedicineswithboththesameanddifferingmodesofactionhas,incombinationwithprofessionalapproachesto medicines purchasing, already acted to rapidlyreduce costs.NHSEngland has recently announceda programme designed to treat 10,000 individuals ayear at a total cost of £190million, implying ‘a costperHepatitisCcure’ofabout£20,000(wellunder$US30,000).

TheimpositionofacaponthenumberofNHSpatientsabletoaccessanyNICErecommendedtherapymaybe questioned. But from a wider perspective thisprogressillustrateshowinitial‘costanticipation’drivenreactions to the availability of new pharmaceuticaltreatments can be unduly negative. There needs tobemoreconstructivepreparation fornewtechnologyintroductions.Overtimethecostsofeffectiveanti-viralmedicineswillfallfurther.Usedappropriately,theywillgreatlyreducethefinancialandotherburdensimposedbyHepatitisCandcouldinsomesettingscomeclosetoeradicatingthedisease.

The Hepatitis C treatment issues described hereare unique. Yet similar lessons can be drawn frommany other areas. For example, NICE was in partcreated because of fears in the 1990s that thennew beta interferon based treatments for multiplesclerosiswouldproveexcessivelycostly.Evenwhen,after much potentially counter-productive publiccontroversy, a risk sharing/Patient Access Schemewas established in 2002, some critics arguedthat it represented an unduly costly and pointlessinvestment. But there is now evidence that suchtherapies are both affordable and cost effective(Palaceetal,2015;Torjesen,2015).

The opening of a market for disease modifyingMS therapies may also have been instrumental inencouraging the introduction of other more effectiveinterventions.Likewise,initialBritish‘healtheconomics/evidence based care’ linked opposition to supplyingHerceptin(trastuzumab)inthetreatmentofearlystagebreastcancerisanexampleofwhatmightinretrospectbe said tohavebeenan ill-judged response likely toharmpublicandpatientinterests.


Toavoidfinancialchaos,systemsliketheNHSandtheorganisations within it must keep their outlays withintheir allocated budgets. Given that pharmaceuticalsreportedlyaccount forup to13percentof totalNHScosts6thereisaneedforreliablepriceand/ortotalcostcontrols.Nevertheless, there isalsoastrongcommonsensecase forsaying thatassessing thevalueofbio-pharmaceutical and allied innovations should involveconsideringsocietalbenefitsthatgowellbeyondthoseimmediatelyenjoyedbyindividualsreceivinghealthcare,orjustthosestemmingfromtheirpersonalcontributionstotheirfamilies’prosperityandthewidereconomy.

To the extent that NICE’s cost effectiveness basedjudgements, alongside the approach adopted in thePPRS,currentlyrepresenttheclosestthingBritainhastoastrategyfordrivingthedevelopmentofitsbiosciencebased industries it is important to ensure that themethodsusedforassessingvalueareaswell-basedaspossible.The future isnot,ofcourse,predictable,andnosortofdatamanipulationcanevergenerateabsoluteanswerstoquestionslike‘how much ought to be spent on bio-pharmaceutical research via government grants and spending on today’s pharmaceutical products in order to meet future patient and NHS care provider needs?’ Even so, it is from a logical standpoint truethat the long term gains from investments in the lifesciences(includingspendinginareaslike,forinstance,cancertherapeutics)maywellencompassfundamentalcontributions to fields ranging fromsustainableenergygeneration to food production, over and above thosedirectlyrelevanttoimprovingpatients’health.

The fact that pharmaceutical and allied R&D is abridgehead to the future deserves recognition injudgements relating to what spending on innovativepharmaceuticalproductsisultimately‘worth’.Awarenessof the importance of this conclusion should not beswamped by the findings of narrowly based technicalstudiesthatatbestonlypartiallyreflectreality.

Social dimensions of value

The professions traditionally concernedwith supplyingandusingmedicines,vaccinesandotherpharmaceuticalgoods have, rightly, primarily been interested in theirphysical and clinical properties. Examples of theseincludestoragecharacteristicsandthepharmacologicalmechanisms that give rise to treatments’ abilities toprevent, ameliorate and cure illnesses. Yet since themiddleofthetwentiethcenturytherehasbeenagrowingawareness of the additional psychological, social andeconomicdimensionsofpharmaceuticalproducts.Forinstance, popular films and books likeThe Third ManandThe Constant Gardnerhavehighlightedthepotentialfordrugs–aspotentiallylife-savingbutalsohazardous

6 Fullaccountingfordiscountsandalliedfactorsreducesthisfiguretocloseto10percent.

itemsoftradethatcanbecostlybutarealsolightandeasytotransport–toonoccasionservenottorelievesufferingbutinsteadtofacilitateexploitation.

In a similarly sociological vein, vaccine ‘scares’ haveperiodicallytappedintodeeprootedhopesandfearsinwayswhichdistortbehavioursandunderminepersonalandcollectiveinterests.Therecent,sometimesmisleading,debatearoundstatinusehasparallelfeatures(Collinsetal,2016).Thereisnowabetterunderstandingthaneverbefore of the psychological determinants of medicinesuse,andhowthebalancebetweenanindividual’sbeliefsaboutthebenefitsoftakingmedicinesandherorhisfearsregardingproblems likesideeffects influencesmedicinetakingbehaviour (Horneetal,2013).Eventodaynotallhealth professionals fully appreciate the implications ofthefactthatthewaypeopleelecttousetreatmentsisafundamentaldeterminantoftheireffectiveness.

In the immediate economic context there are acrosssocialsettingsasdisparateasthoseoftheUSandtheUK also ambiguities relating to the costs ofmedicinaland related treatments as against perceptions of theirvalue. New pharmaceuticals are sometimes seen asunduly expensive. Yet at the same time people oftenattachahighprioritytobeingabletoaccessthem,evenwhenevidenceoftheirefficacyisrelativelyweak.

Concernsabout‘drug’pricesarelinkedtotheeconomicfact that pharmaceuticals are not like gold, which isof high value because of it is of inherent scarcity andbecauseithasaestheticaswellascommerciallyusefulphysicalproperties.Oncetheirhighcostsofdevelopment– including those of failed research projects – havebeenmet,pharmaceuticalscanusuallybemade inasmuchvolumeasisrequired.Onceadequateproductioncapacity has been established the marginal costs ofproducingpharmaceuticalproductsarenormallymuchlower than the average costs – it is in some respectscheaper to supply a lot than a little. This means thatthefinancialbarrierstotheiruniversalsupplyare inthemediumto long term likely tobemuch lesssignificantthatthoseassociatedwithproblemslikesettingupthelabourintensivediagnosticandcarefacilitiesneededtoensure that entire populations can access appropriatetherapies.

Inaddition,unlikehightechnologyproductssuchasjetenginesandcomputers,medicinesdonothavemultipleparts. They typically contain only a limited number ofpharmaceutical quality ingredients. Exceptions exist,butsuch factors typicallycombine tomake itpossiblefor competent organisations to copy pharmaceuticalproducts relatively cheaply, once the intellectualpropertyrights(IPRs)thatpermitinnovatorstofundnewresearchhaveexpired.Thismayproveincreasinglytruewithbiologicalmoleculeproducts, aswell as for smallchemicalmoleculebasedtreatments.


Theresultantdifferencesinthepricesof IPRprotectedpharmaceuticalsascomparedto‘truegenerics’soldatnear commodity cost can understandably drive fearsthat, despite their being heavily regulated, researchbasedpharmaceuticalcompanies’profitsareexcessive.Yet the available evidence from sources such as theEuropeanCommission(EU2012,2015)isthatoncethelevel of research investment risk is taken into accountthepharmaceuticalindustryisnomoreprofitablethanistobeexpectedonthebasisofdatafromotherindustrialsectors. Inaddition,thefactthatpharmaceuticalcostsfall as their IPRs expiremeans thatworries about therisingcostsofmedicinesasaproportionoftotalhealthcareoutlaysareoftenexaggerated.

TheNHS’recordisnotaloneinillustratingthislastpoint.Atthemacro-economic(largescale)levelpharmaceuticalspendingnow,onaverage,standsataround15percentof national health care costs, or approaching 1.5 percentofthetypicalOECDcountry’sGDP–seeFigure2.TheproportionofWorldGrossProduct(WGP)spentonbothhealthcareandonmedicinesandalliedproducts(the latter fractionnowstandsatanestimated1.3percent) has moved upwards in recent decades, mainlybecauseofgreateroutlaysinemergenteconomies.But

inBritain–wheretotalpharmaceuticalspendingisabout1percentofGDP–andotherWesternEuropeanandNorthAmericanStatesthebasicyear-on-yearpictureismorestablethanisoftenassumed.

Optimising affordable access

Similarcommentscanbemadeinrelationtoindividualtherapeutic areas, including cancer care. This last isat present amongst the fastest changing of all hightechnologyfields.IntheUKtherehasdespiteevidenceofthepositivesocialvalueofcancerresearchandanti-cancertreatmentuse(see,forinstance,Salas-VegaandMossialos,2016)beenconsiderablecontroversyaboutthecostandoverallaffordabilityofanticancermedicines,stimulatedinpartbyconcernsthatNHSpatientaccessto early diagnosis and new treatments is poor ascomparedtothatenjoyedelsewhereinWesternEuropeandNorthAmerica.

FearsaboutNHStreatmentqualitycanbeexaggerated.But it is true that theUK spends significantly lesspercapita on anticancer products than countries likeFrance,Germanyand theUS (Jonssonetal,2016). Itis also accurate to say that despite spending havingincreased inEnglandsince2010anticancermedicinesstillaccountforabout1percentofNHScostsand0.1percentofBritain’sGDP.Eveninthehighestspendingcountriessuchoutlaysaccountforlittlemorethan0.2-0.3percentofGDP.Suchsumsare largebutveryfarfromunaffordable.

Observationsliketheseraisequestionsabouthowmuchindividualdrugpricecontrolsarecausal indeterminingtotal pharmaceutical spending levels, as againstmoredifficult to identify cultural and economic forces. Forexample, on occasionsmeasures that drive down thepricesand/oruseofsomespecificproductscandriveup other costs. And even when item-by-item pricingapproachesarejudgedtohavemajoreffectsonthetotalamountofmoneyspentonpharmaceuticals,doubtsalsoexistastowhetherornotcosteffectivenessstudybasedinterventionsper searelikelytoreduceorincreasegrossspendinglevels.Associatedpointsinclude:

• effective medicines use often requires patient-interest focused professional guidance. Simplyenabling people to take pharmaceuticals freely,without due regard to diagnostic indications andindividual response variations, could obviouslyprove harmful. Professionals like pharmacistsmakeimportant inputs to enhancing health outcomesby curbing the inappropriate use of the medicinesand allied products at the centre of their expertise,as well as by positively promoting their beneficialconsumption. From an economic perspective suchfactors make health care provision and medicinessupplywithin itanunusual, ifnotuniquely ‘special’,

Figure 2. Pharmaceutical spending as a percentage of OECD nation GDPs

Source:OECD,2015.CalculatedonthesamebasisUKspendingisabout1percentofGDP,inpartbecauseofrelativelymodestcommunitypharmacycosts.

GreeceHungary

JapanSlovak Rep.

United StatesSloveniaCanada

ItalySpain

FranceGermanyBelgium

IrelandPortugalOECD29

PolandAustralia

Czech Rep.Korea

AustriaSwitzerland

FinlandEstonia

SwedenIsrael

IcelandNetherlands

NorwayLuxembourg

Denmark

2.82.2

2.12.0

1.91.71.7

1.61.61.6

1.51.41.41.41.41.4

1.31.31.3

1.21.21.2

1.11.01.0

0.90.9

0.60.6

0.5

0 1 2 3% GDP

Public Private


market.Fromanoverallcosteffectivenessstandpointsystemscharacterisedbyrelativelyhighunitpricesforinnovativemedicinesbalancedbylowerthanaverageusage levels sometimes perform better than lowprice,highervolume,models;

• providing good health care for populations often requires resource transfers between more and less advantaged groups. This too has importantimplications for medicines pricing and supply,nationally and internationally. In the latter context,forexample, ifprivately fundedpharmaceuticalR&Dis taken to be an essential complement to publiclyfinanced life sciences research, there is a strong‘Ramsey pricing’7 case in favour of the view thatthecosteffectiveness thresholdsused in relation tomedicines inbetter-offenvironmentsandpopulationgroups should be higher than those applied in lessprosperoussettings.Buteven in theEU therehavebeendifficultiesintranslatingsuchtheoreticalinsightsintoagreedmethodsofadjustingforGDPvariations.On the global stage there are challenges involvedin seeking to ensure that countries like the UK donotseekto ‘freeride’onthebackofnationswhichpermithigherpharmaceuticalexpendituresinordertoavoidcontributingfairlytotheworld-widebiomedicalresearcheffort;

• NICE has conducted important work, consistent with the spirit of the NHS as a pioneering tax funded universal health care system. But its approach to determining the cost effectiveness of innovative medicines is not beyond criticism. For example, NICE guidelines have helped todefine good quality care standards at the globalas well as the national level (Rawlins, 2016). Theorganisation’s recent work on topics like treatingpeople living with multiple diagnoses can also beseenasgroundbreaking.Itsmultipleandsingledrugcosteffectivenessassessments inadditionhavethepotentialtoprotectagainstthemisuseofmonopsonypurchasing powers, as well as ‘over-pricing’ risks.However, they lack public interest linked industrialpolicy dimensions and a fully satisfactory long termhealthimprovementperspective;and

7 FrankPlumptonRamsey,whosebrotherMichaelwaslongafterFrank’sprematuredeathtobecomeArchbishopofCanterbury,wasbornin1903anddiedofwhatwouldtodaybeatreatablekidneydisorderin1930.However,inhisshortlifehewasabletomakeanumberofimportantcontributionstomathematics,philosophyandeconomics.Ramseypricingtheoryshowsthatmonopolysuppliersofgoodslikemedicinescancontributemosttopublicwelfareandtheirownprofitsbysegmentingmarketsandcharginghigherpricestoaffluentconsumersandloweronesinpoorercommunities.Providedpricesinthelattermarketsdonotfallbelowmarginalsupplycostsproducersarenotsubsidisinglessadvantagedcommunitiesbyofferingproductsataffordableprices.However,toworkeffectivelyRamseypricingstrategiescandemandsecrecyand/orrestrictionsonthefreemovementofgoodsinordertomitigatepressuresforuniformlylowprices.

• the role of prices in markets for innovative products is very different from that of ‘market clearing’ in a commodity supply context. Valueasjudgedby‘costperincrementalQALYgenerated’estimates isnotnecessarily thebestdeterminantofwhatpricesshouldbeinthecaseoftreatmentsthatcanberegardedaslinkedstepstakenonacontinuingpathtowardsachievingthefinalendof100percenteffective prevention or cure rates. Amore dynamicapproachmight,forexample,involvepayingmoreperunitofutilitygainedinperiodswhereprogressisslowanddifficultascomparedwiththosewhenitiseasiertoachieverapidadvances,orincontextswherethetypeofsufferingyettobealleviatedisinherentlymoreseriousthanothers.Hencerelievingevenminorformsof arthritic pain in older men is important, but it ismaterially different from improving advanced breastcanceroutcomesinyoungerwomen.Itisdebateablewhether or not relieving any number of cases oflimitedpainshouldeverbeseenasmore importantthansavinglives.

Inmarketsforcommodities like,say,wheat,pricesare(subjectto interventionsintendedtoassurequalityandcontinuityofproduction)appropriatelysetbytheforcesof supply and demand. When there are shortages ofsuch items their prices rise and increased productionis encouraged.During gluts prices fall. Scarcity, alongwith consumers’ ability and willingness to pay, can insuch circumstances be said to dominate the conceptof ‘value’.Hencewater is typically cheapwhilegold–despitenotbeingvitalforlife–isexpensive.

But products like new medicines and vaccines arenot sold in ‘near perfect’ markets in which achievingthe greatest immediate good for the largest possiblenumberofindividualsisuniversallyacceptedasthemostimportantobjective.Withregardtoresearchactivity,forinstance, thepublic’s interestsmaybebest servedbyincentivisingbehavioursaimedatachievingsustainable,long-term goal oriented, progress in ‘serious’ diseasecontexts,ratherthanmoreimmediateformsofbenefit8.

Totranslatethisintomorepersonalterms,anindividuallivingwithacancermightbeasormoreconcernedwithpromotingtheongoingdevelopmentoftreatmentsthatwillinfutureprotectherorhischildrenorothersintheircommunitythanwithextendingtheirownsurvival.Thisdoesnotnecessarilymean tosay that theywouldnot

8 IntherunuptoNICE’sestablishmenttherewerefearsthatthethennewerectiledysfunctiontreatmentViagracouldimposeunacceptablecostsontheNHS,eventhoughincostperQALYtermsitofferedgoodvalueformoney.ThethenSecretaryofStateFrankDobsonimposedNHSsupplylimitsbeforeNICEwasformed.Thiscanbetakentoillustrateanunderlyingapproachatsomevariancewithpubliclystatedbeliefsintheappropriatenessof‘costperQALY’costeffectivenessthresholds.NICEsubsequentlyestablisheditsreputationbyearlyrulingsonthesupplyoftheanti-influenzamedicineRelenza,whichitjudgedtobenon-costeffectiveasatreatmentforNHSuseinnormalconditions.


want treatment. But their reasons for wanting it maybe very different from those implied by conventionaleconomic models, which see people as primarilymotivatedbyadesirefordirect(andlargelyimmediate)personalgains.

