value-based healthcare in the uk: a system of trial and error

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Value-based healthcare in the UKA system of trial and error

A report from The Economist Intelligence Unit

1© The Economist Intelligence Unit Limited 2016

Value-based healthcare in the UK A system of trial and error

Contents

About this report 2

Introduction 3

Chapter 1: Evolution of a centralised system and the NICE model 4

Chapter 2: Experimentation and identifying gaps 7

Conclusion 12

2 © The Economist Intelligence Unit Limited 2016


Value-based healthcare in the UK: A system of trial and error is an Economist Intelligence Unit (EIU) report, commissioned by Gilead Sciences. Value-based healthcare looks at health outcomes of treatment relative to cost. In this particular report The EIU examines the structure of UK healthcare delivery, the unique model used by its health technology assessment (HTA) agencies, and its history of experimentation in value-based pricing.

In December 2015 and January 2016 The EIU conducted four interviews with experts on value-based healthcare in the UK. The insights from these in-depth interviews appear throughout the report. The EIU would like to thank the following individuals (listed alphabetically) for sharing their insight and experience:

l Hugh Alderwick, senior policy adviser to the chief executive, The King’s Fund

l Kalipso Chalkidou, founding director, NICE International

l Karl Claxton, senior research fellow, Centre for Health Economics, University of York

l Matthew Cripps, NHS England’s national director, RightCare

The EIU bears sole responsibility for the content of this report. The findings and views expressed in the report do not necessarily reflect the views of the sponsor. Andrea Chipman was the author of the report, and Martin Koehring was the editor.

February 2016

About this report



Introduction

The UK has long been in the vanguard among European countries looking to expand their use of value-based healthcare. Many European policymakers have looked to the UK’s National Institute for Health and Care Excellence (NICE) as a model; NICE provides evidence-based guidance about the cost-effectiveness of new treatments, among other responsibilities.

Its National Health Service (NHS), in England in particular, has experimented in recent years with various pay-for-performance models, as well as efforts to identify and eliminate localised variations of care and treatment pathways that are seen to be ineffective.

Yet years of structural healthcare reforms have both impacted the morale of providers and left a more fragmented system, making it unclear to what extent the country can actually increase value for money, even if it can identify that value.

“From whose perspective is value being defined? Inevitably, it’s from the perspective of payers as budgets are getting tighter,” says Kalipso Chalkidou, the founding director of NICE International, the international arm of NICE UK. “Comparing [innovative treatment] to the next best thing currently available makes it easier to contain costs and make sure taxpayer money is being invested wisely.”



Chapter 1: Evolution of a centralised system and the NICE model1

The NHS, founded in 1948 as one of the earliest universal healthcare systems, is funded by general taxation, including national insurance contributions. It is arguably a more centralised system than those of its European neighbours. The system is both publicly financed and operated primarily through the public sector, although market reforms have steadily introduced private providers within England over the last few decades.1

In the wake of the devolution of healthcare in 1999, NHS England accelerated its internal market, while Northern Ireland, Scotland and Wales have refrained from instituting a similar split between purchasers and providers.

Structural reformIn England, a ministerial department—the Department of Health—provides strategic leadership and funding for both healthcare and social care. NHS England, formerly known as the NHS Commissioning Board, acts as an independent body at arm’s length to the government, offering national leadership for improving outcomes and driving up the quality of care.

NHS England directly commissions primary care and highly specialised services. It also oversees so-called clinical commissioning groups (CCGs)

and allocates resources to them; CCGs work together in general practices to plan, design and buy local health services in England, such as planned hospital care, rehabilitative care, urgent and emergency care, most community health services, and mental health and learning-disability services.

Since devolution the NHS has continued to be the subject of periodic structural reforms, the most recent of which was the Health and Social Care Act of 2012. Designed to put clinicians in charge of commissioning healthcare services, the Act replaced 152 primary care trusts and specialised commissioning groups with 211 CCGs.

