ISPOR NZ webinar - Dr James Lomas

Pricing new pharmaceuticals as if population health mattered

Friday 11 April, 10am

We are delighted to welcome Dr James Lomas (Department of Economics, University of York) to present our next ISPOR NZ webinar: Pricing new pharmaceuticals as if population health mattered.

The webinar will be held via Zoom at 10am on Friday 11 April. To register, please complete the form on this page.

Abstract

Newly developed pharmaceuticals approved for use in the UK National Health Service between 2000-2020 are estimated to have produced a sizeable 3.75 million additional years of full health. At a cost of £75 billion, however, this expenditure meant fewer resources were available for other treatments and services. It is estimated that redirecting that funding to existing treatments and health care services could have potentially added 5 million years of full health.

In the context of the UK, where health care is largely free at the point of use, the prices paid for pharmaceuticals can impact population health in two ways. First, paying a higher price means that there is a greater opportunity cost, which can be expressed in terms of years of full health based on empirical evidence. Second, paying a higher price signals greater profitability of new pharmaceuticals that can incentivise more pharmaceutical R&D and innovation. The optimal price, maximising health or welfare, is one which balances affordability and incentives for innovation.

A framework is developed that considers the sharing of value of new pharmaceuticals between the health system and the developer as a way of expressing this trade-off and obtaining an optimal payment. Under this framework, a health system must consider how best to pay more now (and forego health now) in order to incentivise the development of pharmaceuticals that could lead to future health improvements. A key input within the model is the responsiveness of pharmaceutical innovation to expected revenues, which is obtained through a review of the empirical evidence.

Our framework finds that the optimal payment is one where the developer captures between 20-25% of the social value where the range depends upon whether the objective is either health or welfare. In an application to a sample of pharmaceuticals approved by the National Institute of Health and Care Excellence (NICE), we find that the NHS is paying far in excess of the estimated optimal share for pharmaceuticals in most cases and more than 100% of the value in almost half of the cases.

Claims that the prices paid by the NHS for new drugs can be justified by considering the impact on innovation are overstated. While this is a crucial consideration, in addition to the opportunity cost of commitments to spending on new pharmaceuticals, our framework finds that prices paid are generally too high. Adoption of a framework that explicitly considers these two components simultaneously could inform policies that would benefit long-run population health as well as other welfare objectives.

About the speaker

Dr James Lomas is a Senior Lecturer in the Department of Economics and Related Studies at the University of York. His research is focused on applied microeconometric analysis that answers the empirical questions posed in the context of economic evaluation and cost-effectiveness analysis. His research interests include estimating the marginal productivity of health care systems, the pricing of branded pharmaceuticals and economic evaluation methods to inform different levels of decision-maker (from local decision-making in England to decisions concerning global health by international organisations).