Advocates of the ‘York/NICE’ approach typicallybelievethat incentivisingresearch for the future isbestfacilitatedbyrewardingthemakersofrecentinnovationsthatgenerate ‘newQALYs’onapro ratabasis,withinrelatively rigidly defined cost effectiveness parameters(Claxton,2007).Suchastrategymaybeconsistentwithadesiretomaximisecrudelydefinedhealthcareefficiencyat any one point in time. But criticsmay claim that itis simplistic if not arrogant to suggest the productivityof major bio-pharmaceutical research investmentsis likely to be directly influenced by the way healtheconomistsevaluateproductsalreadyonthemarket.Ifthisinterpretationisacceptedthenthetimeandmoneypresently being put into conducting detailed ‘cost pernewQALY’studiesmightwellbebetterspentonotheractivitiesmoredirectlylinkedtowelfaregeneration.

The translation of research and development effortinto better health outcomes is an inherently uncertainprocess, regardlessofhow individualsandgroupsarefinancially motivated. It might therefore be concludedthatwithinthebroadenvelopeofresourcestakentobeavailable for rewarding private sector pharmaceuticalinnovation in the UK and more widely, more effortshouldbeappliedtounderstandingalternativewaysofsupportingproductiveinvestment.Forinstance,itmightbethatadifferentstrategyforjudgingwhichinnovationsare affordable could seek to ensure that, assumingintegrityofintent,earningsaremoreevenlyspreadthancurrentarrangementspermit.

A‘bigwinnerstakeall’approach,viawhichthosewhoby good fortune have developed widely applicableproducts can profit very significantly, while those whoinvest with good-will but in ‘total QALY’ terms makeless viable discoveries can in effect be deniedmarketaccess,isnotidealinthemodernsetting.Anapproachthatreducestheperceivedlongtermrisksofinvestinginhighquality/highriskresearchandradicalnewtreatmentdevelopments could help protect public interests inongoing therapeutic improvement and ensuring thatpotentially beneficial treatments are not needlessly leftunsoldand/orunused.

Asdiscussedlater,oneapproachtoachievingthisendcouldbetoamendthepresentuseof threshold levelsin interpreting cost effectiveness findings. The aim ofsuchareformwouldbetofostermoreflexiblewaysofpermittingNHSpatientaccesstoinnovativetreatmentsthatareofhighscientificandother formsofworthbutwhich benefit only limited numbers of people withoutincreasinggrosshealthservicecoststoanunsustainableextent.

Pursuing Value in Health CareTheoriginsofpresentdayeconomicthoughtstretchbackathousandyearsandmore.For instance,theconceptofa‘just price’asonebasedonthenecessarycostsofmakingaphysicalproductorofferingaservice inpartstems from the work of theologians such as ThomasAquinusinthemiddle-ages.Theapproachhetookinthethirteenthcenturywas linked to the thenalready long-heldbelief that ‘usury’– includingcharging interestonloans,aswellasmakingprofitsoverandabove thoseneeded to maintain an existing business – is morallywrong. Even today, such ethical perceptions underlieopposition to medicine pricing models based on thewillingnessandabilityofindividualsandcommunitiestopayforbeneficialtreatments,ratherthancalculationsthatembodyanexplicitformulafordeterminingthe‘correct’valueofsuchproductsinrelationtothehealthgainstheygenerateand/orthecostsoftheirmanufacture.

However,thebirthofeconomicsasamoderndisciplineis conventionally located in the ‘age of enlightenment’which accompanied the start of demographic andepidemiologicaltransitioninNorthernEurope.IntheUKitwas linked to theworkof individuals suchasAdamSmith and David Ricardo. In the last 200-300 yearsthe power of monarchs and aristocrats, supportedby military and religious institutions, to determine theallocationofsocieties’resourceshasfaded.Intheplaceof feudal dogmas relating to the divine right of Kingsto rule their subjects concepts such as ‘opportunitycosts’, ‘equilibriumprices’, ‘market imperfections’ and‘comparative advantage’ have emerged to help guidethinkingabouthowmoneycanbestbespent.

Economicthinkingembodiestheimperativethatscarceresources should be used as efficiently as possible toproduce valued goods and services, instead of being‘squandered on second bestchoices’.However,doingthisinpracticeisincomplexpluralsocietieseasiermuchsaidthandone,and inthehealtharena it isonlysincethe birth of the NHS and other advanced health caresystemsintheerafollowingtheendofWorldWarIIthat‘healtheconomics’hasdevelopedinitspresentform.

Notwithstandinginterestshownin‘medicaleconomics’inthe1930s,themostgenerallyacceptedstartingpointforhealtheconomicswastheworkofAmericanssuchasSelmaMushkinandKennethArrow(1963)ataroundthestartofthe1960s.ThistiminghappenedtocoincidewiththeThalidomidetragedyinEurope.Theirinitialanalyseswereassociatedwiththerealisationthathealthcanberegardedasa formofpersonal capital that individualsinvestinandspendduringtheirlives,andwiththepost-warrecognitionof the importanceofrational,evidencesupported, decisionmaking in public policy formationandimplementation.


AnotherAmericanstepforwardtookplacein1972,whentheOfficeofTechnologyAssessment(OTA)wasformed.This had the mission of advising Congress about thevalue of new technologies and the costs andbenefitsof providing them to the US public. In fact, its healthrelatedworkprovedofinteresttomanyotheraudiences,nationallyand internationally.Butbecauseofdomesticopposition theOTAwas closeddown in 1995, duringPresidentClinton’sfirstterm.TheUnitedStates’nationallevelwithdrawal fromaworld-leading role inHTA fromthemid-1990s onwards subsequently permitted NICEandotherEuropeanbodiestoassumeamoredominantpositionthanmightotherwisehavebeenpossible.

Oneofthereasonswhyeconomistswereslowtoaddressthehealthsectorwasthatitwasnotuntilthelate1940sthathealthoutlaysstarted toaccount forasignificant,and continuously rising, percentage of total spendingin theworld’s richereconomies.The latedevelopmentofhealtheconomicswasalsolinkedtotheauthorityofdoctorsovertheallocationofhealthcareresources.

The ability of the medical profession to control itsenvironmentisnow–intheUKperhapsmorethananyothercountryoutsidetheformerUSSR–morerestrictedthanitwasinthepast.Yetevenintheimmediatepost-WW II period medical power was still in some wayscomparabletothatofaristocratsandpriestsbeforethesocial revolutionsof thenineteenthandearly twentiethcenturies(McKinlayandMarceau,2002;Freidson1970,2001).UntilstrongermanagerialsystemssupportedbyStateinspiredregulationsemerged,thismeantthattherewas little perceived need for economic evaluations toidentify‘best choice’healthcaredevelopments.Indeed,itmightbesuggestedthateventodayhealtheconomicshasadisappointinglyrestrictedroleoutsidethefieldofmathematicallyoriented‘costperQALY’pharmaceuticaltechnologyappraisals.

Examples of early British developments included theformationofthethenexclusivelyABPIfundedOfficeofHealthEconomics(OHE)in1962,soonaftertheThalidomidecrisisbroke.9OnthegovernmentsidetheinitialemploymentofeconomistsattheDepartmentofHealthtookplaceattheendofthe1960s,whilethefirstpublicationinthiscountryonwhathasbeentermeda‘QALYtype’measurebyCulyeretaltookplacein1971(Hurst,1998).

However,forthepurposesofthisdocumentperhapsthemostimportanteventtorecordwastheappointmentof

9 TheOHE’sSwedishcounterpart,theInstituteforHealthEconomics(IHE),wasnotcreateduntil1979.TheearlyformationofOHEwaslinkedtotheestablishmentofthethenVoluntaryPriceRegulationScheme(theVPRS,whichwastheprogenitoroftoday’sPPRS)in1957andconcernsastohowitsevolutioncouldbeinfluencedatthetimeofitsinitialrenegotiationin1962.OHE’sdevelopmentwasalsoshapedbytheglobalchangesinthepharmaceuticalsectorprecipitatedbyreactionstotheinadequatelyregulatedsaleofThalidomideforusebypregnantwomen.ThisbackgroundgaveOHEmoreindependencethanmightotherwisehavebeenthecaseandfosteredadegreeofinnovativecreativity.

AlanWilliamsasaseniorlecturerattheUniversityofYorkin 1964, and as aProfessor from1968. Apart from abriefperiodattheTreasury,ProfessorWilliamsspenttherestofhislifeinYork,uptohisdeathin2005,developinghiscontributionstohealtheconomics.Thisinvolvedhimworkingwith an exceptional group of local colleaguesand other collaborators (most notably the UCLpsychiatrist Professor Rachel Rosser, who before herprematuredeathdevelopedaspecial interest inqualityof lifeassessment)to inastep-by-stepwaycreatethebasisofthemethodologythathasbeenusedbyNICEsinceitsinceptionin1999(Williams,2004;2005).

Partof the reason for thesuccessofwhat isnow theNational Institute for Health and Care Excellence isthat,unlikesomeotherpoliticallyinspiredhealthserviceinnovations,itwasfromitsinceptionabletodrawonandrefineaheritageofoverfortyyearsofresearch,evidencegatheringandconceptconstruction.Arguablythesinglemost importantstepalongthis longpathof intellectualinnovationwastheintroductionoftheQALY(ZeckhauserandShepard,1976).

Understanding QALY based cost-effectiveness evaluations

Economicevaluationmethodologiesexistonaspectrumthatstretchesfromcost-minimisationanalysis(CMA)tocost-benefit analysis (CBA). The former is of value incomparingdifferentinterventionsthatproducethesameoutcomes. In such instances it is a relatively simpletasktofindthelowestcostwayofachievingadesiredend point. However, if different technologies generatedifferenttypesofbenefititismoredifficulttoidentify‘first best’asagainst‘second and third best’opportunitiesforspendingtheresourcesavailable.

Inthefaceofthischallenge,cost-benefitanalysisseekstoconvertalltheinputsandoutputsinvolvedinhealthcare(includingtangiblefactorslikelabourcostsand‘intangible’onessuchasthevalueofpainreliefandthegenerationofhope for individualsand families livingwith threats totheirlives)andotherformsofactivityintomonetaryterms.Thefindingsthatresultareusuallyadjustedtotake intoaccount the fact that people normally value immediatebenefitsmorethanthosethatmayormaynotmaterialiseinthefuture,albeitinthehealthcontextdiscountingcanbe queried. For instance, anti-smoking campaignersmight say it is likely to lead to an undervaluing of thefuturedistress thatapredictableproportionof smokers(and thosearound them)will experiencewhen theyaredisabledordyingasaresultofconditionssuchasheartdisease, COPD and/or cancer, as compared to theimmediatereliefnicotineaddictsgetfromtobaccouse.

The advantages of CBA include being able to tailorstudiestofitspecificcircumstances,andofferingwaysofcomparingandcontrastingthevalueofdifferenttypes


ofoutcomeobtainablefromsimilarlevelsofinvestmentinradicallydifferentfields.Becausethefindingsofsuchstudies are expressed in monetary terms they tend(despite the fact thatwelfare benefitsmay never existashardcash) tobemorecrediblewithpoliticiansandthe public than ‘softer’ philosophical or sociologicallybased recommendations. However, conducting goodcost benefit analyses requires considerable resources.Further,becausehighqualityCBAsareoftencomplex,they can still leave policy makers feeling uncertain orvulnerableastowhattheyoughttodowhenfacedwithtestingdecisionsaboutwhichcompetingoptionsshouldorshouldnotreceivefunding.

The origins of NICE

No formof economic analysis canprovideunequivocalanswerstoquestionsaboutwhetherornotitisrightforprosperous communities to leave peoplewith diseaseslike, say, Morquio syndrome sub-optimally treated,whatever thecostsofbettercare (seeBox2).Norcaneconomic studies offer definitive responses to queriesabouthowmuchprofititisrightforacompanytomake

Box 2. Treating Morquio syndrome

Morquio A (MPS IV A) is an ultra-rare metabolicconditionwhichispartofagroupofdiseasesknownas mucopolysaccharidoses. It is often caused byspontaneousgeneticmutationsasdistinctfromfamilialinheritance,andpresentlyaffectsunder100peopleinEngland.MorquioAisassociatedwithshortstatureandspinalandotherskeletalproblems,andwithsymptomssuchaspain.Lifeexpectancyamongstthoseseverelyaffectedhasbeenonly20years.

However, in 2014 a drug called elosulfase alpha(Vimizim)waslicensed.Thefullvalueofthistreatmentisnotasyetknown.Yetthereisevidenceofitsbenefitingthose included ina trial involving35UKpatientsandsome140othersthatwasfinancedbyitsproducer,acompanycalledBioMarin.Becauseofthesmallglobalmarkettheunitcostishigh.TheUSlaunchpricewasabout £250,000 a year. But given a likely uptake oflessthan1patientpermillionpopulationthebudgetaryimpactofprovidingsuchpharmaceuticalcareshouldbeaffordable,evenifdiscountswerenotavailable.

Giventheseverityof its impactsonfamiliesaswellasindividuals,thereisastrongethicalcaseforofferingsuchcare.Anumberofcountries inEuropeandelsewheremovedswiftlytoassureaccesstoVimizimafter itwasmarketed. But in England negotiations involving NHSEnglandandNICE took in theorder of 18months tocomplete. This distressed some carers and patientsseeking treatmentandbecauseofmediacoverageoftheirplightitdidlittletopromotepublicconfidenceintheNHS.Thewelfarecostsofthisaredifficulttoestimate.Buttheywereprobablyinexcessofthefinancialsavingsmadebynotactingmorepromptly.

There is now a Managed Access Arrangement forVimizim treatment in place in England. Other UKcountries have put in place comparable provisions(Roberts et al, 2016; Roberts, 2016). The Englishscheme presently involves a little under 50 patients.Theyhaveeachsignedcontractswhichobligethemtoattendhospitalbasedassessmentsatleastonceeveryfour months, and to provide information about theirhealthandqualityoflifeonaregularbasis.IfpatientsfailtorespectthetermsoftheircontractorifinsufficientevidenceofbenefitemergestheyriskhavingtheirNHSfundedaccesstoelosulfasealphastopped.ThisrigourshouldmeanthatmistakesliketheCDF’sfailuretobeabletodemonstratethevalueofenhancedanti-cancerdrugaccess–seemaintext–willnotberepeated,andthat themedical care available toNHS patientswithMorquiosyndromeisofhighquality.However,forsomepatientsitmayseemaverycontrollingapproach.

Two other Managed Access Agreements have sincethepioneeringVimizimagreementbeensetup.TheyrelatetotreatmentsforSystemicLupusErythematosus(SLE – a potentially life threatening auto-immunecondition) and Duchenne muscular dystrophy. DMDis a recessive X chromosome linkedmusclewastingdisorderwhich,likehaemophilia,normallyaffectsonlyboys.AsmoreeffectiverarediseasetreatmentoptionsemergeMAAsarelikelytoproveanimportantmodelforthefuture.However,itistobehopedthatothergroupsofvulnerableNHSuserswillnothavetoexperiencethefearandsenseofneeding tobeg foraccess tocarethatsomeofthoseaffectedbyMorquiosyndromehaveendured.

from marketing a new medicine or questions on howmuchoftheirwealthsocietiesshouldchannelintoseekingscience based advances that will to an unknowabledegree benefit future generations. These are ethicalissuesthatrequireinformedlogicaldiscussionandgoodjudgementratherthanempiricalanalysisalone.

Nevertheless,therewasinhighlevelBritishpoliticalcirclesinthe1980sand1990s–stimulatedbyfearsaboutthepossible tax funded costs of new treatments for non-communicablediseaseslikemultiplesclerosis–agrowingdesire for a robust, financially affordable but publiclycredible,meansofguidingNHSdrugspendingdecisionsand making rationing choices. Sufficiently authoritativeinterventionswouldbedifficultforcriticstochallengeandmighthencebeabletocutshortpoliticallytroublesomedisputes.Appropriatelystructured,theycouldalsoservetohelpensurethattheUKpharmaceuticalsector isnotunderfundedasaresultofundulynegativepricingpolicies.

