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New challenge for industry – governments want bigger role in price setting and R&D

The “financial toxicity” posed by very expensive cancer therapies was a major talking point at the recent American Society of Clinical Oncology (ASCO) meeting. And in May the World Health Organisation’s major forum on fair pricing of medicines concluded that governments must play a stronger role in setting prices and R&D priorities. The forum called for much greater transparency on drug pricing, along with a move away from value-based pricing and removal of the link between prices and R&D costs. As the debate intensifies, I make no apologies for returning to the subject of drug pricing. Pricing of medicines has always been predominantly a national concern. Companies negotiate prices at national level and so far there has been little co-operation among national governments and payers. However, as I explained in my last column (March to May 2017), this has begun to change with EU moves towards cross-border collaboration on pricing – moves that in themselves will encourage more transparent drug pricing. The WHO fair pricing forum, which was hosted by the Dutch government on May 11th and attended by over 200 stakeholders, discussed more co-operative approaches in which governments would share information on setting prices and thus gain greater leverage in price negotiations.


As noted in my last column, any push by payers to promote price transparency by revealing discounts and rebates offered by companies in individual markets with the aim of protecting benchmark prices will be resisted by the industry. Companies will be reluctant to enter the type of “access” agreements negotiated for reimbursement purposes if these do not remain confidential. However, in respect of transparency, the WHO forum placed most emphasis on the need for information on “what inputs enter into the decision to price a medicine” and on the true cost of R&D. This has prompted the proposal for “delinkage” of prices from R&D and production costs.

R&D costs

While it was agreed that R&D costs have to be borne by somebody, it was suggested that governments are beginning to see funding for health, including R&D funding, as an investment with socio-economic benefits. In this way governments could guide priorities in in early development of medicines in line with national health priorities and also influence the prices set for these products, it was said. While this may encourage collaboration between governments and companies in certain areas, I doubt anyone seriously believes that commercial entities (ie the drug industry) will not be ultimately responsible for developing the majority of innovative and life-saving medicines and will continue to bear the bulk of these costs – although companies will have to have a much better handle on, and be much more open about, what these costs really are.

Value-based pricing

Value-based pricing has for years been a mantra of the pharmaceutical industry and is at the heart of health technology-based pricing policies in several countries. The activities of NICE in the UK are a prime example. This approach now looks like being under threat as payers and health bodies battling with collapsing healthcare systems try to find new ways to curb the cost of expensive new drugs. Briefing the press after the forum, Dr Marie-Paule Kieny, WHO’s assistant director-general for health systems and innovation, outlined the Organisation’s “serious reservations” about value-based pricing. Describing this as prices being set according to what the market can bear, she says such a system is not feasible for products which are indispensable. The WHO believes that value-based pricing, may be a reasonable mechanism for prioritising treatments but caution should be used when used for price setting as most current methods for value-based pricing do not explicitly include consideration of total cost to a payer/health system. However, this may be a rather sweeping generalisation as NICE, for example, does look at the impact of an expensive medicine on the NHS budget.

“Fair” pricing

One of the most difficult challenges will be defining a “fair” price. Dr Kieny commented that this does not simply mean “low” pricing, which can lead to companies leaving the market. Fair pricing, she suggests, should bring a reasonable return on investment and affordable prices that do not bankrupt healthcare systems “ensuring a sustainable growth of the pharmaceutical sector, and universal access to needed medicines and health technologies”. I imagine this will also mean having to define “reasonable” in terms of return on investment.

Industry view

IFPMA represented industry at the forum, although it was rather outnumbered by the 200-plus delegates from governments, NGOs etc. Its directorgeneral Thomas Cueni commented that, with goodwill on all sides, it was possible to have a largely constructive debate. He called for a focus on areas where there is broad consensus, such as antimicrobial resistance and drug shortages.

Industry will not want the blame for bankrupt health services to be laid at the door of drug company pricing practices. IFPMA maintains that any debate about sustainable access to medicines and efficiency of healthcare spending needs to be holistic, looking at both health and social care systems, identifying waste and weakness in health systems and inefficiencies in the supply chain, and taking a long-term and comprehensive view when measuring the value of new medicines.

Pressure from patients

Pressure for change will come from patients as well as payers. As more new life-extending drugs are denied reimbursement, patients will have to dip directly into their own pockets. Many are already doing this and seeking help through initiatives such as crowdfunding, all of which will generate more publicity about the cost of drugs and the industry’s pricing policies.

“Actionable agenda”

WHO describes the forum as the “first step in reaching agreement on an actionable agenda”. It is likely to take years to thrash out the issues and reach any kind of consensus. But pressure for change will grow and companies will have to be more prepared to justify their prices and be more open about how these are set. They cannot afford to bury their heads in the sand. Knee-jerk reactions, such as announcing immediate price reductions, will not be sufficient in the longer term.


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