“CCGs are still relatively new, so it’s difficult to assess their impact in comparison with other forms of commissioning,” says Hugh Alderwick, a senior policy adviser to Chris Ham, chief executive of The King’s Fund, a UK healthcare think-tank. “Some are arguing, however, that CCGs need to take a more strategic role rather than being involved in multiple transactional relationships with providers, and that they should be more focused on defining and monitoring system outcomes.”

In recent years the health service has also been subject to an extended drive for efficiency, the Quality Innovation Productivity and Prevention

1 Nuffield Trust and Institute for Fiscal Studies, Public payment and private provision: The changing landscape of health care in the 2000s, May 2013, p. 11. Available at: http://www.nuffieldtrust.org.uk/sites/files/nuffield/publication/130522_public-payment-and-private-provision.pdf



(QIPP) initiative. The programme, which was set up with the aim of making £20bn (US$29bn) of savings by 2014-15 and even more beyond that, has put NHS trusts under severe pressure and has been blamed for high-profile stories involving poor patient care. A King’s Fund study of six NHS trusts found that all were “pessimistic about their ability to continue to make ends meet and improve quality in the next few years.”2

NICE at the heart of decision-making structure The structure of health technology appraisal in the UK comprises three separate agencies with responsibility for the authorisation, regulation, classification and surveillance of pharmaceutical products and medical devices: the Department of Health Medicines, Pharmacy and Industry Group (MPIG); NICE; and the National Institute for Health Research (NIHR).

The MPIG regulates the reimbursement and pricing schemes and sets the NHS list price. Prices of branded prescription medicines are controlled under the Pharmaceutical Price Regulation Scheme (PPRS), a voluntary agreement between the Department of Health and the Association of the British Pharmaceutical Industry (ABPI) that is negotiated by both parties on behalf of companies supplying in-patent branded medicines to the NHS, which account for some 70% of NHS spending on drugs.3 Companies that are not party to the PPRS are automatically subject to a statutory scheme that imposes a list-price cut of 15% on all products manufactured by the companies it covers, although the statutory scheme covers only around 6% of medicines by value.4

The PPRS has been in place since 1957 and is continually updated, with the current five-year agreement due to expire in 2018. The agreement is meant to balance the need for the government to achieve reasonable prices for medicines prescribed within the NHS with the role the industry plays as an employer and investor in research and development (R&D) in the UK.5

The Drug Tariff sets reimbursement prices for generic medicines. Generics have a high market share in the UK, accounting for 67% of the market.6

The most influential body in the appraisals process is NICE, which was established in 1999 and has two principal roles. NICE technology appraisals provide recommendations relating to the approval of prescription medicines, while the agency also provides evidence-based guidelines on a range of topics—from preventing and managing specific conditions to planning broader services and interventions to improve the health of communities.

NICE operates according to a cost-effectiveness threshold measured in quality-adjusted life years (QALYs), in which it generally refuses to recommend medicines that cost more than £20,000 to £30,000 per QALY. In the case of patients close to the end of life this threshold can sometimes be extended to £50,000 per QALY. The NHS, by law, must fund medicines that NICE approves within 90 days of a published decision. Those medicines that NICE rejects or has not yet approved tend not to be funded. However, recently there have been questions both about whether the NHS is paying too much for new drugs and how to increase the number of patients able to access the most innovative treatments.

Finally, the NIHR, established in 2006 with funding from the Department of Health, manages the Health Technology Assessment (HTA) programme and the NIHR Technology Assessment Reviews (TARs), with nine research teams contracted to respond to the needs of NICE and other policymakers with independent research.