A recently published study entitled NICE: a Terrible Beauty (Timmins et al, 2016) describes some of thebackgroundtotheestablishmentofNICEandassociatedattempts by bodies such as theOffice of Fair Trading


(OFT,2007)tochangethewaytheUK’slongestablishedPharmaceuticalPriceRegulationSchemefunctions.Thetitle ‘a Terrible Beauty’ draws from the poem Easter, 1916 by William Butler Yeats. This communicatesthoughtsandfeelingsassociatedwiththeIrishstrugglefor independence and the brutal British response thatmettheDublin‘rebellion’ofacenturyago.

IntheNICEcontexttheterma Terrible Beautymightbetaken to imply thatmakinghardchoiceswhich involvesacrificesbyafewcaninthelongtermleadtoagreatergood for the entire community. The NICE story canalsobeseenasonewhichrevealshowanew,insomewaysuniquelyBritish,elitegroupwasfosteredinorderto challenge non-governmental interests and influenceareasofhealthandindustrialpolicyinwaysdesignedtohelplimitpublicexpenditureonwelfareserviceswithoutsacrificing‘higherlevel’strategicgoals.

Against this background the techniques of cost utilityand cost effectiveness analysis (CUA/CEA) sit halfway along the CMA-CBA continuum outlined above.Incremental ‘QALYcost’ basedCEAsasdeveloped inUKUniversitiessuchasYork,Brunel,BirminghamandSheffield and taken forward in England andWales byNICEfilledavacuumthathad inpartbeencreatedbyadvocatesforexplicit,publiclyaccountable,approachesto setting the medicine prices paid by the NHS andallocating health and allied care resources. In short,fromapoliticalperspectivesuchassessmentsofferedtoresolve‘publicmonopsonistversusprivatemonopolist’conflictsinarelativelypainlesslymanner.

Inthelate1990stheriseofcosteffectivenessanalysisas a tool for facilitating the central control of NHSpatientaccesstonewpharmaceuticalproductswasinparticular linked to attempts tomarket beta-interferonbased therapies for the then untreatable conditionmultiple sclerosis (Taylor, 2001), as well as to longerstandingpublicfearsthatrisingdrugcosts‘will bankrupt the NHS’.TheoriginsofthelatterfallacycanbetracedbacktotheinitialestablishmentofthehealthserviceandthereactivepressuresthatledtotheimpositionofNHSprescriptionchargesatthestartofthe1950s.10

10Oppositiontotheideaof‘freemedicines’itselfharkedbacktodoubtsaboutthedesirabilityofapubliclyfundeduniversalhealthcaresystemthatwerefirstexpressedinBritaininthe1920sand1930s,whenNikolaeSemashkowasastheUSSR’sfoundinghealthcommissarintroducingtheSovietUnion’sfirsthealthcaresystem.ThelatterchallengednationsliketheUKandtheUSduringandaftertheGreatDepression,andhelpedgiverisetoagenerationofWesternpolicymakersdeterminedtoimprovewellbeingintheirsocieties.Atitsbest,modernhealtheconomicsfollowsonfromtheirwork.ItisalsoofnotethatalthoughtheinitialpromiseoftheNHSwastooffermedicalcareonauniversalbasis,localauthority‘healthneedrelated’socialcarehasalwaysbeenprovidedonachargedbasis.Astheprocessesofdemographicandepidemiologicaltransitionhavecreatednewpatternsofdemandcentringonmanagingnon-infectiouslaterlifeconditionsthisimbalancehasbecomeincreasinglyanachronisticandapotentsourceofinefficiency.However,thisisanareauponwhichfewhealtheconomistshavechosentoconcentratetheirattention.

Inessence,themainstepstowardsdevelopingthe‘costperQALY’approachasemployedbyNICEtodayinvolved:

• defining a unit of utility or value suitable for application throughout the field of health care provision. Quality Adjusted Life Years (QALYs) arecalculatedbymultiplyingthelengthofextralifeinyearsatreatmentgeneratesbytheimprovedordis-improvedquality of life associated with that survival gain asmeasuredonascaleof0-1.So-calledDALYs(DisabilityAdjusted Life Years, most prominently employed bytheWHO) areworked out in a relatedway, althoughthatmethodology involvesanelaborateageweightingfunction (Sassi, 2006). The first studies to effectivelypopularise the QALY concept were published in the1980s,alongwithsuggestionsthataverageor, itwaslater argued, marginal (or incremental – see below)QALYcostbased‘leaguetables’canactasaguidetowhich services provide best overall value, and hencewhichnewformsoftreatmentmostdeserveinvestment;

• developing reliable ways of measuring the quality of life enjoyed by people living with differing levels of mental and physical distress and, on the basis of this, measuring the cost per QALY gained as a result of new forms of care. Thewidely employed3 levelEuroQol5Dimension instrument forassessingperceivedqualityoflifewasmadeavailableatthestartof the1990s.A five level version (theEQ-5D-5L) hasbeenintroducedoverthepastfivetotenyears(seeBox3).Thewayqualityofliferesearchhastraditionallybeenconducted has been via panels of healthy individualswhoareaskedtovaluealternativehealthstatesfroman‘objective’ viewpoint.However, there is nowevidencethat having direct experience of varying types ofdistressandinconvenience,someformsofwhichcanbeaccommodatedmoresuccessfullythanothers,canchangehealthstateperceptions(Kanavos,2016).

It is alsoworth noting that calculatingQALY yieldsinvolvesattachingutilitiestodifferingstatesofbeingalive, rather thanvaluingacts that visibly save livesordelaydeath.Yetlife-savinghasaspecialvalueinmostifnotallsocieties.Althoughthisisacontestedfield(Round,2012;McHughetal,2015)suchsocialfactsimplythatanadditionalvalueshouldbegiventotheprovisionoflifesaving/extendinginterventionsincontextslikeendoflifecare.Whatisunquestionableisthatsomepeoplebelievethatall livesareequallyworth saving, whatever their supposed quality andanticipated duration, while others believe that ageandqualityofliferelatedweightingscanethicallybeappliedinassessinghowmuchitis‘worth’spendingontreatingonepersonasopposedtoanother;and

• setting criteria for how ‘cost per QALY data’ can be used to decide which forms of care or treatment can or cannot be funded. Manybut not all economists who accept the value of


Box 3. Measuring Quality of Life and the Pursuit of Value Based Pricing

TheEuroQual5D(EQ5D)hassince1990beenthemaininstrumentusedinmostBritishandmanyotherhealtheconomicsstudiesofhealthrelatedqualityoflife(QoL)issues.Itinvolves,asitstitlesuggests,askingpeopletoratehealthstatesinrelationtofivedomains–mobilityasmeasuredbywalkingability;self-careinrelationtowashinganddressing;thecapacitytoundertakeusualactivities in thework, domestic and leisure contexts;pain and allied discomfort levels; and anxiety and/ordepressionexperienced.Theoriginal3Lversionaskedrespondentstoranktheirassessmentsatoneofthreelevels–noproblem,amoderateproblemorasevereproblem.Themorerecent5Lversionaddstwomoreintermediate points into this assessment framework.Hence it significantly increases the number of QoLrelatedhealthstatestheEQ5Dcandescribe.

AsecondpartoftheEQ5Demploysavisualanaloguescaletoenableindividuals’judgementsberecordedassingle‘scores’,withthemostnegativestateimaginablebeing rated 0 and the best 1. Data generated viathesetoolscanbeusedtoscalequalityofliferelatedpreferences, so that differences attributable totreatment conferred benefits can be given a relativevalue.WiththeadditionofthetimedimensionandcostdatathispermitsQALYvaluestobedetermined.Costeffectivenessthresholdscanthenbeappliedinordertomakeaffordabilityjudgementsforindividualtreatments.

Suchmeasuringtechniquesmaybeseenasrelativelycrudebutareneverthelessrobust.EQ5Dapplicationsarecapable,atleastwithingivencultures,ofprovidingconsistently reproducible findings when panelsof healthy individuals are asked to rate differentconditions.However, recentresearchhasshownthathavingdirectexperienceofdiseaseanddisabilitycanchangepreferences.Peoplearemoreabletoadjusttoproblemssuchasnotbeingabletodressindependentlythantheyaretoadapt toongoingpainorpsychiatricdistress.

Concerns have also been expressed that the EQ5Dmay not adequately record quality of life dimensionssuchasrelieffromfatigueorsideeffectfearsthatareknown to be important tomanypatients, and that itignoresvaluedimensionssuchasthecontributionstoeconomicandsocietaldevelopmentderivedfromusingmedicinesinwaysthatresultinincreasedinvestments

in research and manufacturing that feed back intowellbeing.IthasbeensuggestedthatusingtechniquessuchasMultiCriteriaDecisionAnalysis(MCDA)couldhelp to correct shortcomings in calculating QALYvalues (Thokala et al, 2016). However, the extent towhich such alternatives provide answers that differsignificantlyfromthosegeneratedviastudiesusingtheEQ5D or similar instruments is debatable. Whateverthe methodologies employed, if researchers restricttheirattentiontoassessingnarrowlydefinedindividualhealth benefits as against societal level public healthand wellbeing variables they will always generatesimilaroverallfindings,even if their recommendationsastowhichindividualproductsofferbestvaluevary.

In the period following the ‘Lansley’ NHS reformsannounced in 2010 itwashopedby some that newapproachestodetermining‘valuebased’prices(VBPs)for pharmaceutical products supplied to the NHSwould resolve problems being encountered in areaslikeanti-cancerdrugsupply,whichtheCDF(seetext)wasintendedtemporarilytocontain.Inessence,policymakers were seeking to establish a new consensusas to how weighting QALY calculations could andshouldsatisfy theconcernsofall thestakeholders inthe pharmaceutical research, development, supply,purchasinganduseprocess.

In theory thismight be possible, even if in the NHSarenathereareinherenttensionsbetweencashlimited,publiclyfunded,buyersandIPholdingprivatesellers.ButtheVBPinitiative’sobjectiveswerenotinpracticeachieved for reasons touched on in themain text ofthis report, and because of political naivety coupledwiththefactthatthebeliefsand interestsofsomeofthose charged with developing a viable model mayhaveprecluded thepragmaticcompromisesneeded.Success would arguably have required integratingestimations of the long term ‘public health andwellbeing’dimensionsofthevalueofusingmedicinesand investing inpublicandprivatebiopharmaceuticalenterprise with narrower empirical measures of theshorttermindividualhealthgainsgeneratedbytakinginnovativetreatments.Itmayalsohavedemandednewways of systematically addressing the ‘affordability,profit and volume’ trade-offs involved in medicine,vaccineanddiagnosticssupply.

cost effectiveness analysis in improving healthserviceefficiencyagree thatsettingeitherexplicitorimplicit costeffectiveness thresholds isanecessarystep. However, comparatively few would say thatsuch thresholds should be rigidly applied, or thataggregated data based ‘cost per incrementalQALY’ figures ought to be the only factor takeninto account when deciding what services shouldbe made available. Averaged observations do notnecessarilyreflectindividualexperiences.Inaddition,

it may be argued that in effect telling (by applyingdefined cost effectiveness thresholds) the providersof new treatments the maximum amount they canchargemightinsomeinstancesincreaseratherthandecrease spending levels. In other circumstancesrigidcosteffectiveness thresholdscould stopsomepatients receiving treatments that could reasonablybe regarded as affordable on a budgetary impactbasis, especially when total pharmaceutical outlaysarecapped.


Theproponentsof ‘costperQALY’basedapproachesoftenbelievethatalthoughNICEdoesnotsetthepricesofpatentedorotherIPprotectedmedicinesandisnotresponsibleforpurchasingitemsthatareobtainedbytheEnglishNHS,itsworkneverthelessservestopromoteaformof‘valuebased’pharmaceuticalpricing.This,suchcommentatorssuggest,mightnotonlygeneratefinancialsavings for theNHSandbenefits thewider economy,but also provide the research based pharmaceuticalindustry with the best possible incentives to producemoreeffectivemedicines.

One implicationofsuch thinking is that,withoutNICE,researchbasedcompanieswouldfocusontheproductionofitemswhichlacktherapeuticutilitybutwhichbecauseof market imperfections could prove more profitablethanclinicallymoresignificantalternatives.However,thelikelihoodofthisbeingtrueislimited.OtherproblematicassumptionsrelatetofactorslikethespeedatwhichtheNHSadoptsinnovations.

Differing National ApproachesThe extent to which beliefs like those outlined aboveare valid in the current health care environment isexplored further towards theendof this report.Beforethat,however,somewiderquestionsrelatingtoBritish,European Union Member State and other nationalpolicies on medicines pricing and cost control areconsidered.

In England, topical pharmaceutical sector issues haverecently included the major changes in the role andworkingof theCancerDrugsFundfirstannouncedbytheCameron/Cleggadministrationin2010inthewakeofaConservativeelectioncommitmenttoimprovecancerdrug supply toNHSpatients. The delayedpublicationof the final report of the Accelerated Access Review(AAR)hasalsobeenofsignificantinterest.TheAARwasestablished in March 2015 with, as its title suggests,theobjectiveoffindingwaysofenhancingNHSpatientaccesstoinnovativedrugsandassociatedproducts.

Box 4. The UK PPRS

PriortotheestablishmentofthePharmaceuticalPriceRegulation Scheme in 1962, a predecessor initiativecalled theVoluntaryPriceRegulationScheme (VPRS)was set up in 1957. Framed in the period shortlybefore the Thalidomide tragedy, this linked domesticpharmaceutical prices to those of exported itemsbecauseitwasatthattimethoughtthathealthservicewillingnesstopayformedicinesshouldbeguidedbythepricespaidontheworld‘freemarket’.Butbytheearly 1960s attitudes had becomemore critical. ThePPRSintroducedmoreassertivecontrols.Ithassinceevolvedintoasystemforlimitingcompanyearningsandthecostsincurredinareasrangingfrommanagementand spendingonmarketing to research andmedicalinformation provision as they relate to the supply ofbrandedmedicinestotheNHS.

Proponents of the PPRS say that it effectivelyaddressesboththehealthservice’sneedforeconomyandmedicinesaffordabilityandwiderpublicinterestsinfieldssuchasmaintaininginnovators’legitimaterightsto set their products’ prices and encouraging exportorientedenterprise.However,criticshaveargued(seeOFT,2007)thatitinthepastallowedbrandedmedicineand allied product prices to fall out of linewith theirvalue to NHS patients. This, it was alleged, causeddistortions in health service resource allocation andactivitythatmighthaveultimatelycostlives.

Such charges have an at best uncertain validity.Provided PPRS and allied controls ensure that thetotalcostsofNHSdrugsupplyarewithinagreedlimits,claims that other areas of health and social care arebeingdeprivedoffundingbecauseofmedicinesoutlayscould be misleading. It might be more appropriate

to say that governments have simply chosen not tofundsomeotherareas,likehealthrelatedsocialcare,toanadequate level.The latest versionof thePPRSplaces an explicit ceiling on the overall amount ofmoneyspentonpharmaceuticalproductsintheambitof the scheme. As described in themain text, therehave from an industry viewpoint been concerns thatdiscountsreturnedtotheDepartmentofHealth,whicharecurrentlyinexcessof£500million,arenotrepaidtotheagenciesdirectlypayingformedicines.Thiscouldbeencouragingtheunder-useofsometreatmentsfornorealhealthservicesaving.

Not all companies and/or products are covered bythePPRS.Evenso,thefactthatthegrosscostofthemajorityofthemedicinespurchasedtheNHSisbeingcontainedviamechanismsotherthandetailedproduct-by-productpricinginterventionsisworthemphasising,not least from an NHS user’s perspective. Patientsandtheirrepresentativesareprimarilyconcernedwithensuringthateveryonewhomightreasonablyhopetobenefit from licensed treatmentscanenjoyaccess tothem. Pharmaceutical expenditure capping systemslinked to appropriate ‘excess earning’ repaymentarrangementsmayhelpfacilitatethis,albeittherecanbe no ‘magic bullet’ solutions to resolving all NHSpharmaceutical cost linked tensions. In the case ofbudgetcappingstrategiesstakeholderswouldneedtoagreemethods forensuring that theoverallquantumof money being spent represents an acceptablepercentageofGDP,and that the incomeavailable tocompeting companies is fairly distributed in relationtotheirinnovativeandwidermedicinessupplyrelatedperformance.


Additional areas of debate have included the pricingofgenericmedicines thathaveonlyoneproducerandareshieldedfromcompetitivepressureswithintheNHSsupplychainandthefutureofthePPRS.Thelatteroffersa framework that embodies approaches to brandedmedicine pricing and overall NHS spending limitationwhichmaybeseenasalternativesto,oratleastvaluablecomplementsto,‘costperQALY’basedstrategies–seeBox4.

Improving cancer care

TheCDFwascreatedbecauseofpopularconcernsthattheNHShas insomerespectsunder-performedinthefieldofcancercare.Themostimportantshortcomingsofthelatterarguablyrelatetolateandinsufficientlyprecisecancer diagnoses. Yet at around the time of theMay2010 general election therewas also evidence that inEnglandandWalesNICEwas,despitetheintroductionof an end-of-life care cost effectiveness thresholdweighting, refusing on cost effectiveness grounds torecommend many anti-cancer medicines that otherEuropean countries were providing for their citizens.ThisthreatenedtounderminetrustintheNHSasacareprovider.Giventhespecialpositionofthehealthservicein British politics such fears put pressure on electedpolicymakers,whoinearlieryearshadwitnessedTonyBlair’s politically successful interventions in the areaofbreastcancertreatment.

