Value-based pricing: Toward achieving a balance between individual and population gains in health benefits

Abstract

Objectives: Value-based pricing of oncology drugs provides a best estimate for the price of a drug, as it relates to the benefits it provides for individual patients. To date, the impact of value-based pricing to reference cost-effectiveness thresholds (λ) on individual and population-level health benefits remains uncharacterized. The current study examined the potential benefits of value-based pricing by quantifying the incremental net health benefit (INHB) of publicly funded oncology drugs, if funding occurred at manufacturer-submitted price without value-based pricing.

Methods: Pan-Canadian Oncology Drug Review (pCODR) submissions were reviewed to identify eligible drug indications from which final economic guidance panel reports were reviewed for incremental costs (ΔC) and quality-adjusted life-years (ΔQALY) from manufacturer-submitted, pCODR lower-limit (pCODR-LL) and upper-limit (pCODR-UL) re-analyzed estimates. Annual number of cases in Ontario for each drug indication was obtained from population databases. Annual QALY gain per drug indication was determined by (ΔQALY × cases). Population QALY gain/loss in the absence of value-based pricing to reference λ was estimated by the INHB: (INHB = [ΔQALY - (ΔC/λ)] × cases).

Results: In total, 34 drug indications (4629 cases) were identified. Annual gain in QALYs for the funded drug indications using manufacturer, pCODR-LL, and pCODR-UL estimates was 1851, 1617, and 1301, respectively. At a λ $100 000/QALY, funding in the absence of value-based pricing resulted in loss of 2311, 2519, and 2604 QALYs. This would result in a provincial net annual loss of 460, 902, and 1303 QALYs.

Conclusions: Despite an annual gain in QALY per funded drug indication, a net loss in QALY for the province, in the absence of value-based pricing, was demonstrated. Supportive evidence exists for value-based pricing toward the promotion of health benefits for the greater population.

Keywords: drug costs; health economics; health expenditures; health policy; reimbursement mechanisms.