The UK has no separate reimbursement and pricing mechanisms, and the Department of Health grants full reimbursement and approves pricing for most new prescription medicines for the outpatient and inpatient sectors once either the European Medicines Agency (EMA) or the Medicines and Healthcare products Regulatory

2 The Kings Fund, The NHS productivity challenge: Experience from the front line, May 2014, p. 5.

3 Raftery, J, “Value based pricing: can it work?”, BMJ, October 2013.

4 Department of Health, Consultation on Changes to the Statutory Scheme to Control the Prices of Branded Health Service Medicines: Consultation on Changes to the Regulations Underpinning the Statutory Scheme, September 2015. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/459219/stat_scheme_consultation_2015.pdf

5 Association of the British Pharmaceutical Industry, Understanding the 2014 Pharmaceutical Price Regulation Scheme, 2014, p. 1. Available at: http://www.abpi.org.uk/our-work/policy-parliamentary/Documents/understanding_pprs2014.pdf

6 British Generic Manufacturers Association. Available at: http://www.britishgenerics.co.uk/



Agency (MHRA) has granted them market authorisation and NICE or NHS England has approved their use. NHS England has a growing role in assessing specialist medicines in cases where NICE does not evaluate them.

All medicines that are eligible to be prescribed on the NHS receive full reimbursement, with the exception of those on negative or restrictive lists; hospital pharmaceutical and therapeutics committees agree on formularies of medicines that can be prescribed in hospitals, with some exceptions possible, and pharmaceuticals are covered as part of hospital care. Hospital

pharmacists work with commissioning organisations to decide which medicines are available in hospitals locally, unless national guidance overrules this.

Outpatients pay a standard, fixed prescription charge of £8.20 per item, with exemptions based on age, medical condition or income, and 90% of prescription items are dispensed in the community free of charge. In some cases, hospitals may be able to purchase medicines under contract at a discount to the NHS list price.



Although the UK has a comprehensive system for measuring cost-effectiveness of new drugs and technologies by NICE, the definition of value can still be a moving target. Initiatives over the past five years have tried to understand and clarify how a new form of value-based pricing could be introduced for the assessment of certain drugs, with mixed results.

Mr Alderwick of the King’s Fund notes that UK policymakers have, over past decades, introduced a range of pay-for-performance (P4P) measures in different parts of the NHS, including the Quality and Outcomes Framework (QOF) in primary care and Best Practice Tariffs (BPTs) in secondary care, both of which aim to incentivise the use of evidence-based methods and, where possible, reduce the use of unnecessary costly interventions.

A separate approach has looked to identify variations in care delivery and ways of altering care pathways to eliminate these inequities. Finally, there have been efforts to modify NICE’s value threshold to take into account a wider range of factors to inform decisions, a process that has experienced fits and starts in recent years.

Introducing incentives for providersThe QOF is an annual reward and incentives

programme which assesses the results of general practitioner (GP) surgeries in England. Introduced as part of the GP contract in 2004, it provides incentives for GP practices for providing quality care and standardising improvements in primary-care delivery for chronic diseases such as diabetes and asthma, public-health challenges such as smoking and obesity, and the implementation of preventive measures such as blood-pressure checks.

While both England and Scotland have similar aims in incentivising better integration of care, Scotland has more recently created a single outcome framework for both healthcare and social care services, distinguishing its approach from the NHS in England, Mr Alderwick observes.

In 2009 the government introduced the Commissioning for Quality and Innovation (CQUIN) initiative, which enabled healthcare commissioners to reward excellence in care by linking part of English healthcare providers’ income to the achievement of local quality and improvement goals. CQUIN includes both national and local targets.

In an addendum to these measures, the coalition government that was in place between 2010 to 2015 introduced BPTs, defined as care that is both clinical and cost-effective; the tariffs were

Chapter 2: Experimentation and identifying gaps2



designed to help the NHS deliver productivity gains and improve quality by reducing unexplained variations. The system included individual tariffs for each service area.7

Yet a clear assessment of the success of these P4P measurements has been challenging. “Evidence suggests that some pay-for-performance schemes have improved processes and quality of care. But evidence of their impact on outcomes is limited. Evaluations of the success of payment systems in incentivising outcomes is scarce,” Mr Alderwick says. “More recently, local commissioners have begun to try to construct new contracts for their local providers, covering payments for the care of a defined local population, with a proportion of these payments linked to the delivery of agreed outcomes of care. In the NHS it’s too early to assess the impact of those newer approaches.

