Drug spending study demonstrates disconnected approach

Gareth Morgan and Krishna Kakkaiyadi, life sciences and pharmaceuticals experts at Pinsent Masons, were commenting after publication of the study results in The Lancet, which they said would spark significant debate regarding the cost-effectiveness of new medicines approved by the National Institute for Health and Care Excellence (NICE) for the NHS.

In England, NICE determines which medicines offer value for money for the NHS. NICE's cost-effectiveness threshold, which allows higher spending on new drugs, set on the majority of assessed drugs between £20,000 and £30,000 per additional year of health, compared to the typical NHS expenditure for similar health outcomes – £15,000. The study suggested that this allows companies to charge higher prices than what the NHS pays in order to deliver similar health benefits using existing treatments and services.

The study analysed the impact of new drug spending in England from 2000 to 2020. The study used the incremental cost-effectiveness ratio (ICER) of these new drugs, a measure of the additional cost required to achieve an additional ‘unit’ of health outcome with a drug, and the data on health benefits, recorded solely in terms of quality-adjusted life-years (QALYs). The authors estimated the number of patients receiving new drugs using sales data. The study finally compared the population-level health impact of these new drugs by comparing the total QALYs gained using the new drugs against the QALY gains that could have been hypothetically gained by reallocating the same funds to other NHS services and treatments over the 20-year period. 

Kakkaiyadi said: “There are several points to raise in relation to the study design and the assumptions made. A key assumption made is that every unit of money withdrawn from expenditure on new drugs can entirely be allocated to other existing services and treatments, which may not reflect the true picture within the NHS. For instance, the withdrawal of new drugs for oncology and immunology indications (which the drug characterises as resource-intensive) would have multiple financial implications for the NHS (and more broadly, general government spending), and I am not sure that the study has discounted sufficiently from the hypothetical gains to be made to take into account these realities. Moreover, there are well-documented challenges associated with the use of QALYs alone to measure health benefits and there are growing concerns that this methodology will not accurately reflect the prospective benefits to be gained on newer therapies, such as advanced therapy medicinal products (ATMPs)."

"Therefore, I query whether a retrospective analysis of this kind should by itself influence future funding decisions of the NHS in a period where it is hoped that the cost-benefit analysis associated with new treatments will hopefully become more holistic," he said.

The study suggested that the high costs associated with these innovative drugs may result in the net loss of health benefits for the population due to the reallocation of funds from other essential services.

It found that while new medicines provided 3.75 million additional years of full health, the £75 billion spend could have potentially added five million years of full health if allocated to existing NHS services.

Morgan said: “This study is solely based on economic model-driven numbers based on often highly uncertain assumptions to show the benefits that drugs provide. Often companies are penalised for operating in rare disease areas where patient numbers are low and clinical data less certain. Perhaps the economists would just like the NHS to wait the 15-20 years from launch until all treatments are off-patent to take advantage of lower generic pricing? Further, no NICE assessment takes into account the VPAG clawback of turnover that the UK government has imposed on the pharmaceutical industry, set at over 20% for 2025.”

The study highlights tension between the need for innovative treatments and the NHS budget. One co-author emphasised that the current NICE threshold does not reflect the financial realities of the NHS, suggesting a need for reform in pharmaceutical pricing policies to better serve the health needs of all patients. The study called for a re-evaluation of NICE’s cost-effectiveness thresholds to reflect a “more balanced” approach to drug pricing and resource allocation within the NHS.

However, Morgan said this should be placed in the context of an ICER threshold that has, in substance, not been increased for over 20 years – i.e. pharmaceutical companies are today having to demonstrate a value for money level that represents a financial return that has been steadily eroded by inflation over the last 20 years. The UK government and the pharmaceutical industry have recently agreed to maintain the current NICE ICER threshold until 2029. 

Morgan said: “The study sends an overwhelmingly negative message to the global life sciences industry. That message being, don’t invest in the research and development of drugs in the UK as any medicine sold here would never secure a fair reward.”