In the period from 2011-2015 the CDF helped toincrease per capita NHS spending on anti-cancermedicinesinEnglandtoaroundtheEUaverage.Inthatperioditsannualoutlaysrosefromaround£200millionto in the order (includingbudget overspends) of £400million. (In total, anti-cancer medicines now cost theNHSinexcessof£1,500millionayear.)TheriseinCDFspendingwas thereforesignificant, if inheadline termslittlemorethantheaggregatedNHSspendingincreasesreportedly incurred in the context of ‘single source’genericmedicinesoutlays–seeThe Times,2016.

More broadly, the CDF’s costs between 2011 and2015/16alsoneed tobeseenagainst theexceptionalscientificadvancesbeingmadeinoncologyatthispointin history and falls in spending in other,moremature,areas of pharmaceutical care. Total pharmaceuticalspending expressed in manufacturers’ prices did notrise as a percentage of all NHS outlays in the period2010-15.Itratherremainedatjuston10percentofallhealthservicecosts.ClaimsthattheCDFhadbecome‘unaffordable’might therefore be seen as to a degreedisingenuous, even though it was unquestionablyimposing strains on the newly createdNHSEngland’sspecialisedservicescommissioningbudget.

The available data suggest that up to its restructuringin July 2016 the CDF was benefiting about 20,000

individuals a year. However, its impacts on healthoutcomes have not been systematically quantified.Because of this failing, coupled with the challengetheCDFwas offering to bothNICE’s decisionmakingprocess and NHS England’s budgetary control, it hasnow been ‘repurposed’ to act as a mechanism forfacilitating the managed introduction of anti-cancermedicines thatareat the timeof their initialmarketingjudgedtolackenoughevidencetodeterminetheircosteffectiveness.Howwell this radicallynewarrangementwillwork inpractice isuncertain. Itcontainsanumberofcontroversialprovisions11.Butforthepurposesofthisanalysisthemost importantobservationstobeofferedinclude:

• anti-cancer drug development programmes often take decades to reveal the full value of innovative treatments, especially when they can most effectively be used in combination with other agents in curing early stage illnesses.Thedata employed to gain initial marketing approvalstypically relate to the observed effects of newtreatments in slowing theprogressionof late stage,terminal, cancers. This is not always explained topatientsandthepublic.Itmayonoccasionsbewhynewanticancermedicinesaredismissedas ‘merely adding weeks to the end of life’. Given the limitedperiodsthatIPRsapplyforbeforegenericcompetitioncommences, theneedtogenerate incomerelativelyearly in the life cycles of anticancermedicines in aperiod when evidence of their cost effectiveness isunlikelytobecompletecanbepotentforceunderlyingpricingdisputes;and

• since the 1990s the focus of pharmaceutical innovation has shifted from high volume use, relatively low unit price, medicines supplied in the primary care setting towards lower volume use, higher unit price, treatments most commonly prescribed in specialist hospitals.This trend, which is reflected in the data shown inFigure 3, means that although overall primary caremedicinecostshave fallenwith IPexpiries,hospitalandotherspecialisedcarebudgetholdershavefaceddifficulties. The fact that in recent years ‘invisible’discountshaveviathePPRSmechanismsreferredtoin Box 4 been received centrally rather than locallyhasexacerbatedsuchtrends.Theroleplayedbythe

11BodiessuchasBreastCancerNowandProstateCancerUK(2016)havewarnedthatthiscountry’soverallapproachtoHTAandanticancermedicinespricing/purchasingmayprovesub-optimal.Thenew(Englandonly)CDFarrangementssetacaponspendingonthenewanti-cancermedicinesincludedinitsremitofsome£340millionperannum,whichisaboutthesameamountastheCDFbudgetthatwasexceededin2015.CompaniesthatareresponsibleforinvestingincancercareimprovementwillberequiredtocompensatetheNHSforoverspending.ThereisariskthataswellasselectivelydisadvantagingNHSuserswithcanceranddoctorsseekingtoprovidethemwiththebestpossibletreatmentthiscoulddiscouragefurtherinvestmentinthefield,especiallyifothernationsweretofollowEngland’slead.


CDFshouldbeunderstoodinthiscontext,aswellasthatofthefundamentalscientificadvancespresentlytakingplaceinareassuchasimmuno-oncology.

It issometimessuggestedthatcontinuingadvances incancercarewill threaten toundermine theaffordabilityof the NHS. However, NHS spending on anti-cancermedicinesof all types is nomore than20per centoftotal cancerservicecosts,and the latter –as inotherhealthcaresystems–accountforlittlemorethan5percentofNHSoutlays(Jonssonetal,2016).HenceNHSanticancerdrugspendingcurrentlystandsataround0.1percentofGDP.

Evenifthisproportiontemporarilyrisesasmoreeffectivetreatments are marketed, counter-balancing savingswill be made as other pharmaceutical costs fall andage specific cancer-related outcomes improve. In thiscontextitisofnotethatamongstpeoplebelowtheageof60cancermortality rateshavealreadyhalvedsincethe 1970s (Cancer Research UK, 2016). Contrary tocommon political assumption, population ageing per se has not in recent decades been a major driver ofincreased health care costs in countries like the UK.In developed communities delaying death also delaysmuchhealthspending(GillandTaylor,2012).

community-widevalueofnewmedicinesandagreeingaffordableprices(PisaniandLee,2016).

Suchchanges,coupledwithdevelopmentslikeagreateruseoftheMHRA’sEarlyAccesstoMedicinesScheme(EAMS),couldhelprestoreconfidencethattheavailabilityof innovativetreatmentstoNHSpatientsandcliniciansis in linewith that enjoyedby thecitizensof countrieslikeFranceandGermany.However,thiswillnotbethecase if reductions in cost effectiveness thresholds likethoserecommendedbyClaxtonetal (ibid)were tobeadopted by NICE, or in oneway or another imposedbyotheragenciesresponsible forpurchasingproductslikeinnovativevaccines12andmedicinesforuseinNHSspecialistcaresettings.

The work of Claxton and his colleagues involvedattempts to estimate the average cost of each newQALYgeneratedbyexistingNHSservices.Theyarguedthat livesand/orwellbeingwillbe lostunlessthefigurethey derived for the latter is used as a ceiling for theamount thehealthservice isprepared topay foreachincremental QALY generated by innovations like newanticancermedicines.

Othersources,suchasBarnsleyetal(2013),haveoffereddetailed technical critiques of this research and thequalityofitsconclusions.Theirfindingsarenotrepeatedhere. But it is worth highlighting the fact that evencommentatorswho are highly sympathetic to need tocontrolNHSpharmaceuticalcostshavequestionedthewisdomofloweringNICE’scosteffectivenessthresholds.(See,forexample,Raftery,2014.)Noneoftheindividualsinterviewed during the preparation of this analysisaccepted thatacase fora radical loweringofexistingNICE cost effectiveness thresholds has successfullybeenmade.Somesaid thatevenmaintaining thematexisting levels could, without the introduction of newflexibilitiestopermithigherthresholdsinsomecontexts,provedamagingtotheUKpublic’sinterests.

It was noted, for example, that other governmentbacked research initially undertaken in the transportcontext founda‘willingnesstopay’based incrementalQALY value of up to £60-70,000 (Mason et al, 2009;Towse,2009).This is four times thehealthsector limitadvocated by Claxton et al. US sources consistentlyindicatehigherthresholdfigures,whileintheUKnursing

12Asexperienceinareassuchassmallpoxandpoliohasindicated,vaccinescanbeamongstthemostvaluableofallhealthcareinterventions.However,astheincidenceofthediseasestheycontroldropsdeterminingtheircosteffectivenesscanbecomeproblematic.Theutilityofassuringthatunwantedeventsdonothappenisdifficulttoestimateoncethediseaseslinkedtothemareregardedasrare.TheNHShasinthepastenjoyedarobustrecordindeliveringvaccinationprogrammesandadoptingfreshimmunisationopportunities.However,recentchangesintheorganisationoftheNHSpublichealthfunctionmayhaveadverselyaffecteduptakeratesinsomelocalities.Measurestocutthecosteffectivenessthresholdsusedindeterminingthe‘valueformoney’offeredbyinnovationvaccinationprogrammestoamaximumof£15,000perQALYyieldedcanalsobeseenasanegativedevelopment.

Accelerating Access

TurningtotheAAR,keypointstohighlightrelatetothevalueofpharmaceuticalenterpriseinthelightofBritish,Europeanandglobalhealthandindustrialandscientificdevelopment interests. These are broader than justthose linked to the immediate capacity of theNHS togenerate additional QALYs. Informed submissions totheAARinquiryhaverecommendedtheintroductionofmoreflexibleandtimelyapproachestoassessingthefull

Figure 3. Trends in NHS hospital and primary care spending on pharmaceuticals

2012 2013 2014 2015

39% 41.2% 43.5% 45%

Primarycaremedicine Hospitalmedicine

%oftotalNHSPharm

aceuticalcosts

Source:IMSandABPI

100%

50%

0


home care for people living with illness and disabilityoftencostsinexcessof£50,000ayearintheUK.

One intervieweewas inadditionparticularlyconcernedthattheYorkUniversitystudyinquestionreportedwidevariations in thecostper incrementalQALY incurred indifferingareasofhealthserviceprovision.Insomefieldsitiswellover£1million.Inothersitislessthan£5,000.Against this, it is reasonable to askwhy, unless otherunstatedassumptionsarebeingmade,theceilingvalueset for introducing innovative pharmaceutical productsdesigned toaddressunmetneedsshouldbeconfinedtoa(questionablyestimated)averageNHS‘incrementalQALYproductioncost’ofaround£15,000.

Furthertosuchquestionsthereis,asalreadyindicated,evidence that thecosteffectivenessofpharmaceuticaltreatments rises as their IPRs expire. Their prices fallas their life cycles proceed (Pistollato, 2015) and theexpertise needed to optimise their use grows. Suchobservationsimplythatitwouldbeappropriatetoaccept‘market entry’ prices for innovative medicines withindications for as yet inadequately treated conditionsthatrepresentsacostperincrementalQALYwellaboveanyestimatedaverageNHScosteffectiveness level. ItwouldbeunfortunateifthefactthatthehealthserviceistaxfundedbecauseitisseenasexceptionallyimportantbytheUKelectorateweretoendupmeaningthatthecommunity’s marginal propensity to spend on healthservicesand/orproductsissignificantlylowerthanthatobservedinmanyareasofprivateconsumption,someofwhicharepositivelyharmfultohealth.

CEA in Europe and the US

In thewakeof theestablishmentofNICE,manyothercountries formedorganisations thatseek tocontributetodetermining the affordability andequitableprovisionof new medicines and other health related productsand services. Sweden, for instance, has an unusuallylong traditionof evidencebasedpublic administration.A body called the Swedish Council of TechnologyAssessmentinHealthCare(theSBU)wasfirstsetupin1987(Jonsson,2009).But itwasnotuntil2002thataspecificPharmaceuticalBenefitsBoardwasestablished.NowknownastheDentalandPharmaceuticalBenefitsAgencyorTLV,thisplaysacentralpartintheprocessesofestablishing‘valuebased’medicineprices.

However,theextenttowhichtheTLVorotherEuropeanagenciesoperateinwayswhicharedirectlycomparableto NICE’s approach should not be overstated. TheSwedishbody,forexample,canclaimtobemoreopentomakingadjustments in its judgementsbasedonthespecifics of each case. It may on occasions accept‘costsperincrementalQALY’thatareinexcessoftwicethenormallyreportedNICEceiling(that is, intheorderof €100,000) without resorting to employing a special

evaluation methodology that is significantly differentfrom that in day-to-day use (Wallström, 2016). This isonoccasionscostincreasing.However,satisfactionwithSwedishhealthcareisrelativelyhighandasaproportionof health spending reported pharmaceutical costs inSwedenarealittlebelowtheUKlevel.Atthesametimeoverall health care costs expressed as a percentageof GDP are only marginally higher, albeit social carespendingissignificantlygreaterthaninBritain13.

Other examples of European bodies that undertakehealth technology assessments include the FrenchNational Authority for Health (the Haute Autorité deSanté,orHAS),whichin itscurrentformathasexistedsince 2004, and the German Institute for Quality andEfficiency inHealthcare (IQWiG). Thiswas also set upin2004.Substantialhealtheconomicsexpertiserelatingtotheevaluationofmedicineshasalsobeendevelopedin countries ranging from the Netherlands and Spainto Italy and Poland. Yet despite some convergenttrends the detailed ways of working adopted in eachof these national settings can once again be said todiffersignificantly fromNICE’s tightly focused‘costpermarginalQALY’methodology.

InPoland,forinstance,thecosteffectivenessthresholdused is – in line withWHO recommendations relatingto the affordability of Disability Adjusted Life Years –three times the per capitaGDP.However, despite theeconomic growth enjoyed since the country enteredtheEuropeanUnionthislastfigureremainsmuchlowerthanthatrecordedinmostofWesternEurope.Becauseofthis,PolishGovernmentsappeartohavebeenmoresensitive to issues such as minimising spending onimported as opposed to domestically produced itemsthanisthecaseintheUK.

InItaly,bycontrast,thesettingofadefinedaffordabilitythreshold is normally avoided. This allows greaterfreedomforconfidentialpricenegotiations (EIU,2015).Likewise in France, despite what appears to be agrowing acceptance ofQALY’s as ameasure of valueinthehealthsector,greaterattentionisgiventofactorssuchastheviewsofprofessionalsonthescientificandclinicalvalueofnewmedicinalproductsand,inlinewiththeNapoleonictradition,tothepreciselegalprovisionsinplacefordefiningtherightsofcitizensandthepowersofgovernmentalagencies(Remuzatetal,2013;Barronetal,2014).ThereisevidencethatthequalityofFrench

13Therealitythatmanyhealtheconomistsspendmuchoftheirtimeonpharmaceuticalevaluationswhilerelativelyfewhavefocusedonissueslikethedisparitybetweenmedicallyledhealthcarefundingasopposedtothatofhealthrelatedsocialcaremaybetakentobeindicativeofthestrengthsandweaknessesofhealtheconomicsasasub-discipline.Inaddition,factthattheWHOrecommendsanincrementalcosteffectivethresholdforDALYsofthreetimespercapitaGDP(seetext)canalsobeseenasindicativeofthefactthattheWHOhasahealthadvocacyrole.NICEpresentlyusesanaveragedincrementalcosteffectivenessthresholdthatisroughlyequivalenttotheannualUKpercapitaGDP.Theproposed‘Yorkthreshold’islessthan50percentofthelatter.


Box 5. The Value of the Pharmaceutical Industry

In the UK there is a danger of spending onpharmaceuticalsbytheNHSbeingseenasjustacosttothepublicpurse,ratherthanasarobustsourceofvalue to society. In addition to the health gains thatmedicines and related products deliver, recent datashowthatBritishandotherpharmaceuticalcompaniesmadea£3billionpositivecontributiontothebalanceof trade in the period leading up to the Brexit vote.Theresearchbasedpharmaceuticalindustryaccountsforabout25percentofallUKprivateR&Dspending(companiescurrentlyspendsome£4billionayearonBritish based projects) and directly employs 70,000people.This isa relativelysmallworkforcecomparedwithareassuchashighstreetretail.Yet inpercapitatermspharmaceuticalcompanyemployeescontributemore to theUKeconomy than thoseworking in anyothermajorsector.

Multiplier effectsmean that thegross valuedeliveredto theUKeconomy is several timesgreater than thetradesurplusgenerated.IndustryspendingandprofitsinadditioncontributetotheincomesofinstitutionslikepensionfundsandtheworkundertakenbyUniversitiesand health research oriented voluntary sectororganisations,allofwhicharevitaltotheUKeconomy’shealth. Even so, evidence generated via interviewsconductedforthisanalysissuggeststhatsomehealtheconomists believe that the nation’s best interestscould be served by pushing down pharmaceuticalpricestolevelssubstantiallybelowthosecurrentlypaidinmostothereconomicallydevelopednations.

Suchcommentatorsmayarguethatthiswouldbenefitpatients seeking NHS treatment and that, becauseof theexcellenceof theBritishresearchenvironment,investment in UK based pharmaceutical companyactivities and clinical trials will not be adverselyaffected. ‘Free-ride’ advocatesmay also believe thatbecauseAmericaspendssomuchmorethattheUKonpharmaceuticalresearchanddevelopmenttheworld-widerateofbiomedicalprogresswillnotbesignificantlyslowed ifBritain fails tomakeproportionate inputs tothe global research based pharmaceutical industry’sincome.

