Operationalising Value Based Pricing of Medicines: A Taxonomy of Approaches

The purpose of this paper is to provide an account of the full set of possible means by which value based pricing (VBP) might be operationalised; to describe and categorise them by developing a taxonomy of approaches; to give an initial assessment of the challenges, pros and cons that each of the principal types of approach implies. To achieve this, we review the elements of value that could be taken into account, how they might be measured and valued, how the different elements could be combined into an overall assessment of a medicine’s value, and how that then could be linked to the maximum price the health service is willing to reimburse.The UK Department of Health’s consultation document regarding the introduction of VBP (DH, 2010a) outlines one possible approach to these steps – but others are possible. We begin with a brief discussion of value in economics and theoretical frameworks from economics relevant to the normative question of which attributes of medicines should be taken into account in VBP. We proceed to outline a taxonomy of approaches to VBP, taking as our starting point that VBP will include a measure of health gain and that this will be built on the QALY. Our principal interest is in the way criteria other than QALYs are taken into account. We set out to: (i) identify and describe the full range of alternative means by which “value” might be measured and valued, (ii) identify and describe the options available for aggregating the different components of value to establish a maximum price, and (iii) note the challenges and relative advantages associated with these approaches. Finally, we review the means by which VBP is currently operationalised in a selection of countries and place these, and proposals for the UK, in the context of our taxonomy.