A 2014 report from an independent health charity, the Nuffield Trust, found that while a move from block budgets to activity-based payments had improved provider productivity in acute care, block contracts remained the most common payment mechanism in community health.8 In addition, the report found that introducing incentives across services was doing little to shift care out of the hospital setting. Instead, activity-based payments in acute care encouraged further care in hospitals, while block budgets in community services and capitated budgets in primary care provided little incentive to increase care in these sectors or make it more efficient.

With regard to the specific incentives the government had introduced, the Nuffield Trust report concluded that while the QOF and BPTs supported a role for the payment system in improving quality, CQUIN had been less successful.

To be sure, notes Mr Alderwick, there have been some examples where making contracts like these has not been successful in practice, and

much depends on implementation and the ability of multidisciplinary teams to work together to adapt care-delivery models. In December 2015 UnitingCare, a consortium of Cambridgeshire and Peterborough NHS Foundation Trust (CPFT) with Cambridge University Hospitals NHS Foundation Trust, announced that it would end an £800m contract to provide care to the elderly after just eight months because the care was “no longer financially sustainable”. Union representatives said the consortium was unable to make financial cost savings on the contract, which was ultimately transferred to the Cambridge and Peterborough CCG.9

“The relative success of these initiatives is down to local implementation, and ultimately the engagement of clinicians in actually changing how care is delivered on the ground is going to determine how well you make change happen,” Mr Alderwick adds.

Addressing inequities in healthcareIn addition to seeking quality and productivity improvements through financial incentives, healthcare reformers in England, in particular, have also sought to address sharp variations in healthcare outcomes across the country.

At a recent conference at Oxford University Professor Sir Muir Gray, the director of Better Value Healthcare and an adviser to Public Health England (an executive agency of the Department of Health), defined the causes of unwarranted regional variation as threefold: 1) patient harm from overdiagnosis and overtreatment, even when treatment is of a high quality (eg chemotherapy in the last week of life, antibiotics or deaths in hospital); 2) inequities in the healthcare system owing to the underuse of high-value healthcare services by certain social groups (such as hip replacement surgery); and 3) waste, including any treatments that do not add value for patients or could provide more value if used for different patient groups.10

7 Department of Health, “Update to Best Practice Tariffs”, December 13th 2011. Available at: https://www.gov.uk/government/news/update-to-best-practice-tariffs

9 “Cambridgeshire’s £800m NHS out-sourcing contract ends,” BBC News, December 3rd 2015. Available at: http://www.bbc.co.uk/news/uk-england-cambridgeshire-35000421

8 Nuffield Trust, The NHS payment system: evolving policy and emerging evidence, 2014. Available at: http://www.nuffieldtrust.org.uk/sites/files/nuffield/publication/140220_nhs_payment_research_report.pdf

10 Sir Muir Gray, presentation at “Hellish Decisions in Healthcare 2015” Conference, held at Oxford University, December 7th-9th 2015.



Reassessing healthcare systems within this context involves what Sir Muir referred to as the “triple-value framework”, consisting of allocative value, which is determined by how assets are distributed to different population groups; technical value, involving the way in which resources are used for all people in need in each sub-group; and personal value, determined by how accurately decisions relate to the values of each individual.11

One programme that has attempted to address inequities in healthcare in England within this value framework is the NHS RightCare programme that was launched in 2009-10, according to Professor Matthew Cripps, NHS England’s national director of RightCare.

“If the end is value, then the means to achieve it is getting rid of unwarranted variation,” Professor Cripps notes. “You can’t ignore finance-based decisions, but you need to understand how to reach the finance-based objectives of the system in ways that support value.” He describes the programme as a “bespoke improvement methodology designed from scratch that could engage the clinical and management sides equally in partnership.”

The programme’s first phase draws upon an evaluation of where the largest areas of variation exist, whether in diabetes, asthma or other health issues categorised as priorities by local health authorities. This evaluation, published in “Commissioning for Value” packs for every health economy in England, defines phase two, which involves identifying what needs to be changed to transform sub-optimal patient outcomes into optimal ones. The second phase highlights the parts of the clinical pathway that are not up to scratch.