However,theviewtakenhereisthatsuchargumentsare unethical and unrealistic. There is a strong

counterbalancingcaseinfavouroftheviewthatBritainshould, relative to its GDP, contribute as much tothe costs of private pharmaceutical R&D and globalsupply as countries like Japan, the US, France andSwitzerland.PublicsupportforthisisinpartsignalledbythefactthatUKpercapitavoluntarycontributionstoendssuchascharitablyfundedcancerresearchareamongstthehighestintheworld.

AmericancriticsofthefactthattheUSspendsintheorder of 2 per cent of its GDP on pharmaceuticalson occasions point to the fact that (notwithstandingthe recent Obama reforms) health care there hasbeen inequitable and relatively inefficient, and thataccess tomedicinesamongstpoorergroupscanonoccasions be wanting. There is some substance insuch concerns, even if structural US health sectorfailings cannot be attributed to pharmaceutical costsper se.AsaproportionoftotalAmericanhealthoutlaystheseaccount for littlemore than10per cent.Whatismoreclearly true is that theUSeconomy receivesnet benefits from not only pharmaceutical industrycompany investmentandprofits,butalso frombeingaworld centre of life sciences research andproductmanufacturing.Positive interactionsbetweenprivatelyand publicly funded research efforts have helpedachievethisposition.

Switzerland’s population, despite its much smallersize, also enjoys considerable benefits from itspharmaceuticalindustry,asdoesthatofEireinrespectof manufacturing. However attractive the researchsettings that Britainmay continue to offer, there is arisk that the cumulative impacts of conflicts aboutpricing and allied issues could discourage furtherpharmaceutical industry investment. This will beespeciallylikelyifthepost-Brexiteconomicenvironmentprovesmorechallengingthanoptimistshope.DroppingthecosteffectivenessthresholdusedinNICEorotherassessments used todetermineNHSpatient accessto pharmaceutical care would almost certainly provecounter-productive. But if the Britain’s responsesto the hazards it faces are adequately planned andimplemented there is no reason to doubt that it willbe able to enjoy pharmaceutical sector successescomparabletothoseseenintheUSandSwitzerland.

healthcareisvaluedhighlybypeoplelivingthere.NHSusers’viewson theservicesavailable to them inmostcontextsreflectlowerlevelsofsatisfaction.

In Germany there is a relatively strong commitmentto ensuring that new pharmaceutical and alliedtechnologies are accessible via the social insurancefunds inoperation thereas rapidlyaspossible (Gissel,2013).Thiscan initially involveacceptingrelativelyhighprices for innovativemedicineswith originalmodes ofaction,althoughovertimethe‘efficiencyfrontier’based

strategyadoptedinGermanyactstodrivecostsdownacrosstheboard.Thesystemisnotrelianton‘costperQALY’ calculations for achieving increasing efficiency.BothGermanyandFrancespendmoreoftheirnationalwealthonhealthandsocialcarethantheUK.Yetthereisnoeconomicevidencetoindicatethatthismeansthattheirpopulationswouldbenefit fromthereallocationofsome of the resources currently employed on healthrelatedservicesandproductstootherareas.


TurningtoNorthAmerica,bothCanadaandtheUSarealso relativelyhighspendersonhealthcareandwithinthatonpharmaceuticals as comparedwith theUnitedKingdom.Canada has since the start of 1980smadesignificant investments in health economic studiesand developingmethodologies for assessing the costeffectivenessofnewmedicinesandalliedtechnologies.CanadianCourtshavealso in thepast challenged theextent to which IPRs owned by American researchbasedcompaniesapplyintheirjurisdiction.

However, absolute per capita spending onpharmaceuticals in Canada is amongst the highest inthe world (OECD, 2015). It is also well above that oftheUKwhenexpressedinGDPpercentageterms.ThereasonsforsuchapparentdiscrepanciesinpartrelatetotheProvinciallybasedsystemofhealthcarefinancing,whichincreasespressuresonpoliticianstoensurehighqualitycare inwaysthatareresponsiveto localneedsand preferences. There also appear to have beenperceivedinterestsinpermittingrelativelyhighpricesfordomesticallyproducedgenericmedicines.

InthecaseoftheUnitedStatestheavailabledatashowthat, like France, it allocates around 2 per cent of itsGDPtopurchasingmedicinesandassociatedproductsandservices,asagainstthe1percentrecordedintheUK.TheextenttowhichthisadvantagesasopposedtoimposingaburdenontheAmericanpublicisdebateable– see Box 5. But from a long-term macro-economicperspective there are strong arguments in favour ofthe view the US spending on products derived frombiomedical/biopharmaceutical research benefits theoverall American economy. A strong pharmaceuticalsector funded via bothprivate andpublic investmentsgeneratesreturnsatmanylevels.

Oneofthemostimportantfactorstohighlightisthat,asnotedearlier,forthe20yearsorsosincetheclosureoftheOfficeofTechnologyAssessmentthedevelopmentofpubliclysupportedcosteffectivenessresearchhasbeenlimited in theUS. This has been linked to beliefs thatICERbasedrestrictionsontheaffordabilityoftreatmentssupplied to patients living in varying states of healthcouldprovediscriminatory,andmayharmtheinterestsofnotonlyindividualsbutalsothoseofresearchbasedindustryandthewiderUScommunity.

AmericanmedicalandeconomicthoughleaderssuchasProfessorMiltonWeinsteinhavearguedthatanextendeduseofcosteffectivenessanalysisandalliedtechniquescouldplayapositive role in improving theefficiencyoftheUS health sector. Yet at the same time they havewarned that the narrowUK focus on ‘cost perQALY’driven assessments linked to low cost effectivenessthresholds could prove counter-productive (Weinstein,2010;2011).

InfutureinitiativessuchastheestablishmentofPatient-CentredOutcomesResearch Institute (PCORI–whichwasformedfollowingthepassageintolawofPresidentObama’sAffordableCareAct in2010)–mayestablisha new balance between rewarding and promotinginnovationanddefendingpublic interests inequityandpopulation-wideaccesstogoodqualitycareintheUS.Yetachievingthisislikelytodemandprogressivelymoresophisticatedapproachestoapplyingconceptssuchascost-effectivenessthresholds(Dubois,2016).Ifattained,suchadvanceswouldbelikelytohaveglobal impacts,aswellasthepotentialtofurtherimprovehealthinlessadvantagedsectionsofAmerica’sdomesticpopulation.

Science, dogma or pragmatism? Determining cost effectiveness in a changing worldFactors such as national cultures and politicalpreferencesandinterestsplayacomplexroleinnotonlysettingoverallhealthcarespendinglevelsbutalsohowalternative opportunities within different health sectorsare valued and funded. Because of the nature of thephenomena being studied both academic traditionsandmoretransient‘thoughtfashions’canhaveamajorinfluenceontheobservationsmadeby,andthefindingsof,socialscientists.Thismaybeas true foreconomicresultsexpressedin‘hard’monetarytermsasitisfortheproductsof‘softer’disciplinessuchasmedicalsociologyandmoralphilosophy.

While not denying the desirability of trying to informhealth sector decision making with rational economicassessments,ortheneedformechanismswhichensurethe budgetary stability of public and private services,the discussion below highlights questions relating tothe assumptions and practices that exist in areas likethesettingofcosteffectivenessthresholdsusedinHTAstudies.Giventhatthisareaisoftenpoorlyunderstood(Culyer,2015)itseekstofurtherdevelopthemesraisedin theopeningsectionsof this report,with thegoalofcasting light onhowcurrent approachesmight furtherevolve in order to serve future health related publicinterestsbetterthaniscurrentlythecase.

How much should be spent on health care?

At first sight the total amount spent on theNHSmayseemtohavelittletodowithhowmuchbodieslikeNICEsayanadditionalQALYisworth.Itmight,forinstance,bethoughtthatwhilemacro-levelhealthservicespendingissetbypoliticalexigencieslinkedtotheelectioncycleandeventslikethe2008financialcrisisorBritain’swithdrawalfrom theEuropeanUnion, researchonwhetherornot


life-prolongingtreatmentsare‘costeffective’shouldbegroundedinfundamentalconsiderations.

From a practical perspective the linkage betweentotal health service costs and what NICE or otheragencies take to be the maximum acceptable valueofan incrementalQALY is indeed tenuous.But fromatheoreticalstandpointthetwoshouldinfactbecloselyrelated. It might, for instance, be suggested that if itcould be shown on a UK public willingness to paybasis that an additional Quality Adjusted Life Year ison average ‘worth’ £60,000 then total NHS spendingoughttobesettoreflectsuchobservations.(Thisvaluevariesbetweensocialclasses.TheUKsystemmightbycriticsbesaidtobeatriskofimposingwillingnesstopayvaluescharacteristicofpoorersocialgroupsacrosstheboard,ratherlevellingup.SeesourcessuchasHammitt,2002;Bakeretal,2010;andDonaldsonetal,2011fordiscussionsofhowthesocialvalueofQALY’smightbebestdetermined.)

However–aspeopleinorganisationslikeNHSEnglandmaywellfear–thepoliticallydeterminedaffordabilityofsuchanapproachcouldnotnecessarilybeguaranteed.It is thereforemore likely tobeargued that theoverallamountofmoneymadeavailableforhealthcareshouldsetthe‘price’ofeachnewunitofhealthgain.

AdequatedataontheincrementalNHScostsofgeneratinghealthgainsacrossthehealthsectorasawholeremainslacking. Yet this thinking underpins recommendationsin favour of cutting the amount payableper additionalQALYproducedto£15,000.Thisapproachisthereforehighlyquestionable,inpartbecauseitisimpossibleevertoknowaccuratelywhattheoverallamountof‘marginal’healthgaintheNHScurrentlygeneratesis,orcouldbewerethehealthserviceoptimallyorganised.

InrealitythereisevidencethatICERvaluesvarygreatlywithin all health care systems (Neumann et al, 2014).From a dynamic developmental viewpoint it might bejudgedbeneficial topaymore forQALYsderived fromtechnology based advances that are likely to lead on,directly or indirectly, to step changes in health careproductivitythanforextraQALYsprovidedviaextendingservices in static fields. This approach implies that nosingle‘correct’marginalQALYvaluecanbecalculated,and that pragmatic judgements need to be made ona case-by-case basis. Similar arguments can also beraised,forexample,inrelationtothevalueofexportingitemslikemedicines,andtotheimportanceofgeneratinghope amongst individuals facing serious illnesses thatcannotatpresentbesatisfactorilytreated.

RegardingtheoverallcostoftheNHS,theUKhasfromthe1960shadatrackrecordofspendinglessofitsGDPon health and associated social services than manyother similarly prosperous Western European nations.Fullyreliableinternationalcomparisonsdonotexist,and

exaggerationsshouldbeavoided(ONS,2016).ButitisreasonabletoestimatethatEnglandallocatessome10-20percentlessofitwealthonhealthandhealthrelatedsocialcarethancountriessuchasFrance,Germanyandthe Netherlands. These have social insurance basedsystems,whiletheNHSis(togetherwithLocalAuthorityservices)overtlyfundedfromcentraltaxation.

AtthesametimeUKhealthcarecostsareclosertohalfthe GDP level recorded in the US. However, Americaspendslessofitswealthonotherformsofwelfare.Itisarguable that itshighuseofprivate funding,alongsidea public spending level comparable to that in Britain,means that for sections of the population its healthcare system remains – notwithstanding Obamacare –less fair and effective than is the NHS. Paradoxically,some commentators implicitly argue that if people intheUKvaluetheequityaspectsofhavingataxfundedhealthservicemorehighly in relation tovariablessuchas encouraging innovation or economic growth thando Americans, this justifies setting relatively low costeffectivenessthresholds.

Because raising taxes is frequently unpopular withvoters and those seeking election, this line of thoughtsuggeststhatitis‘right’tobemuchmoreparsimoniouswithtaxpayers’moneythanwithprivateorcompulsoryinsuranceraisedfunding.Suchabiascouldbetakentolegitimatespendinglessonhealthandsocialcarethancomparably wealthy nations with other health servicefinancingsystems.WithinBritainitcouldalsobeseenasareason forbeingsignificantlymorecarefulwith ‘NHS£s’thanpeoplearewhenbuyingitemslike‘fast-foods’oralcoholicdrinks14.

However, theNHSwas not created during the 1940sto keep per capita health spending down to levelsbelowthoserecordedinnationslikemodernGermany,or toensure that theservices it offersaremuchmorecost effective than those available in other parts ofthe economy.Arguably theUKelectoratewas insteadfocused on creating universal access to the bestpossiblestandardofcomprehensivecareforcitizensofeveryclass.

There is also evidence that the war-time plannersand members of the subsequent Attlee governmenthopedthatNHSpolicieswouldhelpkeepBritainattheforefront of biomedical research and linked industrialdevelopment.Therationaleforthisrelatedtobeingabletopayforenhanced‘post-Imperial’eradomesticwelfareprovisions.Totheextentthatthesegoalsstillrepresent

14TheUKpopulationcurrentlyspendsabout20timesasmuchon‘fastfood’purchasesliketake-awaymealsastheNHSdoesonanticancerpharmaceuticals.Out-of-pocketoutlaysonitemslikealcoholicbeveragesareofasimilarmagnitude,evenaftertax.TheyrepresentmorethantwicethetotalcostsofallformsofNHScancercare.However,itisanti-cancermedicinesratherthanitemsliketobaccoproductsthataremorecommonlysaidtobeunaffordable.


Britishvoters’aspirationsandpreferencestheyprovidefurther grounds for disputing claims that calculationsbasedoncurrentNHSspendinglevelsofferreasonforloweringNICE’spresentcost-effectivenessthresholds.

Putsuccinctly,Britain‘nationalised’healthcarefunding(as distinct from all aspects of its provision in thecommunity)because itwasbelieved it tobeespeciallyimportant. Efficiency is desirable. But it would be acounter-productive result if in the twenty first centurypursuing an equitable approach to paying for healthcare in the aftermathofHitler’swarwere ultimately tocauseBritishinvestmentinhealthrelatedservicestobesignificantlylowerthanwouldhavebeenthecasehadaBismarkianorUSstyleinsurancemodelbeenfavouredin its place. Unless those responsible for conductingand using cost effectiveness studies understand theimplications of this observation and are prepared toguardagainstthehazardsitsuggeststhereisapossibilitythattheywill,throughactionslikeacceptingundulylowincremental QALY affordability thresholds, underminepublicinterests.

Is a QALY always worth a QALY?

Somebutnotallhealtheconomistsbelievethat‘a QALY is a QALY’ in thesense that, inorder tomaximise theefficiency of health care, the NHS should always paythesameamountforeachadditionalunitofhealthgain,whateverthecontextinwhichitisproduced.However,others think this a questionable approach. In additionto the problems inherent in setting appropriate costeffectiveness thresholds, the reasons why multiplyingthe average duration for which a treatment benefitsindividualsbytheadditionalqualityoflife(QoL)generatedcannotprovideaconsistentmeasureofvaluerelateto:

• thechallengesinvolvedinqualityoflifemeasurement,coupledwithconcernsaboutanyimpliedassumptionthatextendingthelivesofindividualsfortunateenoughto have good underlying health isworthmore thanproviding similar benefits to groups of people whobecauseofpersistent illnessorpermanentdisabilityareunabletorecoverfromillnesssofully;

• the growing importance of low incidence diseasesand the benefits of ‘orphan’ treatments in societiesthathavesuccessfullycontrolledmanymorecommondisorders,andthefactthatatgivenpointsinhistorycommunities may rationally elect to prioritise someformsofhealthcareresearchanddevelopmentoverothers;

• thefactthathealthrelatedbenefitsandtheirsequelaeare experienced not only by individuals duringtheir lifetimes, but indirectly by families and widercommunitiesoverlongerperiods;

• the need, in part due to the complex interactionsbetween population health and macro-economicperformance and the potential impacts ofpharmaceuticalpurchasingdecisionsbymonopsonybuyers on research and manufacturing investment,to foster coherent policies on the development oftheUK’slifesciencebasedindustriesandtheirfuturecapacitytoenhancenationalincome;and

• the weaknesses of inflexible ‘evidence based’approaches in fields characterised by high levelsuncertainty,whereappropriatepolicyformationrestson the exercise of intelligence, good probabilisticjudgement,rationalityandconsistentethicalpurposeratherthanthemechanisticinterpretationofempiricalinformation.

Thisdoesnotseektobeatechnicalpaper,andnoteverydimensionoftheissuesidentifiedabovecanbeexploredhere15. However, some commentators concernedwiththe value as opposed to the quality of life argue that,subjecttothevaryingpersonalchoicesoftheindividualsinvolved in any given episode of care, duration oflife should take precedence over the avoidance ofdisability.Inassessingtheutilityofmedicalinterventionsit is reasonable toattachmore ‘worth’ to thosewhichimprovesurvivalandconferfreedomfromproblemssuchas chronic pain than those that only improve survivalto a similar degree. But because QALYs conflate thelengthofindividuals’liveswiththeirexternallyperceivedqualitytheirusemayrisktreatingsometypesofpatientinequitably.

