Health Policy$ense

International Comparison of Frameworks for Valuing Drugs

How do they do it?

“Pay more for drugs that do more.” Although few would argue with the concept of paying for value, the mechanism for doing so has thus far eluded our multi-payer, market-based system. The Gant Precision Cancer Medicine Consortium at the University of Pennsylvania looked past US borders to learn about mechanisms in other countries, in its quest to recommend sustainable frameworks for valuing precision cancer drugs.

Why start abroad? For one thing, the price of cancer drugs is much lower in other high-income countries. A recent study of 23 cancer drugs found that list prices were highest in the US both in absolute terms and in relation to GDP per capita (not accounting for negotiated price discounts), as shown below:

Internationally, prices vary dramatically, as a study of 31 cancer drugs in 16 European countries, Australia, and New Zealand showed. Depending on the drug, the difference between the highest priced country and the lowest priced country varied between 28% to 388% (that’s not a typo). In this study, Greece, Portugal, Spain, and UK prices were the lowest, while Sweden, Switzerland, Germany had the highest prices, at least before any negotiated discounts.

Many of these countries use regulatory levers to manage the entry of new drugs into the market, in an attempt to achieve value for their health care dollar. A review of these so-called managed entry agreements (MEAs) across 12 European countries provides a useful typology that distinguishes between mechanisms that incorporate health outcomes and those that do not. Non-health outcome-based levers focus on controlling prices through discounts, price-capping, and price-volume agreements; health outcome-based levers include conditional coverage (with data collection and reassessment) and cost-effectiveness determinations. The consortium reviewed the frameworks of three countries—Germany, the UK, and Canada—to draw lessons from their experiences.

The German system

Germany, facing drug prices that were 26% higher than average drug prices in the EU, launched a new system in 2011. A recent Health Affairs blog post described the system in detail. Its features are summarized below:

  • A manufacturer introduces drug at any price, fully reimbursed by German plans for 12 months
  • Within 12 months, a federal committee commissions a comparative effectiveness review by a non-governmental non-profit organization, to be submitted within 6 months
  • The committee reviews the findings. If drug is found to be more effective than the comparator drug, it negotiates a price, with arbitration against international prices. If the drug is found to be equivalent to a comparator, it is reference priced to existing drugs. If the initial list price turns out to be excessive, extra revenue is returned to payers.

Consortium members noted that this system gives drug manufacturers the benefit of the doubt for the first year. One member noted that, unsurprisingly, drug manufacturers tend to set high prices the first year, leading German policymakers to consider putting a cap on initial prices for drugs likely to have a major budget impact.  Another member remarked that by using comparative effectiveness data to value a drug, rather than cost-effectiveness, this system avoids putting a dollar amount on life years or disability, which has been a “lightning rod” for criticism in the US. In contrast, both the UK and Canada use cost-effectiveness analysis in their coverage decisions, with the UK being more explicit about it.

The British system

In 2016, the UK implemented a new system for paying for cancer drugs, after a previous budgetary carve-out ran out of funds. For drugs that receive provisional approval, the Cancer Drug Fund (CDF) provides funding during a specified data collection period, and then the drug is reassessed, as summarized below:

  • The National Institute for Health and Care Excellence (NICE) conducts an initial review that could result in approval, provisional approval, or denial of coverage. The initial review is based on an assessment of cost effectiveness, with prices set by the manufacturer.
  • For provisionally approved cancer drugs, a period of data collection is established, with a confidential, negotiated price, within the NICE threshold of £50k per QALY. At the end of the period, the drug is reappraised to determine coverage going forward.
  • To ensure CDF does not overspend and does not close to new entrants, a proportional rebate is applied to all drug companies receiving funding from the CDF budget in the event of an overspend

Consortium members noted that the UK system relies on the ability to say “no” to coverage, which would make it challenging to apply to the US. For example, by law, Medicare must cover any FDA-approved drug prescribed by a licensed physician. Even when a drug is considered ineffective (such as when the FDA removed metastatic breast cancer as an indication for Avastin) Medicare continued to pay for its use. In contrast, the UK recently issued draft guidance that the benefits of Kadcyla, a drug provisionally approved for breast cancer treatment, was not worth its costs (even after discounts) and should be removed from routine coverage.

The Canadian system

Although funding decisions are made at the provincial level, Canada centralizes recommendations for which drugs should be covered under publically funded insurance. Cancer drugs are referred to the Pan-Canadian Oncology Drug Review (pCODR), which considers clinical benefit and proposed cost and recommends whether the drug should be publically funded. The basic steps are:

  • Health Canada approves drug for consideration based on scientific review; cancer drugs referred to Pan-Canadian Oncology Drug Review (pCODR)
  • pCODR makes recommendations based on clinical benefit, patient input, economic evaluation (cost, cost per QALY or similar), and budget impact. Recommendations made to Canada's public drug plans to support coverage decisions, but are non-binding.
  • Provincial drug plans may pursue their own evaluations and negotiates prices with manufacturers.
  • The Patient Medicine Prices Review Board (PMPRB), a consumer protection agency with regulatory and reporting requirements, monitors pricing. It can enforce sanctions and impose price reductions for patented products deemed excessively priced.

Despite this formal system, Canada has the second highest drug prices in the world, after the US. The actual cost to provinces is impossible to know, because, just as in the UK, provincial governments negotiate with manufacturers for discounts that are kept confidential.  The system results in coverage for cancer drugs that varies by province, especially in terms of waiting time and out-of-pocket costs.

What lessons can the US draw from these systems?

These countries use a variety of regulatory levers to maintain global budgets, while attempting to pay for value. The table below compares these levers and their use in the US.


*340B Program details

Some in the consortium felt that aspects of the German system held the most promise for the US, although this  country has shown little appetite for limiting the availability of FDA-approved drugs and little willingness to say no, at least in the public sphere.  But as specialty drugs become more expensive, private payers and pharmacy benefit managers have shown more willingness to restrict certain drugs, especially if there are cheaper alternatives.

Members pointed to the political and practical benefits of the German system to cover a new drug at the same price as a comparator drug, rather than to refuse to cover the new drug entirely. Also, some thought that the idea of a rebate to payers based on clinical results could gain some traction in the US within the private market. In effect, this would be a risk-sharing arrangement with drug manufacturers bearing the risk if the drug underperforms, in terms of outcomes, relative to a comparator drug.

The group also discussed the conceptual and practical barriers that these managed entry agreements pose.  Little data exists on the savings achieved by these systems, and whether outcomes suffer as a result of drug withdrawal or denial. Lack of transparency on discounts or price-volume arrangements makes it hard to evaluate the effects of regulatory levers, especially if launch prices increase in anticipation.  Each system brings administrative costs and complexity, in data collection and managing multiple agreements with different manufacturers. Controversy exists regarding appropriate comparators, clinical efficacy measures, and patient subgroups to consider. In some systems, there is limited patient engagement in the process.

The group will draw on these lessons from other countries as it reviews existing US frameworks for valuing drugs—the subject of our next blog post.

The Penn Precision Cancer Medicine Consortium is a multidisciplinary group of more than 20 experts and stakeholders that has come together at Penn to develop a new framework for the economic sustainability of precision cancer medicine. Through multiple discussions culminating in a conference in May 2017, the group will tackle the hard questions that precision medicine raises for patients, providers, and payers.

The Consortium is made possible through a philanthropic gift to the University of Pennsylvania by Donald R. Gant, Wharton '52 and the Gant Family. It is led by LDI Senior Fellows Justin Bekelman and Steven Joffe. Other members of the Consortium and their backgrounds are here.