Paying for Value – Thresholds and International Reference Pricing

The Need for Greater Transparency Around Willingness-To-Pay Thresholds

The willingness-to-pay (WTP) threshold reflects the amount that a country is willing to pay for health benefits offered by a treatment – a treatment that has an incremental cost-effectiveness ratio below this WTP threshold is considered cost-effective, and likely to be acceptable for reimbursement. The use of an explicit WTP threshold, in which the health technology assessment (HTA) body formally publicises the acceptable threshold or range that is used in HTA decision-making, would help to improve transparency.¹ However, Cameron et al. reported that most countries, including countries in Asia, adopt implicit WTP thresholds.² The authors also noted that studies reporting the use of a formal threshold are limited, and may reflect the aversion of decision-makers to base politically-sensitive funding decisions on a single measure. It should however be noted that the use of an explicit threshold does not preclude flexibility in decision-making based on other factors, such as clinical need and quality of clinical evidence. For example, the National Institute for Health and Care Excellence (NICE) adopts an oft-cited WTP threshold of £20,000–30,000 per quality-adjusted life year (QALY).³ This explicit threshold is flexible and can account for other factors, for example through the use of the recently-introduced disease severity decision modifier that allows greater weight to be applied to QALY gains in severe diseases.³ Notably, Dr Bor-Sheng Ko (Director and Attending Physician at Department of Hematological Oncology, National Taiwan University Cancer Center) shared that Taiwan has been considering to establish WTP thresholds for rare diseases, oncology and other diseases, which is expected to improve transparency in HTA decision-making.¹ However, there is as yet no consensus between stakeholders in Taiwan,¹ highlighting the difficulty of establishing an explicit and appropriate WTP threshold.

Internationally, the World Health Organization (WHO) threshold is a commonly-referenced threshold – the WHO states that treatments with an incremental cost-effectiveness ratio (ICER) within 1–3 times the country’s gross domestic product (GDP) per capita per QALY can be considered cost-effectiveness.⁴ Within Asia however, there is considerable variability in the extent to which the WHO threshold is adhered to. Dr Bor-Sheng Ko noted that the WTP thresholds reported in several Taiwanese economic evaluations generally fell within this range,¹ suggesting that the WHO threshold is relevant, and generally adhered to, in the Taiwanese setting. On the other hand, Prof Jing Wu (Professor at School of Pharmaceutical Science and Technology, Tianjin University) highlighted the gap between academia and HTA decision-making in China – while the WHO threshold is recommended by the China guidelines for pharmacoeconomic evaluations, in practice, a lower threshold of 0.5–1.5 times GDP per capita per QALY is usually adopted in pricing negotiations for China’s National Reimbursement Drug List (NRDL).¹

Unsurprisingly, the acceptable WTP threshold used in HTA decision-making is highly dependent on country-specific factors. For example, the application of a relatively lower threshold and steeper drug price discounts may be acceptable for a country with as large a patient population as China. Furthermore, the NRDL is the major mechanism for public reimbursement in China covering 98% of the population⁵ – this broad coverage may serve as an incentive for companies to strive to have their drug listed on the NRDL, despite the steep price cuts. It has been suggested that the lower profit margins resulting from significant price discounts can be compensated by the large patient volume in China.⁶ Indeed, drug sales for a branded treatment have been reported to triple following inclusion on the NRDL despite a large price discount of over 60%.⁷ However, these incentives may be weaker in smaller patient populations such as in Singapore. In light of the variability among countries and the need for country-specific considerations, greater transparency around the acceptable WTP thresholds will undoubtedly be helpful for negotiations and HTA decision-making.

Reconciling Value-Based Pricing and International Reference Pricing

Value-based pricing (VBP) is a pricing mechanism in which the price of a drug is set according to the estimated or perceived value offered, typically reflected through a drug’s cost-effectiveness profile. International reference pricing (IRP), an alternative pricing mechanism, seeks to reference drug prices of other countries as a benchmark. It should be acknowledged that IRP is a useful tool to facilitate price and budget negotiations especially for countries without HTA processes; it also helps to ensure that countries and their respective patient populations are getting a ‘fair deal’ compared with other markets. In addition, countries are free to select their reference countries based on what they consider to be a comparable market, for example in terms of GDP or healthcare delivery and financing system. However, given that the value of a drug can be highly country-specific (Figure 1), price negotiations based on international reference pricing (IRP) may appear counterintuitive. This was the view held by Jonathan Tan (Head of Market Access, Specialty & Oncology, Global Emerging Markets at GSK), who opined that, given the objective of HTA to optimise value for the healthcare system, IRP tends to ignore multiple elements of value that are country- or system-specific.⁸ Indeed, clinical and patient-reported outcomes evidence, which are used in HTA decision-making, can differ widely across countries – this is expounded upon in a separate commentary here (‘How Can We Incorporate Locally Relevant and Culturally Appropriate Evidence for HTA Decision-Making in Asia?’). Similarly, on the other end of the cost-effectiveness equation, costs across countries are unlikely to be fully comparable even for countries with comparable GDP, due to differences in the healthcare financing and price negotiation landscape, as described above.

Figure 1: Elements of value that can be country- or system-specific

Abbreviations: MEA: managed entry agreements.

Source: Adapted from APAC ISPOR Issue Panel 8.⁸

In spite of this seeming conflict in the principles of VBP and IRP, the latter is practised in Asian countries, either through formal or informal rules, including in markets which have formal HTA processes (Figure 2).⁸ It will therefore be important for HTA agencies to be transparent in how VBP and/or IRP are factored in pricing negotiations. This is exemplified in Taiwan’s pricing rules, which clearly sets out how prices are influenced both by clinical and/or economic value in the local setting, as well as IRP. Dr Pwu (Director, Ministry of Health and Welfare, Taiwan) shared that, depending on the degree of clinical improvement offered by the treatment compared to the standard of care, various degrees of benchmarking against reference countries will apply.⁸ In addition, mark-ups of up to 10% can be accorded if there are locally-conducted clinical trials and/or cost-effectiveness analyses,⁸ demonstrating that local evidence can be explicitly rewarded in drug pricing. It is however interesting to note that the list of countries Taiwan references includes countries with a considerably different healthcare financing and delivery landscape, such as the United Kingdom and United States. The suitability of reference countries will need to be considered carefully for HTA bodies that wish to tap on IRP to inform HTA decision-making.

Figure 2: Markets within Asia Pacific that have been reported to use IRP and/or are referenced

Abbreviation: IRP: international reference pricing.

Note: The use of IRP may be either through formal or informal rules.

Source: Adapted from APAC ISPOR Issue Panel 8.⁸