Peoplewhoarelivingwithoutsignificanthealthproblemsare likely to attach a relatively high value to avoidingstateslikebeingunabletodressorwashindependently,or having to livewith learningor other disabilities (seeBox 3, page 14). Yet this does not mean that thoseexperiencingsuchconditionsfindbeingaliveworthanylessthandopeoplewiththegoodfortuneoflivingwithoutthem.Evenifspecialsafeguardscanmitigatethedangerofunfairlytreating–offailingtotreat–lessadvantagedpeople,concernsaboutthepotential fordiscriminationmaycastdoubtontheQALYbasedICERconceptasareliablearbiterofutilitythroughouthealthandsocialcare.

Parallel to this, itmightalsobearguedthat theageatwhichanextraQALY isgainedbyan individualaffects

15Otherpotentiallyimportantquestionsrelatetowhetherornotpeopleinneedoftreatmentsthatcanbelife-savingordisabilitypreventingbutwhicharejudgedinsufficientlycosteffectiveforNHSprovisionshouldbeentitledtofinancialcompensationuptothelevelimpliedbythemeancosteffectivenessthresholdusedinmakingrationingdecisions.Itisalsodebateableastowhetherindividualswhoarenotinreceiptofanyformofexpensivecareshouldbeentitledtohavingmoreresourcesallocatedtotheirtreatmentforanewindicationthanwouldbesoininstanceswherepatientsarealreadyreceivinghighcosttherapiesforotherconditions.However,theequityrelatedpolicyimplicationsof‘disconnects’betweenassessingthecosteffectivenessofindividualtreatmentsasagainsttherelativecosteffectivenessoftreatingdifferentgroupsofpeoplerequestingNHScarearenotexploredhere.


itsvalue.AlanWilliamssuggestedthiswhenheargued,rightlyorwrongly, thatpeopleshouldwhenthey reachtheir70sacceptthattheyhavehada‘fairinnings’andnotseektoaccesscostlyhealthcaretothesameextentasyoungerindividuals(Williams,1997).Evenifhisworkinthisarea isonlytakentomeanthatolder individualshavefewerpotentialQALYsto losethanyoungeronesitcarriesdisturbingimplicationsforthosewhofavourof‘ageblind’welfarepolicies.

Another illustration of oneQALY not necessarily beingworth another relates to saving the life of a newborninfant as compared with that of her or his mother. Inaffluent societies the projected life expectancy of thebaby would normally be significantly longer than thatof the mother. Hence the number of conventionallycalculatedQALYsgeneratedbysavingtheinfantwouldoutweighthenumberyieldedbysavingthemother.Butthe‘realworld’costsgeneratedbylosingaparentoranasyetchildlessadultwithaformedmindandestablishedsociallinksmayreasonablybethoughttobefarhigherthanthosecaused,howevertragically,bythelossofaninfantwithanunformedidentity.

Turningtoorphandiseasetreatments,itcanbelesscostlytodevelopmedicinesorothertherapiesforraredisordersthanitistodiscoverandprovethesafetyandefficacyofnewtreatmentsforcommonconditions.Thisisespeciallylikelytobesowhenthereisa‘re-purposing’establishedmedicines,andwhenitisjudgedinappropriatetofactorinthesunkcostsofresearchprojectfailuresintothatofparticularinnovations.However,itisbroadlytruetosaythatallnoveltherapieshavehighcostsofdevelopment,regardlessoftheirvolumesaleandthetotalnumberofQALYs they will generate during the period for whichIPRsapply.

Given relatively lowmarginalproductioncostsand thefact that the fundamental social purpose of acceptingpremium prices for recent innovations is to facilitatefurther R&D investment, this means that from theprovider-sidestandpointthecostperQALYproducedislikelytobeordersofmagnitudehigherintherarediseasecontext than in that of commonly used therapies. Forsomehealtheconomiststhevolumeofwelfareproducedis the key issue fromapublic interest viewpoint. Theymay say that if the costsof developing treatments forrare disorders make them uneconomic when costeffectiveness thresholds are set at standard levels itwould be right either for manufacturers not to makethemorfortheNHSnottoofferthem.Butfromahealthserviceuserandequitablepublicpolicyperspectivethiscanbestronglychallenged.

At worst there stands to be a damaging mismatchbetween orphan disease related legislation designedto encourage research investment in fields regardedas social priorities, and purchasing policies whichimpede public access to effective products after their

development costs have been incurred16. Relevantconsiderations include the fact that inaggregate ‘rare’diseases today affect many millions of people acrosstheworld.Onceeffectivetreatmentsaredevelopedtheywillnormally,afterIPRexpiry,continuebeavailableatarelativelylowcostfortheremainderofhistory,oratleastuptothepointwhenbettersolutionsemerge.

Inthatthereareprofounduncertaintiessurroundingwhatanyonebiopharmaceutical researchanddevelopmentprojectwillultimatelyleadto,andthatsomeinnovationswill eventually prove much more productive than anyearly assessment could reasonably anticipate, it mayalsobesuggestedthatapproachesthatencouragetheresearchcommunitytoconcentrateonprevalentdiseasemechanisms rather than a broader range of scientificopportunitiescouldinthelongtermprovelessefficientthan ‘wider spectrum’ R&D incentivisation strategies.In countries such as France the case for rewardingscientificexcellenceinadditiontohealthgaingenerationhas receivedstronger recognition thanhasbeenso inBritain.

RegardingorphanproductsanumberofHTAagencieshave also, to a degree at least, recognised the casefor paying much more per QALY (say, for instance,five to ten timesmore) in some rare disease contextsthan isnormally judgedappropriate.NICEhasahighlyspecialised technologies (HST) evaluation programmewhichallowsforthiscontingency.However,it islimitedtoexaminingonlyasmallnumberofcases inanyoneyear,andthecut-offlinebetweentreatmentsthatqualifyforspecialconsiderationandthosethatdonotappearstohavebeensetinarestrictivemanner.

Totheextentthatthisinitiativerepresentsanacceptancethat‘rarediseaseQALYs’shouldbeseenas,intheshortterm at least, having a special value it serves patientandpublicinterests.Nevertheless,thecurrentsituationleaves open a number of questions as to how costeffectiveness threshold setting flexibilities ought to beundertakenbyresponsiblebodies.

ThisinturnleadsontohowUKindustrialpolicy,totheextenttothatitexistsandisdesirable,oughttobelinkedtoNHSmedicinespurchasingstrategies.Itissometimesarguedthathealthservicebudgetholdersshouldonlybeconcernedwithobtainingnarrowlydefinedhealthreturns,and that discrete mechanisms like fiscal interventionsshouldbeengagedwhen there areperceivednationalinterests in fields such as further incentivising privatesectorresearchanddevelopmentinvestment.

16Whenadrughasbeendevelopedtothepointoflicensingtheextentoftheglobalsavingstobemadebynotsupplyingitinanygivenmarketiscontestable.Thisisinpartbecauseeveninthemostheavilyregulatedsettingsresearchbasedcompaniesmayreasonablyseektoattaintargetlevelsofreturnoncapitalbychargingmoreforotheritems.Putmorepositively,reducingthelikelihoodofeffectivebutlowvolumesalemedicinesfailingtogeneraterevenuescouldreducetheglobalcostofriskcapitalandsogeneratesavingsthatcounter-balanceincreasedcosts.


There is a significant case for measures such as the‘patentbox’provisionsputinplacebyGordonBrown’slastLabouradministration.Theywereseenassplittingthedomesticincomestreamavailabletoresearchbasedcompaniesbetweenthe‘healthvalue’generateddirectlyfrom health service sales and ‘wider societal value’revenueslinkedtotaxationarrangements.

Such provisions may have boosted UK investmentlevelsinsomeinstances.However,suchstrategies(thegenesisofwhichwastoadegreelinkedtotheoriginalestablishmentofNICE)couldproveproblematicasthetwentyfirstcenturyunfolds.Thisispartlybecausetheirapplication(whichcanreducecorporationtaxpayments)might risk causing structural distortions in Britishbased industry. Facilitating reductions in visible NHSpharmaceutical purchasing prices could also in timeencourage other comparatively prosperous countrieswith fewerdirect interests inpharmaceuticalandwiderbiomedical research to impose reduced prices forinnovative therapieswithoutmaking counter-balancingfiscaladjustments.

Thepotentialimpactsofsuchtrendsonworld-widepublic(health)interestsaredifficulttoestimate.Buttheycouldprovesignificantlynegative.Insuchcircumstancesonepossiblemeansofbringing industrialandhealthpolicyapproachesintocloseralignmentcouldinvolveupwardlyrevisingthecosteffectivenessthreshold(s)appliedwhenusing‘costperQALYdata’todeterminetheaffordabilityofinnovations.Ifachievedinaninternationallystructuredmanner (ie by linking permitted pricing levels moreconsistentlytoGDPlevelsinawayacceptabletoallthestakeholders involved) this could open theway to themore effective use of Ramsey pricing – see previoussections – in promoting equitable global access tomedicines while maintaining adequate research anddevelopmentspending(Danzonetal,2011).

Observers who because of the many uncertaintiesinvolved question the value of national industrialstrategies and/or internationally co-ordinated attemptsto improve global access to medicines and fosterresearch investment are likely to dismiss the need forsuchinterventions.Yettherecanbelittlerationaldoubt

Box 6 From Edward Jenner to Checkpoint Inhibition – the Evolution of Immunology

In1796EdwardJennerexperimentedonaneightyearold boy called James Phipps, the son of a landlesslabourerwhofromtimetotimeworkedasDrJenner’sgardener. James was first inoculated with cowpoxpussand thenexposed to smallpox. This fortunatelysuccessful preventive intervention established Jennerasthediscovererofvaccinationandeventuallyopenedthewaytoeffectivesmallpoxcontrolacrosstheworld.Thediseasewas finally eradicated in the late1970s,albeitsomeweaponisedsmallpoxvirusstocksmaystillbeinexistence.

DespitethatfactthattheethicsanddesignofJenner’slone child trial might well seem questionable fromtoday’s standpoint his work played a significant partinopeningthewaytothesubsequentcontributionsofscientistssuchasLouisPasteur,followedbythoseoftwentiethcenturypioneersofimmunologysuchasSirFrankMacfarlaneBurnetandSirPeterMedawar.Theadventofanticancervaccinesandmedicinessuchastoday’scheckpoint inhibitorscanbe linkedback toaknowledgechainforgedoverhundredsofyears.

EvenJenner’sinitialcontributionwasnotasoriginalasissometimesportrayed. IndevelopingvaccinationhewasbuildingonlongstandingEnglishfolklawandsemi-formalmedicalknowledgeaboutthepreventiveeffectsofcowpox,aswellasdrawingonancientknowledgeof variolation. The latter, which involves exposure tolive smallpox virus in small doses, had already beenintermittentlypracticedincountriessuchIndia,China,Iran and Turkey for upwards of amillennium. It wasfamously introduced into England by Lady MaryWortleyMontagueonher return from Istanbul (whereherhusbandwasBritain’sambassador)inabout1720,

thirty yearsbeforeJenner’sbirth.Herbrotherdiedofsmallpox in 1713. This lossmotivated LadyMary toprotectherchildrenandthewidercommunity.

Suchexamplesillustratethefactthatthereputationsof‘great women’fortunateenoughtowinacclaimareoftengainedfromstandingontheshouldersofgenerationsof long forgotten, but nevertheless important,predecessors.Inthecontextofpharmaceuticalproductdevelopment and scientific progress more generallythis understanding emphasises the value of seeinginnovationasasingleincrementalprocessconductedover time, rather thanadis-linkedseriesof transient,fragmented,events.

Economists typically focus on assessing the utilityof individual developments while offering little or noinsightintothelongtermhumanrealitiesandsocietalprobabilities surrounding investment in areas like thelife sciences, or why alternative forms of immediateconsumptionmay be of less significant value. In thecomplexenvironmentofthemodernworld,whereforthefirsttimeinhistorylargepopulationsarethreatenedbyhaving toomuch rather than too little food, thoseresponsible for designing medicines price and costcontrol strategies should arguably seek to takeaccountoftheimportanceofadequately incentivisingall the (unpredictable) steps needed to maintain theevolutionary cascades leading to better diseasetreatments.Inareaslikecancercarepublicinterestsareunlikelytobeservedbyfocusingjustonretrospectivelyrewarding‘major breakthroughs’asmeasuredbytheirICERvaluesalone.


that channelling resources into areas like biomedicalinnovationasopposedto,say,unhealthylevelsoffoodconsumptionshouldbenefithumanity.Oneofthemoreseriouscriticismsofcurrentapproaches toeconomicsis that they can encourage affluent communities toconsume ‘as if there were no tomorrow’. A relatedpoint to stress is that pharmaceutical and associatedlife science advances are not just isolated events. AsdiscussedinBox6,theycanbeseenaslinksinasinglechainofhistoricaldevelopment.

Whose needs count most – is the ‘right’ aim to maximise total QALY production?

Followingonfromtheabove,thephilosophyunderlyingNICE’s use of QALY’s in conducting its medicinesappraisals and offering recommendations regardingthe treatment of NHS patients is essentially utilitarian.The theory Jeremy Bentham developed in the lateeighteenthandearlynineteenthcenturiespositsthat,intheabsenceofdivineguidance,publicpoliciesshouldseek to promote the greatest happiness determinedgoodforthegreatestnumberofpeople.UKgovernancetraditions are to a significant degree based on thispragmatic maxim, coupled with the principles of freemarket economics. At heart such thinking assumesthatthe‘natural’pursuitofhappinesscoupledwiththeuncompromising pressures of economic competitionand selection at the individual and social group levelsoffersthebestchanceofwellbeing.

But for voters and policy makers concerned with theformation of just, stable and adaptable societies, andvaluingbehavioursthatdonotleavevulnerablemembersofthecommunitytosufferavoidably,utilitarianismmaybejudgedwanting. Late twentieth century commentatorssuch as John Rawls (1999) have argued that sociallyjustadministrationsshouldseek toensure that the lifeopportunitiesenjoyedbytheleastadvantagedsectionsofsocietydonotfallbelowauniversallyacceptablesetofminimumstandards.

Ifthispositionisaccepteditaddsweighttotheviewthatinthehealthsectorcosteffectivenessanalysesshouldbeconductedinwaysthatwillservetoincreaseinvestmentin the treatment of rare and/ormore severe diseases,particularlywhenprogressappearsscientificallypossible.Atthepresenttimethisincludesfosteringtreatmentsforlessfrequentandmoreseriousformsofcancer,aswellasmorecommondisorders suchasmultiple sclerosisand Alzheimer’s Disease. In the short term this maygenerateonlya limitedquantumofpatientbenefit.Yetit can be rationally predicted that the societal returnsfrom continuing to invest in such fields will increaseexponentially in future decades, in ways that will overtimebenefittheentire(global)population.

Oneimplicationofthisisthattheconventionalpropositionthat maximising the immediate number of QALYsgenerated by NHS spending is in line with the publicpreferences is challengeable. Health and social carefundersandprovidersmayneedtodomoretoconfirmtheappropriatenessof resourceallocations in linewithvaluessuchasequityandconcernforthewellbeingofcominggenerations.

Even in the period of relative poverty during andimmediately after WW II a spirit of altruism arguablyunderpinned support for the creation of NHS. Somehumanvaluesdevelopment theories (see, for instance,Inglehart and Welzel, 2005) suggest that since then,asBritainhasgrownricherandmoresecure,individualandcollectivewillingnesstosafeguardminorityinterestsandinvestforthefutureshouldhavegrownstronger.Totheextentthatthis isactuallythecasecurrentpoliciesin areas such as promoting health service efficiencyand incentivising innovationwillneedtoberevisitedtoensure that they fully reflectpublicpreferences inhighprioritywelfarefields.

Are the opportunity costs of using IPR protected medicines and vaccines systematically over-stated?

Patentsandotherformsofintellectualpropertyrightarecentraltothemodelofprivatelyfundedpharmaceuticalinnovationthatfirstemergedattheendofthenineteenthcenturyand reachedazenithsince the introductionofproductssuchasinsulinsandpenicillinsascommercialentities. Some critics of the status quo, often citingdelaysinsupplyingeffectiveHIVtreatmenttopeopleinregions such as sub-SaharanAfrica in the 1990s andearly 2000s, argue that IPRs delay access tomedicalinnovations. They conclude that other forms of R&Dfundingshouldbeinstituted.

Yet presently IPRsplay an essential role in themixed,mutually dependent, system of public and privatefunding that underpins not only the research basedpharmaceuticalindustrybutalsothelifesciencesbasedresearch undertaken in settings like Universities andresearchcharities.Asalreadydescribed, this inevitablymeans that new pharmaceutical products are moreexpensive thanmatureproducts, exceptwhenspecialactionistakentoassuretheiraffordability.YetunlikethecasewithlabourintensiveformsofhealthcarethepricesofpharmaceuticalproductsfallovertimeasIPRsexpireandknowledgeabouttheiroptimalmassusematures.

