Risk Sharing, Innovative Pricing or Market Access Agreements?

Dear Readers,

This fall has continued to be determined by discussions around health policy and HTA / pricing developments. It seems everyone is trying to find the “holy grail” in solving the fundamental issue, which however is all to often forgotten in the debate: managing scarce healthcare resources and deploying the given resources in a way that maximizes health overall. Some economists may also have to be reminded what the discipline is all about after having immersed themselves (probably too much) into the microeconomic analysis of single technologies or products.
I just came back from a conference on Risk Sharing and Innovative Pricing – although I prefer to call it “Alternative Pricing” or an even better term is “Market Access Agreements”, as Prof. Monder Thoumi named it – that was held in Washington DC, organized by NextLevel Pharma.

There were several very interesting presentations over the two days, although the entire risk sharing topic has not very much advanced and the call is still out whether this will be a straw fire or a long term way of solving access matters and the problem of evidence gaps at time of launch. However one talk on value based pricing particularly reminded me of the fundamental question of economics (the allocation of limited resources) – a topic certainly of interest at the moment as various health authorities are embarking or at least discuss the potential implementation of VBP systems. So is VBP a way of solving the matter of allocative efficiency or is it just another wrong answer to the economic problem as is the allocation of budget according to the cost per QALY threshold, as Prof Gafni put it in his excellent speech.
I personally think that over time some more elements of competition need to be restablished in the health care market. I am always surprised about the ease with which people seem to agree to delegate fundamental decisions that may affect you as a citizen entirely in the hands of centralized authorities. I am referring here to certain HTA agencies as well as to the discussions about a relative effectiveness assessment at EU level. Isn’t it much nicer if every country decides on its on what is good and worth without being dictated by some EU office clerks...?

Now obviously the concept of opportunity cost should come into the equation when valuing single technologies however in my mind this should be left to the individual country as to how to do it. Appreciation for the degree of innovation may vary substantially and so does willingness and ability to pay for certain health technologies, also ways of financing and especially the approach to free up resources from old to new may play an important role. In that regard I advocate for stoping to try to export one or the other agencies' method and think about alternative ways of doing the job.

Last but not least, a while ago I posted a question on linkedin about VBP and for what its worth am posting the answers I received from several of you. Thanks again!

Best wishes


Methodology on value based pricing?

Dear all,
there is an increasing debate around the introduction of value based pricing systems for pharmaceuticals in certain markets, some more detailed and methodological while others are very fluffy and vague. What in your opinion would be a fair and sound methodological concept for the establishment of value based pricing for both industry and health authorities/society?


“Dear Ulf

The value based pricing assume that we can identify the benefit of a medicine and that we can value that benefit. the next step is can we afford it. This is the endless debate of all HTA and pricing committees. There is no perfect method.

From companies perspective the French way is not bad based on the revenue generated by pharma companies in France.

From NHS perspective if their primary goal is cost containment NICE threshold is quite good but it might not be the best for patients.

The exemple of the Swed is probably at this time the best compromise as they look at society perspective and they adopt no threshold but a very flexible attitude and they open the door for conditional pricing with evidence development once product is launched. They accept that there is no gold standard but they do all effort to find a reasonable assessment of the product added value from an effectiveness and cost perspective. Including accepting to provide you a price while you sell and accumulate information to find the actual value.

This could be debated for hours on what is the best way to define acceptable vaklue based pricing. You need first to define the objective you want to achieve as a country when paying for medicine; the affordability what is the budget you as a country can allocate to medicine; then you need to define what is the level of revenu/incentive that will allow invester to be ready to invest in pharma companies.

A satellite question become are there room for companies to improve their efficience and then reduce their drug prices while not affecting the benefit? This goes for R&D, Marketing and sales and admin.

Another discussion is more important in my opinion what is the appropriate pricing process for medicines?

There are diffferent ways to define a pricing process one is the cost plus. The cost plus assess the cost of developing and commercialising a good and then we apply a margin as profit. This is more or less how are priced all health care goods. GP visit, DRG for hospital etc. There is no value pricing in the GP visit.

Another way is willingness to pay. How much customers would be ready to pay for such good?

If there would be a value pricing for the GP this would mean that for a visit he will charge you according to the health production. If he diagnose a myocardial infarction provide you anticoagulant and antiarhythmics one could say he save your life and you need to pay him the price of your life. On the other hand if you got a simple flue he will be of little help and you will pay him a couple of €. This would be the value pricing for the GP visit.

Why and how this debate is happening now?

In fact all of this started with the OFT in UK. They believe free pricing is a none sens and that prices should be set according to the value and not be free. NICE could assess the value and the department of health set a price based on NICE value assessment. This is the value based pricing discussion versus free pricing. They expect that medicine will be equally available to everyone at the right price, that prices will go down and that the discussion about access and inequity will be addressed this way.

But there is another debate on value based pricing versus cost plus pricing. Some German at GBA believe that value based pricing is pushing prices too high and there is no reason to go that way only for medicine, while most of health care goods are driven by a cost plus like pricing process. So they wanted that a discussion is open to reinvent the way pharmaceuticals are priced and that value based pricing is abandonned.

As you could see there are hugge consequences around the pricing methodology and in my opinion the pharma industry is not taking the right angle because they do not actually address the mode of pricing such as cost plus or value pricing or willingness to pay or affordability or a mix. In fact pharma industry is rather discussing the process to quantify value assuming value pricing is the unique option.

As a matter of consequence the debate is moving in other rooms where the pharma industry is not present.

I am writing an article on this topic and I will organize a meeting on Dec on this topic in Paris for our market access day. There will be international expert in this field and I expect it to be very attractive. I will send you an invitation in due time. I will also send you my paper once finalised.

Kind regards “

“Ulf - very interesting question, since I see people throwing the term around all the time without really knowing what they actually mean by it! In any case, my definition is the price which accurately reflect the economic value of all measurable benefits of an intervention. Important questions to ask are to whom do the benefits accrue and how do they value those benefits, as well as who is bearing the cost. As we know, in the UK, they have deemed the benefit of interest to be the QALY, and they have an explicit value for it, but this is in my view an oversimplification of what benefits actually hold value. In some countries it may be cost offsets, or indirect costs. Fundamentally I think of it as the price at which you can truly say "you got what you paid for" - hope that helps!!”

“Hi Ulf, I missed the chance to comment on this question on Linked-in.

I noticed in Linked-In people have different definitions of value-based pricing means. In my experience (HE researcher)it means pricing that reflects value for money. As such the methodology for value-based pricing should reflect what payers use for making funding decisions = cost-effectiveness. The reasoning fior value based pricing is that in restrictive markets (UK, Cda etc,.) the market uptake for a product will not follow a smooth price/demand curve but instead demand will have thresholds (cost-effectiveness) where formulary/guideline/co-pay restrictions are applied. It is important to identify these thresholds and the prices at these thresholds.

So we build a simple CEA model and look at pricing at CEA thresholds ($20K, 50K, 100K per QALY). The most appropriate threshold depends on the clinical need and value of the product. But overall, it gives a range for price that reflects how the product will be assessed by payers. We have applied this in over a dozen products including a number of rare diseases therapies.”

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