Medicines: how much should they cost?

The affordability of medicines comes up for discussion on a regular basis. In Belgium, the Commission for Reimbursement of Medicines (CTG) of the National Institute for Health and Disability Insurance (RIZIV) examines whether a medicine is eligible for reimbursement. It issues a recommendation to the Minister of Social Affairs, who then makes the final decision. Although medical progress is allowing us to treat more and more diseases, innovative medicines tend to be expensive. Expenses are rising constantly in the healthcare sector as a result, putting accessibility and affordability under pressure. Which criteria does the CTG apply and what could be improved? These questions are answered in a study by Vlerick Business School based on RIZIV data, in the framework of the Roche Chair at the Vlerick Healthcare Management Centre.

Probability analysis

“Research has already been carried out into the advisory behaviour of the CTG in the past, but our study is based on a more comprehensive dataset – namely for the period 2010-2017 – and our analyses dig deeper than those of our predecessors”, says Professor Walter Van Dyck, the lead author of the study. “Whereas previous studies restricted themselves to the use of binary variables to evaluate the recommendations of the CTG, such as ‘was a cost-effectiveness analysis carried out or not?’, we worked with various discrete and continuous variables.”

For example, alongside the binary variable ‘availability of an alternative medicine’ and the discrete variables ‘therapeutic class’, ‘therapeutic indication’, ‘clinical efficacy and seriousness of the disease’ and ‘therapeutic added value’, the continuous variables ‘cost-effectiveness’, ‘disease burden for the population’ and ‘disease burden for the individual patient’ were also included in the analysis, when this information was available. As a supplement to the conventional regression analysis, the team used a probability analysis, a technique which is more suitable for examining causal links. 

Implicit upper limit

How do the selected variables influence the recommendations of the CTG? An important conclusion from the analyses is that the data does not show that the therapeutic added value of a medicine has an impact on the outcome. “The therapeutic added value, the extent to which a medicine differs from other medicines, was derived from the therapeutic class in previous studies”, says Walter. “The Belgian system distinguishes between three classes*. For our analysis, we looked at the more intricate French system Amélioration du Service Médical Rendu (ASMR), which distinguishes between five different categories. Nonetheless, this was still not enough to reveal a significant impact.”  

In addition, none of the analyses showed that the disease burden played a role in the decision as to whether a medicine was eligible for reimbursement. And while older studies were unable to demonstrate that cost-effectiveness analyses or budget impact analyses influenced the final recommendation of the CTG, the Vlerick study revealed that potential budgetary savings increase the chances of a positive recommendation, at least in the case of medicines for which alternatives are available, and that cost effectiveness is indeed taken into account: “It seems that an implicit upper limit applies to the acceptable cost of each year of quality life gained.”

Towards a demand-oriented system

“Public payers want to achieve maximum health benefits for a given budget”, explains Walter. “But as pharmaceutical companies need to keep investing in innovation, research and development, they need an incentive – i.e. sufficient financial compensation. We are convinced, and are not alone in this respect, that the best way of reconciling these goals and stopping the seemingly endless discussions about excessively expensive medicines is a demand-oriented reimbursement system instead of one which is based on the supply.”

The study led to three recommendations which aim to ensure the success of the transition to a demand-oriented reimbursement system:

1. The payer must determine a maximum price for each medicine, based on its value. And this theoretical maximum price must be made explicit, which is currently not the case. Walter does have a few comments to add here: “People will naturally be willing to pay more for serious illnesses than for less serious ailments, so you also need to define what constitutes a serious illness. We also need a more intricate method of categorising medicines in accordance with their therapeutic added value. As we already mentioned, even the French system with its five categories falls short.”

2. The available budget must be taken into account when determining this maximum price. “So it's not just about the price of a specific medicine,” says Walter, “but price times volume. This budget must be determined in advance, based on horizon scanning and discussions between the pharmaceutical industry and the government.” The importance of this so-called conditional dialogue and the role of horizon scanning have already been pointed out .

3. The agreed price must be based on performance, certainly for relatively expensive medicines. Walter points out the consequences of this advice: “You therefore need a system which allows you to measure performance during day-to-day medical practice, not just during the development but also and mainly after the launch of a medicine.”

Negotiation is still required

We need to switch to a pricing model which is based on therapeutic value, whereby society determines the maximum price it is willing to pay.

This seems logical, and many people are in favour of this change, but sceptics claim that the pharmaceutical companies will make their prices coincide with the prescribed maximum. According to Walter, though this is an understandable reaction, it overlooks the fact that pharmaceutical companies will always need to justify their price. “Manufacturers will need to be transparent about the health benefits and/or savings resulting from a medicine in order to substantiate their asking price. A maximum price does not render negotiations superfluous; on the contrary,” he concludes.

* Class 1: a medicine with therapeutic added value, class 2: a medicine whose therapeutic value is comparable with that of existing alternatives, class 3: generic medicines.

Source: Van Dyck, W.,  Schoonaert, L., Geldof, T., Govaerts, L. (2018). Access Decision-Making in the Belgian Commission for Reimbursement of Medicines 2010 – 2017: Investigating the Readiness for Value-Based Pricing. Vlerick Policy Paper #8, Vlerick Healthcare Management Centre: Brussels.
About the authors: Prof. dr. Walter Van Dyck is Associate professor of Technology & Innovation Management at Vlerick Business School and director of the Vlerick Healthcare Management Centre (HMC). Lies Schoonaert is a senior researcher at the HMC, where Tine Geldof and Laurenz Govaerts are both doctoral researchers.

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