Naïveinterpretationsseektoexplainsuchtrendsintermsofsuccessfulinnovatorsretrospectivelyrecoveringtheircosts(Scannell,2015).Moresophisticatedobservationsseethesocialutilityofhighinitialreturnsonsuccessfulpharmaceuticalinnovationsmoreintermsofincentivisingthe investment of risk capital in new research and


development programmes needed to create the nextgeneration of treatments. However, for the purposesof this discussion themost important issues relate tothe question of whether or not the cost effectivenessthresholdsusedinevaluatingitemslikenewmedicinesshould,were it accuratelyandmeaningfullycalculable,besetattheaverage‘costperadditionalQALY’forthehealthserviceasawhole.

Anumberof theweaknessesof thecase for reducingthe cost effectiveness thresholds NICE presently usesinmedicinesevaluationshavealreadybeendiscussed.Oneimportantpointworthre-emphasishereislinkedtothefactthatovertheirusefullifetimestheaveragecostofmostpharmaceuticalproductsiswellbelowtheirlaunchprice(Pistollato,2015).

It follows from this that if regulatory or other agencieswere to impose thesamecosteffectiveness thresholdon new medicines and allied items value calculationas they would – assuming they were they similarlycontrolled–onlabourdependentinnovationswhererealcosts (in linewithGDPgrowth) tend to rise over timeit would significantly distort the choices made. Thiscoulddiscouragepharmaceutical innovationandinhibitdynamic and optimally productive change in the wayhealthgainsaregenerated.

Unless ‘whole life’ approaches to understanding thecostsandbenefitsofproductssuchasnewmedicinesare employed the opportunity costs of using suchtechnologies relative to alternative ways of improvinghealth care are going to be significantly over-stated.The precise size of the effects engendered by IPRexpiriesandmatureproductgenericisationdependonmany variables. Some economists may say that theuncertaintiesinvolvedaretoogreattopermitmeaningfullife timecostprojections.But thisdoesnotmean thatpolicymakerscanaffordtoignoresuchrealities.

It is not unreasonable to suggest that taking intoaccount lifecycleeffectscould, independentlyofotherfactors,justifythecosteffectivenessthresholdsappliedin assessing innovative pharmaceutical products atthe time of their launch being several times the levelsobservableelsewhereinthehealthsector,muchlessinthewidereconomy.

Are defined cost effectiveness thresholds needed?

WithinthemodeldevisedbyhealtheconomistsinYorkand elsewhere, cost effectiveness thresholds are vitalfor translating ‘cost per incremental QALY’ data intodecisions as to whether or not a given medicine orothertreatmentcanberecommendedforNHSpatientuse. During the research undertaken for this analysisstakeholders stressed that NICE already exercises

a degree of flexibility in deciding what it regards asaffordable.ButitisingeneraltruetosaythatthecurrentEnglishapproachismoretightlyfocusedonapplyinganarrowlydefined–andrelativelylow–QALYcostceilingthanissoinothercomparablecountries.Theextenttowhichthisdifferenceisdogmaticallydriven,asopposedtorationallyinformed,isdebatable.

As previously discussed there is, for example, inGermanyastrongeremphasisonensuringtimelypublicaccesstonewpharmaceuticaltechnologies,evenwhenthey are costly at launch. It is only subsequently thatincreasingattention ispaid toenhancing theefficiencyof the clinical care available (Perleth et al, 2009). Thisimplies a pragmatic acceptance that incremental costeffectiveness ratios should vary significantly betweentherapeuticfields,dependingonthetechnicalchallengesandtherapeuticopportunitiesrelevantatanygivenpointintime.

American public policy makers have typicallydiscouraged the use of aggregated ‘cost per QALY’data to make decisions on treatment entitlements,whilerecentlyacceptingthatcomparativeeffectivenessstudies can have an important to play in the deliveryof good quality personal care. Interviews undertakenwith US based economists who believe that costeffectivenessanalysiscouldandshouldinfuturehaveanextendedroleindicatethattheBritishexampleisseenashavingsomestrengths,but that–notwithstanding thevariationsacceptabletoNICE–itsrigiditywouldmakeitunacceptabletomanyAmericansdoctorsandpatients.Respondents highlighted the theoretical problemsinherent in defining incremental cost effectivenessthresholds, and suggested that creating situations inwhichpatientsfeelthattheyhavetobegforaccesstoeffectivetreatmentsshouldberegardedasrepugnantinanysetting.

Similar responses were received from respondents inEurope,includinginnationssuchasFranceandSpain.In Italy, for instance, there is likely tobeawarenessof‘costperQALY’information.Butitisnotnormallyusedtoformulateexplicitrecommendationsaboutthemedicineprices health care providers should pay. This could insome instances help reduce expenditures to levelsbelow those which health technology assessmentsmight indicate are acceptable, albeit at the possiblecost of sacrificing public interests in incentivisingR&Dspending. In relation to thisaBritishsource recalledaTreasurycontactsayingthatifitwascertainthatincurringhigherpharmaceuticalcostswouldstimulate increasedresearch or other investment in theUK thiswould bea priceworth paying, but that they could not be surethiswouldbe the resultof relaxingNHSrationing/costeffectiveness criteria. Additional money might insteadflowtocentresinsettingsliketheUS.


Life is inherently uncertain. However, especially incontextswherepersonalrelationshipsandtheopinionsofkeydecisionmakersremainvitallyimportant,thereisgood reason to think that theUK,despite thepresentstrength of its public sector science base and NHSlinked research assets, will become a less favouredresearch and clinical trial investment destination if itsapproachtopharmaceuticalpricingandsupply is–ascomparedtothepoliciesofothernationsorgroupsofnations–perceivedasbeingundulyself-interestedanddemonstrablyover-regulated.

Switzerland’s record underlines the fact that Britain’slimitedsizedoesnotmeanthatthedeclineinitspositionasaleadingcentreforinternationalcompanyinvestmentin pharmaceutical innovation and manufacture seenin recent decades has, as some may believe, beeninevitable. Nor should it be taken to imply that, givengoodgovernance,afuturestrengtheningofthecountry’sperformancewill prove impossible, despite challengeslike those linked to Brexit and the likely move of theEuropeanMedicinesAgencyawayfromLondon.

IntroducingmoreflexibleapproachestoconductingcosteffectivenessanalysesandmakingNHSmedicinesuserecommendations could help create a more positiveenvironment. This might encourage not only existingor potential foreign investors in the UK but also NHSclinicians, together with patients and families whohope to be able to access novel and more effective

treatments. The remainder of this paper explores thewaysinwhichachievingtheseendsmightbeaddressedinwaysconsistentwithassuringthefinancialviabilityofthehealthserviceandlimitingtotalpharmaceuticalcoststoaffordablelevels.

Adapting for the FutureThis report is centrally concerned with the setting ofcost effectiveness thresholds in health technologyassessment, particularly in the pharmaceutical carecontext.Therearemanyissuesthatrequireinvestigationin this context (Karlsberg Schaffer et al, 2016). YetimportantthoughtheworkofbodiessuchastheNationalInstituteforHealthandCareExcellenceandtheimpactof its CEA studies is, their contributions tomedicinesevaluationanduserepresentonlyalimitedpartoftheUKsystemforcontrollingpharmaceuticalexpendituresandpromotingimprovementsincarequalityandoutcomes.

AsFigure4inpartservestoillustrate,otherkeyelementsof thestructure inplace inEngland include thePPRS,NHS England and Trust based purchasing activitiesin the area of specialised care and thewiderwork ofNHSpharmacists anddoctors as they are involved inbuying,supplyingandguidingtheuseofpharmaceuticalproducts at the national, regional and local levels. InprimarycaretheDrugTariffsetsgenericmedicineprices,

Figure 4. A Breakdown of UK NHS Spending on Medicines in 2015

Source:ABPI(2016)


whilecommunitypharmacists’profitsonsupplyingNHSmedicines are limited by a claw-back system whichreturnsaproportionoftheirprofitstotheDepartmentofHealth.Thisisintendedtostimulatelowcostpurchasingby independent professionals, while also ensuringsavingsforthepubliclyfundedsystem.

Fiscal provisions can additionally influence researchand other investment decisions by private ‘non-NHSfamily’ companies that supply the health service withmedicines.Thechallengenowfacingthiscountry,giventensions like those associated with Britain’s changingrelationshipwiththeEuropeanUnion,istotrytoensurethat all the above elements work together to protectnational and international interests in improving healthand increasing prosperity. The discussion below doesnot recommend indetailhowanewnational industrialstrategymighttrytomaintainorfurtherstrengthenthiscountry’s pharmaceutical sector andwider life-sciencecapabilities.Butitdoesseektoidentifykeyissuesandindicatepotentiallybeneficialdirectionsofchange,giventhefollowinginitialpropositions:

• the primary, if not exclusive, goal of pharmaceutical sector actors should be to promote health gain and provide comprehensive and well trusted treatment care access for everyone. Private companiesmustmakeprofits tosurvive,andpublichealthcareprovidersneedtoensurethattheircostsdonotexceedtheirabilitytofinancetheircommitments.Butwithouttheconfidenceofthepublic they should inpartnershipbe servingneither‘side’cansuccessfullyfulfilitsmission.Totheextentthat thepursuitofnarrowlydefinedefficiency in theNHScancreatesituationsinwhichpeoplefeartheyarenotbeingofferedthebestpossibletreatmentinatimelymanner,thecurrentsituationrequiresreform;

• short term problems ought not to supress awareness of the long term gains which progress in developing pharmaceutical and allied life science technologies will contribute.Current investments inbiopharmaceutical andalliedresearch by both public and private agencies will,over andabove the immediate valueof incrementaltherapeutic improvements, serve asbridgeheads tofuturelifescienceadvanceswhich,asthetwentyfirstcentury unfolds,will play vital roles in fieldsbeyondhealthcareper se.Realisticattitudestothepresentutility of newhealth technologies and thepricingofinnovativeproductsmustofcoursebeadopted.Yetas debate in areas like climate change and energygenerationindicates,policymakersoughtalsotobemindful of long term, community wide, challengesthatwillrequiresolutionsdependentonlifesciencesrelatedexpertise;

• the UK has an interest in the further development of the global market for medicines and allied

products in ways that are sensitive to the needs of all communities. From a national perspectiveBritain, with its relatively strong research base,standsstrategicallytogainfromkeepingthereturnsgenerated by innovative medicines and vaccinesrobustrelativetothoseofsupplyingcommodities.Butdefendingthevalueofintellectualpropertyandfurtherinvestment in R&D cannot be sustainably achievedinways thatareantipathetic to thewelfareof thosemembersoftheworldpopulationwhocurrentlystandtogainmostfromextendingtheaffordableprovisionofuniversalhealthcare.

Thereisashasalreadybeendescribedastrongpublicinterest case for using ‘Ramsey pricing’ in globalmedicines supply. This could allow the prices paid fornewtreatmentsbypatientsandpublichealthsystemsintheworld’spoorercountriestobeclosetothemarginalcosts of their production, while richer individuals andnations pay higher amounts in accordance with theirwealth. Such strategies, along with complementaryhealthservicedevelopments,couldhelpresolveaccessto treatment related inequalities and support ongoingpharmaceuticalsectorinvestment.

To thisend there isamoralaswellasapoliticalcaseforsayingthattheUKoughtnottoattemptto‘freeride’on thebackof spendingonmedicinesbynations liketheUSorFrance,albeiteveryeffortshouldbemadetoprevent outlays on clinically inappropriate treatments.Theviewtakenhereisthatcosteffectivenessanalysesofnotonlypharmaceuticalproductusebutalsoofissueslike investing inmedical andnursingeducation shouldexplicitlytakeintoaccountglobalhealthcareconcerns,alongside local welfare interests. If this is acceptedit implies that, subject to the appropriately regulatedpursuitofefficiency,thetotalquantumofmoneyspentonpharmaceuticals in theUKshould, as aproportionofGDP,becomparable to thatspentbyothernationswithsimilarlevelsofincome.Relatedargumentsexistincontextslike,forinstance,ensuringthattheNHSdoesnot use itsmarketpower todrivedown thewagesofgroupssuchasnursestosuchlowlevelsthatitbecomesreliantonstafftrainedinlessdevelopedsettings.

Todate theperformanceof theBritishpharmaceuticalsectorintheR&Dcontexthasbeengood.However,inotherindustrialareastheUK’sresearchanddevelopmentinvestment outlays have, as a proportion of GDP,generally been below the levels reported by leadingOECDcountriesandthetargetlevelforallEUMemberStatessetbytheEuropeanCommissionfor2020.If intheyearsleadinguptoandfollowingBrexitgovernmentrevenuesfall,ordonotgrowasfastaswaspreviouslyhoped,andpublichealthservicefundingconsequentlyfacesnewcurbs,under-investinginthepharmaceuticalsectorcouldrepresentagrowingthreat.


The role of the Pharmaceutical Price Regulation Scheme

ThePPRShassince the1960sprovideda frameworkthat has not only limited the cost of medicines andother pharmaceutical products to the NHS, but hasalso encouraged productive research investment andmoderatedspendinginareassuchasthepromotionofmedicinessoldtothehealthservice.DespitecriticismsfromagenciessuchasthenowdissolvedOfficeofFairTrading (ibid– theOFTmayatone timehaveseen itsownsurvivalaslinkedtothepromotionof‘valuebased’pricingforNHSmedicines)thestatedobjectivesofthePPRScanbeseenasfirmlyinlinewithrationallydefinedpublicinterests.

Somecriticsmaysaythatinthepastlinkingtheceilingsplaced on industry returns to the (historic) value ofcompanies’assets intheUKmightonoccasionshaveencouraged‘excessive’ local investment.However,thecurrent(2014)versionofthePPRS(whichdoesnotapplyto the sale of non-branded generic/off-patent items)providesanoverallNHSspendingcap.This,alongwithotherprovisions,offsetssuchhazards.There isreasontoarguethat,especially inapost-EUenvironment,theUKshouldseektobuildonthesuccessesofthePPRSrather than to dismiss it as redundant. One possiblewayofseekingtoachievethismightbethroughfurtherguaranteeing NHS market access for all licensedmedicinessuppliedviathetermsoftheSchemetohelpassurethatappropriateclinicalneedsaremet.

‘Overspends’ on the total budget for medicines andalliedgoodssuppliedunderthetermsofthePPRSarepresently returnedbyABPImembercompanies to theDepartment of Health. This has proved controversialforanumberof reasons.One is that the rebatespaidunder thisarrangement (whicharepresently inexcessof£500millionayear)arenot,visiblyatleast,returnedtothehospitalsandprimarycareorganisationsdirectlyresponsibleforpurchasingmedicines.17Thisdecreasestheir willingness to fund novel treatments, even incircumstanceswherethemarginalcosttotheNHSasawholeofprovidingbettercareiseffectivelyzero.

The impactof totalexpenditurecapping isalso limitedbythefactthatthePPRSdoesnotcoverallinnovativemedicinesuse.However,theideaofmaintainingabroadcost containment framework within which companiescan compete for sales to the NHS has a number ofattractions.Not the leastof these is thatover timethetype of cost effectiveness basedmedicines evaluationusedbyNICEcouldbeemployedtodistribute incomefairlybetweenrivalcompaniesandhelpensurethatthe

17Scotlandhasbeenable–forreasonssomemayfeelhavebeenindirectlylinkedtoahighlevelpoliticaldesiretomaintaintheviabilityoftheUnion–touseitspharmaceuticalsalesrebatestoenhanceaccesstonewtreatments.Butthishasnotbeenovertlysointherestifthecountry.

total spent on their products remains at a reasonablelevel,ratherthantolimitseriouslyillNHSpatients’accessto innovative treatments that they and their doctorsbelievemaybenefitthem.

Centrally controlled purchasing

Inthelast20yearstherehasbeenanacceleratingtrendtowardsfewernewmedicinesbeingmarketedforhighvolumeuse inprimarycareasagainst the introductionof products suitable for relatively low volume use inspecialisthospitalandalliedsettings.ThepercentageoftotalNHSpharmaceuticalcostsincurredbythehospitalsector is now close to 50 per cent, as compared toabout20percentintheyearsbetweenthe1950sandtheendofthe1980s.AtthesametimeNHSEnglandistighteningstructuresandproceduresrelatingtocentralandregionalcontractingformedicinesinordertodrivedown costswhile preservingwhat it sees as the bestaffordableservicequality. InsomecasesNHSEnglandmay also limit the numbers of people being treatedin order to contain spending, notwithstanding NICErecommendationsonNHSpatients’entitlements.

From a health service management perspective thereis arguably a robust case for such policies, especiallyinareasoutside theambitof thePharmaceuticalPriceRegulationScheme.However,aswellas limitingcoststheroleofthePPRSincludescurbingtheinappropriateexerciseofmonopsonypurchasingpowers.