“You will have the design of what we should be doing and the reality of what we are doing; compare the two, and the difference is the thing you need to change to make [the pathway] optimal,” Professor Cripps explains.

Finally, the third phase of the process starts with the diagnosis and aims to reach consensus across the system about how to change practices. “We didn’t explain it to policymakers as a hypothetical thing; we got individual health economies to adopt the approach and demonstrate that it works,” he adds. “We convinced them by creating proof of concept.”

Policymakers from countries ranging from Denmark to Australia have shown interest in the concept, although by nature the programme requires that policymakers cede autonomy to local decision-makers to determine what to focus on. Also available and published with Public Health England are a series of “NHS Atlases of Variation in Healthcare in England”. These include six specific reports for conditions ranging from diabetes to kidney disease. The atlases illustrate the three phases of the RightCare process through individual case studies.12

Value-based pricing in pharmaceuticalsGiven the steadily rising cost of the most innovative medicines and technologies, it is unsurprising that one of the most controversial areas of UK healthcare policy has continued to be the effort to define more clearly value for money in the area of pharmaceuticals.

Government proposals to move towards value-based pricing, first introduced in 2007 by the Office of Fair Trading (a not-for-profit consumer-protection organisation dissolved in 2014), were made more explicit in the 2009 PPRS. In 2013 NICE adopted new terms of reference for implementing value-based assessments, which included a broader definition of value that incorporated both the burden of illness and wider societal benefits in its assessments.

The new approach, which was initially due to be implemented in August 2014, was designed to make cost-benefit decisions more transparent, consistent and predictable, according to the ABPI.

11 Ibid.

12 NHS RightCare, NHS Atlas. Available at: http://www.rightcare.nhs.uk/index.php/nhs-atlas/



In a 2013 article James Raftery, professor of health technology assessment at the University of Southampton, suggests that at least one factor undermining the conditions for a successful implementation of value-based pricing has been the fact that NICE’s unfettered ability to decide which drugs were available on the NHS has come under regular attack for a number of years.13 He notes that although NICE generally produces negative guidance on less than one-third of the drugs it evaluates, these decisions have been “politically difficult”; the 2009 PPRS scheme included a provision, known as the patient access scheme (PAS), which allowed companies to negotiate price reductions for drugs refused by NICE. The same year NICE’s decision to reject drugs for renal cancer led the government to require it to apply less stringent criteria for end-of-life drugs, leading to the reversal of NICE’s decision on at least one of the drugs at a cost of £549m a year.14 Meanwhile, the number of PASs in operation has grown significantly. As of 2015 the Department of Health had approved 48 such programmes, most of which consisted of straightforward price discounts.15

In 2010, amid vocal media campaigns by patients denied cutting-edge drugs, the government established the Cancer Drugs Fund (CDF), which was intended to run until March 2016 and fund medicines that NICE had not yet reviewed or had rejected regardless of price. The fund had an initial annual budget of £200m to allow patients access to drugs that would otherwise not have been regularly available on the NHS. The budget was increased to £280m in 2014-15 and £340m in 2015-16.16 More recently, the government has allowed NHS England to negotiate prices with manufacturers and exclude some medicines on cost-benefit grounds.

Yet in February 2016 members of parliament publicly chastised NHS England and the Department of Health for their management of the CDF, arguing that the government still had

13 Raftery, Value based pricing, p. 1.

14 Ibid.

15 Sackman, JE and Kuchenreuther, MJ, “Value-based Healthcare in the United Kingdom,” Pharmaceutical Technology, Vol. 39, Issue 1, January 2nd 2015.

16 “NHS increases budget for cancer drugs fund from £280 million in 2014/15 to an expected £340 million in 2015/16”, NHS England, January 12th 2015. Available at: https://www.england.nhs.uk/2015/01/cancer-drug-budget/

17 “Government has no idea about Cancer Drug Fund’s Impact, MPs say,” The Guardian, February 5th 2016. Available at: http://www.theguardian.com/society/2016/feb/05/government-has-no-idea-about-cancer-drugs-funds-impact-mps-say

18 Raftery, Value-based pricing, p. 2.

19 Claxton, K, Sculpher, M et al, “Causes for Concern: Is NICE Failing to Uphold its Responsibilities to all NHS Patients?”, Health Economics, 2015, Vol. 24, Issue 1, pp. 1-7.

