WhatIfEN

What if: The entry of new pharmaceuticals was managed and their prices were negotiated based on value for the country as a whole, by using existing Health Technology Assessment capacity?

Chris G. Cameron, CADTH

The policy option presented here was chosen to stimulate discussion, but is only one of several options examined by the author in the report “Value-Based Pricing of Pharmaceuticals in Canada: Opportunities to Expand the Role of Health Technology Assessment?”

Summary

About the presenter

Chris Cameron is a health economist with the Canadian Agency for Drugs and Technologies in Health (CADTH) where his work focuses on conducting health technology assessments and reviewing pharmaco-economic submissions from drug manufacturers. He completed his BSc in mathematics from Dalhousie University in Halifax, Nova Scotia and has a diploma in engineering from Cape Breton University in Sydney, Nova Scotia. He also completed an MSc in epidemiology from Dalhousie University where his research focused on pharmaco-economics and a drug use management and policy analysis research residency training program.

Main concern/problem

All of Canada’s public drug plans currently use a formulary system informed by health technology assessment (HTA) to manage drug expenditures. If a drug is perceived as having low or uncertain value for money by a payer, it may not be listed on a public plan formulary; this leads to high out-of-pocket expenses for patients who would like the medication and challenges prescriber autonomy. Some provinces have turned to value-based price negotiation mechanisms to improve access to new drugs. However, many provinces lack the resources, capability, legislative authority and price negotiation levers (in terms of volume of drug utilization) to be able to negotiate with drug manufacturers. This results in differences in access across provinces and political pressure that can lead to health system inefficiency. Furthermore, manufacturers are tasked with predicting new drug uptake across jurisdictions and must expend time and resources to negotiate individually with provinces.

Proposed Option

The proposed option is to adopt a pricing system with two distinct features: 1) pan-Canadian coordination, to reduce the potential for whipsawing; and 2) real-time evaluation of the drug value and feedback, to create more opportunities for negotiation. The single price negotiation body could also have the following functions: (i) a process for determining which drugs would require price negotiation, (ii) criteria communicated to manufacturers regarding what constitutes good “value” and how this will be translated into a price negotiation, and (iii) legislative authority to negotiate price on behalf of other provincial (and federal) jurisdictions and to keep negotiated prices confidential.

Benefits

The development of a single, coordinated price negotiation body would help reduce inequity across jurisdictions by leveraging the buying power and macroeconomic factors of provinces with larger drug budgets to those provinces with much smaller budgets and smaller industrial incentives. It would promote a standard and coordinated approach to the evaluation of price and provide a strong signal to drug manufacturers regarding which interventions are legitimately valuable to society and which are not. A price negotiation mechanism tied to real-world assessment would allow for even more options for price negotiation. Real-world assessment of drugs would increase the capacity to conduct discipline-specific research and strengthen Canada’s knowledge economy.

Experience/evidence of success

Value-based pricing linked to HTA is already occurring across Canada. Several provinces are individually working on systematic approaches to price-negotiation mechanisms. Sufficient HTA capacity is currently available through provincespecific and coordinated bodies. There is also sufficient capacity to conduct real-world assessment, and that capacity is on the rise through province-specific and national initiatives, such as those from the Canadian Institutes for Health Research (CIHR), including a soon-to-be-announced collaborative centre for monitoring drug safety and effectiveness.

There is good evidence from Canada and abroad that HTA-based price negotiation is an effective and accepted mechanism for determining reimbursement prices, resulting in reductions in net expenditures. For example, in 2009, the Ontario Ministry of Health and Long-Term Care suggested product listing agreements based on drug outcomes and volumes, which led to a 5% lower growth rate in spending on drugs, improved access due to faster funding decisions and agreement negotiation and savings of more than $600 million over two years.1 Similarly, the impact of three years of pharmaceutical price management across 29 major hospitals in New Zealand led to savings of NZ$8m to NZ$13m annually with some reduction in growth in pharmaceutical expenditures for inpatients.2

Challenges and limitations

The formal use of HTA in price negotiation is attractive in principle. However, HTA as currently practiced may not accurately reflect the full value of health technology (i.e. quality-adjusted life years may not reflect full value). An explicit recognition of what constitutes good value, either through empirical study or through clear communication from policy-makers is required. However, that poses a difficult social challenge as it may not adequately reflect important population and system heterogeneity, and may need frequent updating with shifting politics or demographics.

Considerations for Canada

A coordinated system of price negotiation and managed entry is feasible. It could be built on existing provincial processes, applied health research and HTA capacity. This would require the creation of a new pan-Canadian body governed by and with the full participation of Canada’s public drug plans. The negotiation body must be linked to or embody a research entity that is able to collect information regarding drug performance from across each of Canada’s health systems.

Presentation