ItsstatedobjectiveistobalancepublicinterestsinNHSmedicines being as affordable as possible against thebenefits associated with a successful pharmaceuticalindustry. NICE’s interventions, despite the criticismssometimes made of them, can be seen as seekinga similar balance. But beyond NICE and the PPRScentralised purchasing programmes driven only bya desire to obtain the lowest possible prices couldbecome focused on expenditureminimisation inwaysthat counter-productively limit clinicians’ freedoms toprescribe optimum treatments for their patients, or inotherundesirablewaysrestrictconsumerchoiceandtheextenttowhichpharmaceuticalcompaniescangenerateearningsfromIPprotectedproductssoldforNHSuse.

This risk should neither be over-stated nor ignored.One possible means of checking the possible futureimpactsofmedicinespurchasingprogrammesthatmayintimecometobemanagedbyexternalcommerciallymotivatedentities(asopposedtointernal,professionallydirectedNHSagencies)mightbeforNICEtobegivenastrengthenedstatutoryroleinmonitoringandregulatingallNHSpharmaceuticalsupplycontractsmadeoutsidetheambitofthePPRS,andusingitsexpertisetoprotectpublic interests on both sides of the pharmaceuticalsprovisionequation.Partofthepurposeofthiswouldbetoensure that in thecomingeraofmorepersonalised


‘precision’ medicine aimed at preventing or wherepossiblecuringcomplexconditions like lungandothercancers,NHScliniciansareaswellplacedaspossibletoensurethattheirpatientscanaccesstimely,optimallyspecified,treatment.

Current approaches do not consistently guaranteethis. Arguably, when health economics was new totheNHS its application necessarily involved overridingprofessional preferences which were inadequatelyinformed and insensitive to the benefits of improvinghealthserviceresourceuse.ButgivendevelopmentslikethoseembodiedinthepresentversionofthePPRSandthechanges in clinicians’ educationandattitudes thathavesincetakenplacetherearemoreopportunitiestotakeafacilitativeapproachtoguidingthechoicesmadebyhealthserviceusersandtheiradvisers.

Recognisingthiscouldopenthewaytohealtheconomicsin the UK interfacing more effectively with disciplinesranging from clinical pharmacy and health psychologytomedical sociology in order to comprehensively andequitablyaddressthechallengesofhealthcarerelatedresourceallocation.Optimisingvalueistodaymorelikelytodemandstrengtheningratherthanlimitingthedecisionmakingcapacityofindividualhealthprofessionalsseekingtodeliverpatient-centredservices(Porter,2010).

Improving the ways in which cost effectiveness thresholds are set and applied

Thequalityofmuchpublicdebateaboutthelongtermreturnstobederivedfrombio-sciencebasedresearchandthestandardsofmedicinessupplyanduseinBritaincouldbeimproved.Onoccasionswhatcanreasonablybe judgedapositive national success ispresentedasacostly,corrupted,failure.Theadverseconsequencesof such false negativism are rarely explored, let alonecommunicated effectively to public and politicalaudiences.Theviewofferedhereisthatbroadlybasedeconomic studies could,when adequately undertakenandtheirfindingsconstructivelypresented,helpcorrectsuchshortcomings.

With specific regard to the role of cost effectivenessthresholds in determining NHS patient access totreatmentakeymessageofthisanalysisisthatcalculatingthevalueofnewtherapeuticoptionsviaestimatingtheirincrementalQALYrelatedcostsisbynomeansanexactscience. Over and above problems like the potentialof aggregated data to obscure the differing outcomesexperienced by people receiving the same forms ofcare,manyoftheassumptionsmadeintheprocessofcalculatingthebenefitsthatinnovativetechnologiescanbringtoindividuals–letalonetheirfamilies,communitiesandtheglobalpopulation–arehighlycontestable.

What ismeasuredisoftenmeasuredimprecisely,whiledimensionsofvaluethatarenotmeasuredmaywellbeignoredaltogether.Itiswidelysaidinqualitymanagementthatonly thatwhich ismeasured isdelivered,but thatthethingswhicharemostimportanttogroupssuchaspatientsareoftentoodifficulttomeasure(Taylor,1996).Thiscanalsobethecaseineconomicevaluations.

Relatively minor methodological variations in the wayvariableslikequalityoflifeareassessedorweightedareunlikely tochange the ‘answers’providedbyCEAsbyany great amount. Yet more robust challenges to the‘York paradigm’ which has dominated British healtheconomicsinthelastfewdecadescouldresultinmuchlarger value estimation re-adjustments. Examples ofthe lattermight include estimating thenon-discountedlongtermsociety-widevalueofnewmeansofimprovinghealthandpreventingcuringconditionslike,forinstance,Parkinson’s disease, multiple sclerosis or Alzheimer’sdisease.

In instances when large State funded or mandatoryinsurance funded purchasers are buying innovative,IPR protected, pharmaceutical products from singlesource suppliers sophisticated mechanisms forresolving pricing disputes in a public interest focusedmannerhaveanessentialroletoplay,especiallyastheviability and desirability of international reference pricebased systems is coming under increasing scrutiny(PerssonandJonsson,2016).ThepoliticiansandothersresponsibleforestablishingNICEandsubsequentlyforpromoting‘valuebased’medicinespricingwereatheartseekingtoasauthoritativelyaspossibleresistchallengestoNHSrationingdecisions,and/ortoestablishfairpricesina‘sciencebased’way.YetCEAderivedconclusionscannotprovideabsoluteanswerstoanyofthequestionsatthecentreofsuchmatters.

Respondentsinterviewedduringthepreparationofthisreport suggested that even Ministers are not alwaysadequatelyawareof the limitationsof ‘costperQALY’basedprescriptions.Someobserversbelievethatundueinfluenceoverpolicy formationrelating toan importantindustrialsectormayonoccasionshavebeenexercisedby groups ideologically hostile to the role of privatecompaniesinthehealtharena.

Understoodandusedwithsufficientgood-will,‘costperQALY’estimatessupportpatientandpopulationfocuseddecisionmaking. But there is also reason to fear thatnarrowandyetover-detailedapproachestocalculatingwhether or not novel medicines offer sufficient valueformoneyforNHSusecanwastetime,resourcesandeffort.DespitethegoodintentionsofhealtheconomicspioneerslikeAlanWilliamsandthepositivecontributionsthat NICE has made, one of the main conclusionsofferedhereisthatthe‘costperQALY’centredpursuitof efficiency has at best played an uncertain role indetermining NHS user access to pharmaceutical


innovationsinanequitableandaffordablemanner.Thereisevidence(see,forexample,Jonnsonet,2016)thatinsomeinstancesithasdelayedaccesstotreatmentsandplayedapartinneedlesslydeprivingpatientsofthebestpossiblepersonalcare.

The evidence available also suggests that someother countries are presently doing better than Britainin maintaining patient and public confidence in thequality and affordability of health and social carethey provide, and in providing an environment that isconducive to synergisticprivateandpublic investmentinpharmaceuticalandwiderbiomedicalinnovation.Theintroductionofmoreflexibleandhumaneapproachesinfieldsliketheapplicationofcosteffectivenessthresholdsin determining medicines affordability could – asexemplified in settings likeSweden – be an importantstep towards achieving British arrangements whicharemoreconsistentlypatientandclinicianfriendlythanat present, yet which are still capable of effectivelycontrollingpublicexpendituresonmedicinesandalliedproducts.

ConclusionPeople have been using medicines derived fromplant and other sources ever since homo-sapiensevolved some 250,000 years ago. In the 5,000 yearsor so during which written records have developedearly pharmacopeias initially drew together ancientfolk-wisdom. They subsequently opened the way toprogressivelymorescientificapproachestoguidingtheusesofdrugs–aspoisonsaswellaspotentialcures–andunderstandingtheirbiologicalactions.

The immediate progenitors of modern medicine andtoday’s health care professions were formed in thenineteenthandearlytwentiethcenturies.However,ithasonlybeenintheperiodfollowingthesecondWorldWarand, in theUK,after thecreationof theNHS that theresearchbasedpharmaceuticalindustryasitiscurrentlyformedcameintoexistence.

Theadventofmedicinessuchassystemicantibiotics18,antipsychotics and blood-pressure lowering agents,togetherwithproducts likepolio vaccines,was initiallyaccompaniedbyawaveofoptimismaboutthepotentialof pharmaceuticals to transform national and globalhealth. But at the end of the 1950s the Thalidomidetragedy precipitated a political reaction which led toincreasinglystringentregulatoryprovisions,whichitwashoped would assure the safety and efficacy of novelpharmaceuticaltreatments.

18Topicalantibioticshaveamuchlongerhistory.Forexample,penicillinandothermouldswereusedinfolkmedicineforcenturiesbeforeSirAlexanderFleming’sfamousobservations.

Theneed to conduct extensive tests andclinical trialsgreatlyincreasedthecostofdevelopingnewmedicinesand vaccines. It also led to the build-up of a uniquedata base relating to the benefits of pharmaceuticalinnovations.

Thistwinincreaseinspendingandinformationopenedthewaytothe‘birth’ofhealth/‘pharma’economicsand,since2000,thecreationofNICEasthecornerstoneofhealtheconomicsbasedHealthTechnologyAssessmentintheUK.Inthehalfcenturyorsobetweenthe1960sand the present new approaches pioneered by bothindustryandacademiahavechangedthewaytheutilityof medicinal and other treatments is evaluated. Thepower of doctors treating patients to allocate healthcare resources has decreased, while the influenceof managers and others involved in the ‘higher level’allocationofNHSmoneyhasrisen.

Along with other factors, such shifts in their externalenvironment have also led to major changes in theformandfunctioningofresearchbasedpharmaceuticalcompanies. Thenatureof the research andmarketingchallenges they face has shifted, and they are moreglobally oriented and socially accountable than at anyprevioustimeintheirexistence.

The factors that are causal in driving the evolution ofcomplexsystemsareoftendifficult to identifywithanysignificantdegreeofconfidence.The judgmentofferedhereisthattheimpactofcosteffectivenessstudiesontotalhealthspendingandpatternsofhealthandsocialcaredeliveryhasbeenlessextensivethantheirarchitectsarelikelytohavewished.Butdespiteitslimitationshealtheconomicsasadisciplinehas–togetherwiththewiderHTA and patient empowerment movements – servedtopromotemore reflectiveandcritical attitudes to theuseofhealthcareresources,especiallyinthecontextofmedicinessupply.Thishasimprovedsomeformsofcaredelivery, even though the inflexible application of CEAbasedfindingscan lead toneedlessly rigid restrictionson the practice of medicine, particularly in rapidlydevelopingareas.

In circumstances in which the monopolistic providersof goods such as innovative medicines are selling tomonopsonistic purchasers like the NHS, elaboratemechanismsforfindingpricingsolutionsanddeterminingtotaloutlaysareoftenrequired.Thesystemwhichhastodateemerged intheUK–thespecificnatureofwhichis linked to the functional cultureof theNHSas a taxrather than insurance funded universal care system –hasanumberofstrengths.Ithas,forinstance,facilitatedthepromotionoftherapeuticadvancesinwaysthatlimitinappropriate prescribing and curb undue spendingonmedicalentertainment.However,Britainstandsoutagainstotherdevelopedcountriesashavinganunusuallynarrowfocuson‘QALYbased’costutilityanalysis.


Historically, the NHS has long been a relatively lowcost care system which tends to be a parsimonioususerof innovativepharmaceuticals. If in thecontextofaccessingnewmedicinesandvaccinestheamounttheNHS iswilling to payper ‘marginalQALY’were to falldramaticallyfromcurrentlevelsthiswouldmaketheUKaprogressivelylessattractiveplaceinwhichtointroducenew medicines. It could discourage further industrialinvestment inclinicalandotherBritishbasedresearch,especiallyifwithdrawalfromtheEUdiminishesthewiderimportanceoftheUK’seconomyandculture.

Successfullycombattingsuchdangerswilldemandtheintroduction ofmore constructive and thoughtfulwaysofcontrollingpharmaceuticalcosts,thatsimultaneouslypromote improved health outcomes and incentivisetherapeuticinnovation.Inlookingtowardsthecontinuingevolution of health economics, and within it costeffectiveness analysis as employed by HTA agencies,an importantpartof the taskaheadwill involve furtherrefiningtheuseofQALYbasedvalueestimatesinordertostoptheirapplicationcausingavoidableharmtogroupssuchasthoseinneedoflowvolumesale‘cuttingedge’medicines,whileatthesametimerespectingtheneedtoensure‘valueformoney’andtheoverallaffordabilityofthehealthservice.

Withspecificregardtosettingandusingcosteffectivenessthresholds,positiveprogresswillalsorequiremovingonfrom imposing tightly defined ‘cost perQALY’ ceilingstowards making tailored judgements, consistent withthe fundamentalvaluesandgoalsof theNHSand theempatheticprovisionofpersonalisedhealthandsocialcare.Achievingfurthershiftsawayfroma‘one size fits all’approachwill involveproducingcontextualisedcostandbenefitanalysesthataremoresensitivetoindividualand community values than present forms of CEA.Therewillalsoneedtobemechanismsforensuringthatnew purchasingmethods are not used to drive downtheamountspaidbytheNHSforinnovativemedicinesto unsustainable levels after the ‘fourth hurdle’ ofdemonstratingcosteffectivenesshasbeennegotiated.

ThequalitativeresearchfindingssummarisedinthisreportalsohighlightawidespreadbeliefthatincreasedflexibilityshouldbecombinedwithastrengthenedcommitmenttoprotectingNHSusersfromfeelingthattheyneedtobegfortreatmentsthatmightsaveorextendtheirlives.Well-structuredpoliciescouldandshouldavoidsuchservicelapses,notleastbecauseoncethecostsofdevelopingand licensing new treatments have been incurred thescaleofthemacro-economicsavingstobederivedfromnotsupplyingthemtoallpatientswhocouldbenefitfromthem isnormallymuchsmaller than isoftenassumed.Internationalexperience indicates thatamorehumanesystemwouldnotonlybeaffordableatthenationallevel,butcouldsendbetter‘marketsignals’toresearchbased

pharmaceuticalcompaniesandpubliclyfundedresearchorganisations.

Private companies, like public sector agencies andhealth professionals, respond to financial incentives.Innovations thatgivehigh levelsof individualbenefit tolargenumbersofpeopleshouldintotalearnmorethanlessimpactfuldevelopments.Yettheaddedvalueofrarediseasemedicinesandscientificallyimportanttreatmentadvances should not be underestimated. In relationto protecting public and patient interests in affordabletherapeutic evolution suggestions that the quality offuture pharmaceutical research will hinge primarily onensuring that new treatment prices are rigidly linkedICER values calculated to several (both costly andquestionable)decimalplacesand implementedvia theuseof relatively inflexible cost effectiveness thresholdslackcredibility.

Thereisalsonoreasontobelievethathalvingthecosteffectivenessthresholdsusedtoevaluatewhethernewhealth technologies are suitable for NHS use wouldbenefitcurrentorfuturepatientsorthewidereconomy.Introducing more flexible and pragmatic strategies forrewarding positive intention, managerial competenceandscientificexcellencealongsidethedeliveryofhealthgain is much more likely to enhance welfare. Suchmeasurescouldandshouldbecoupledwithappropriateoverallspendingcapsandrobustguaranteesofequitableserviceprovisionforthosemostinneedofeffectivecare.

Similarconclusionscanbedrawn in thewidercontextof evaluating non-pharmaceutical forms of healthand social care advance. The economic imperative ofseeking increased efficiency is legitimate in the sensethat everyone wants to generate as much value aspossiblefromtheresourcesattheirdisposal.Yetintheuncertainrealityofthehumanconditiontherecanbenosimplewayofachievingthisendinhealthcare.If(asisperhaps inevitablegiven thatultimately – likebeauty–valueexistsuniquelyineachbeholder’seye)efficiencyismeasuredinonlypartiallysatisfactorywaysitsuncriticalpursuitcouldinflictheavycosts.

Economistsmakesimplifiedmodelsoftheworldinordertoaidthepursuitofprosperityandwellbeing.Rationallyand compassionately employed, measures such asQALYsandICERsusefullyinformchoices.Butifhealtheconomists,orthoseseekingtoapplytheirfindingsontopicslikethevalueofreducingpainorextendinglives,come to think that their findings provide an absoluteguide toachieving thechimeraof ‘trueefficiency’ theyrisk making serious mistakes. They would be puttingtheirfaithinalltoofalliblesocialscienceconstructsaheadofthetangible,clinicallydirected,reliefofsuffering,thegeneration of hope and the step-by-step evolution ofbettertreatmentsforpeoplewhoarethemselvesfacingsevere illnessorwhoarehaving to livewith threats tothoseforwhomtheycare.


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This UCL School of Pharmacy Report was written by Professor David Taylor. The research undertaken was con-ducted by David Taylor and Dr Jennifer Gill and funded by the Association of the British Pharmaceutical Industry. Editorial control was exclusively with Professor Taylor, who is responsible for the content of this document.

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