20 Association of the British Pharmaceutical Industry, Understanding the 2014 Pharmaceutical Price Regulation Scheme, p. 6.

21 Ibid., p. 2.

22 Ibid., p. 4.

little idea what, if any, benefit patients were getting from the medicines the Fund pays for.17

Some analysts note that the CDF and other initiatives only served to further cloud the way in which NICE, and by extension the health system, was measuring value, and that they exacerbated the tensions over who defines it. “There needs to be flexibility, but it needs to be made explicit,” says Professor Chalkidou of NICE International. “Why is a cancer patient with advanced disease valued more highly than a 55-year-old who needs a hip replacement to go about their daily activities?”

In his 2013 article Professor Raftery notes that the cost to the NHS of the patient access, end-of life and CDF schemes has been just under £1bn, amounting to around 1% of NHS total spend and around 10% of its drug spend at the time. Industry, he argues, saw value-based pricing as “a way of avoiding NICE refusals.”18 The government, however, continued to struggle to define how value-based pricing would work.

In particular, according to a 2015 article in Health Economics, a critical aspect that needs to underpin any cost-effectiveness assessment is not only what additional costs and benefits a new drug might offer, but how much health is expected to be “displaced” or lost elsewhere given limited resources in the health system.19

Ultimately, the Department of Health shelved plans to introduce value-based pricing, instead negotiating the current PPRS scheme, which held NHS spending on branded drugs unchanged during 2013-15 and capped the growth of expenditure at less than 2% for the next three years.20 The aim is to provide a balance between patient access to medicines and the need for keeping government spending under control.21

The 2014 PPRS scheme also outlined a UK-wide scheme for tendering and procurement of branded, licensed NHS medicines in primary care across the four health departments of the UK.22



“My view is that the reason this happened was that there didn’t appear to be any discussion of an effective price-negotiation mechanism,” says Professor Karl Claxton, a senior research fellow at the Centre for Health Economics at the University of York. “The second thing was that the whole debate focused instead on a discussion of what

the other aspects of value are.” In particular, he adds, the realisation by industry and other stakeholders that the discussion would need to encompass not only the added benefit but also the opportunity costs of new treatment caused support to evaporate.



Policymakers have had some success in introducing pay-for-performance incentives, such as Quality and Outcomes Frameworks in primary care and Best Practice Tariffs in secondary care, according to provisional studies. In the case of innovative treatments, a key focus of high expenditure, however, it is not clear that the system is any closer to a threshold that will both achieve general acceptance and make it clear where opportunity cost lies.

Healthcare reformers in the UK have also sought to address sharp variations in healthcare outcomes across the country. Innovative ideas in this area include the triple-value framework and the NHS RightCare programme.

Given that many of the changes to the UK system are relatively new, a continued period of trial and error is likely to be necessary to collect sufficient data to draw firmer conclusions about how to improve health outcomes and reduce health inequalities in the country.

The UK healthcare system, and NHS England in particular, has experimented with value measures in health technology assessment for more than a decade. Yet it remains uncertain whether this process has left it in a better position than other European countries in which notions of value are even less developed.

Take clinical commissioning groups, for example. They are meant to increase the power of clinicians. However, they do not yet have a strategic role that could help them to define outcomes.

Meanwhile, although health technology assessment is advanced in the UK, deficiencies remain. NICE uses quality-adjusted life years to measure health benefit in its cost-effectiveness analyses, while prices of branded prescription medicines are set by a voluntary scheme, the Pharmaceutical Price Regulation Scheme. However, questions remain about whether these approaches provide the right balance between controlling healthcare costs and boosting patient access to innovative treatments.

Conclusion

While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report.

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