OECD claims pharmaceutical companies have excessive power in price negotiations, recommends new approaches to combatting rising launch prices

The Organisation for Economic Co-operation and Development (OECD) published a major report yesterday (16 January) analysing pharmaceutical regulation and pricing trends in how policy-makers can adopt to the future of development, assessment, and uptake of high-cost innovative products. The OECD report (available here) highlighted the regulatory power of health technology assessments (HTAs), joint procurement, and performance-based pricing policies in ensuring value for money. Unless changes to pharmaceutical pricing mechanisms are implemented, the OECD warns that relentless pressure on public health spending will increase as new high-cost innovative therapies reach the marketplace in the coming years.

The main markets that the OECD identifies as having future cost implications are precision medicines, combination medical device/pharmaceutical products (including drugs containing nanotechnology), "digital medicines" (that relay information on patient adherence), cell and gene therapies, and 3D bio-printing. Some of these technologies could have a disruptive effect on traditional economic assessment models. Regulators need to be more proactive in thinking about and employing horizon scans to assess the potential effect these new technologies could have on healthcare systems, including how they would cope financially with uptake, according to the OECD.

Chapter three of the report contains an in-depth analysis of current pricing trends in pharmaceutical markets. It concludes that a number of new medicines (particularly in the oncology segment) are priced at "very high levels" at launch, which are unnecessarily related to high health benefits. To overcome the pressure this places on public health spending, and to curb the use of overpriced drugs, the OECD proposes that the collection of real-world evidence (RWE) is required to better inform payor decisions. One recommendation is for national-level reimbursement authorities to be given regulatory powers to "adjust prices and withdraw payments for ineffective technologies" over a product's lifecycle. This would represent a shift away from one-off reimbursement decisions. In effect, newly launch products would be set at a lower price level at market launch, and would then have to rely on RWE to establish effectiveness and allow prices to be increased and patient populations expanded. This would have a negative effect on the innovative pharmaceutical sector, although the pricing model is not new in Europe, and ongoing patient monitoring and RWE is a feature of the European Medicines Agency (EMA)'s Priority Medicines (PRIME) scheme. The authors also sided with regulators in stating that too often randomised control trials compare new products against placebos, although in reality there should be a comparison against existing treatments.

The oncology segment is forecast to remain the therapeutic area with the highest spending growth in the future. The launch prices of oncology drugs, in the US market, per life-year gained multiplied by a factor of four over the course of two decades (in constant terms) now exceeds USD200,000.

Trends in the orphan-designated drug market are also treated as a cause of concern by the OECD. The report noted that although incentives such as market exclusivity and regulatory assistance in Europe and the United States have done a good job in encouraging research and development (R&D) expenditure in rare disease areas, there is now a question mark over aspects of the pricing and reimbursement (P&R) model. The OECD suggests member states consider re-assessing orphan medicine legislation, including the possibility of reducing periods of market exclusivity, since some orphan medicines are performing well in non-orphan indications and therefore may not require "additional public subsidies to be commercially viable". Any tweaks to orphan medicines regulation in Europe or elsewhere would not happen overnight and would certainly require a lengthy assessment of the costs and benefits of incentive schemes. However, if this became policy, it would have negative implications for pharmaceutical companies and patients by ensuring that incentives are diverted from encouraging R&D investments. The probability of an orphan-designated drug securing market approval is estimated to be 25.3% in Phase I, 33.3% in Phase II, and 65.7% in Phase III, according to the OECD's analysis. This compares with oncology drug approvals at 25.9% in Phase I, 33.8% in Phase II, and 72.3% in Phase III.

Rebalancing balance of power between payors and pharmaceutical sector

The report gives considerable weight to the idea of increased co-operation between national-level payors and multicountry procurement initiatives. It also highlights the use of pricing agreements whereby the final price is based on the actual performance of the medicine on patients.

On the plus side, the OECD calls for quicker access to promising medicines for unmet needs. On the possible future of the adaptive-pathways approval procedure in Europe – a system of conditional early approval based on incomplete clinical trial results, followed by post-marketing studies – the OCED states that this approach should be reserved for exceptional circumstances. However, since adaptive-pathway programmes have the potential to significantly reduce the cost of generating clinical evidence before market entry, the OECD expressed the view that savings should be passed on to payors and patients via "financial gains through lower prices and greater affordability".

Joint procurement is also treated to a favourable analysis by the OECD, although there is also recognition that the evidence of this leading to lower prices or broadened access is unavailable yet.

Finally, there is a recommendation that performance-based agreements with pharmaceutical companies should be used sparingly. These link the final medicine price to its performance in real life. In the event that the medicine effectiveness fails to live up to the benefits claimed by the manufacturer, the company is expected to refund a share of the cost. An Italian performance-based system that applies to oncology medicines is estimated to have recouped about 5% of expenditure. However, the OECD highlights a number of potential drawbacks of performance-based systems including that healthcare authorities wind up paying prices that are not justified by a drug's benefits and incur additional costs through administration schemes with no added therapeutic value.

Outlook and implications

The head of the European Federation of Pharmaceutical Industries and Associations (EFPIA), Joe Jimenez, attempted to pre-emptively head off criticism of high drug prices by saying (here) that the pharmaceutical industry was achieving new R&D breakthroughs "in ways never seen before". There is a recognition by industry sources that "sometimes these opportunities can also [be] perceived as threats" because funding decisions entail "tough trade-offs". This represents a willingness on the part of the pharmaceutical sector to work with stakeholders to manage the adoption of new health technologies. However, in the event that the OECD recommendations turned into actual reform policies, this would likely result in a downward correction of pharmaceutical prices at launch. The report therefore poses significant risks for the industry and parts of its analysis will be fiercely contested. For instance, the controversial idea of "rebalancing" the negotiating power between payors and pharmaceutical companies is tantamount to saying that the existing model is not fit-for-purpose in the 21st century. Furthermore, the stricter price-control regulation recommended by the OECD – including the greater use of RWE to systematically monitor safety and effectiveness in clinical utility in real-life scenarios – would probably mainly affect drugs that have little or no therapeutic benefit for patients. However, it could also mean that it takes blockbuster medicines longer to generate higher prices and revenues. Policy-makers are likely to try to capitalise on the OECD's recommendation in future reforms of their respective pricing models; in particular, the industry will be wary of the impetus the report's recommendations could give to policy-makers to try to tailor prices to reflect real-world health benefits.