In place of Negotiation - NICE and the cost of drugs

In the Sunday Times on 7th June 2009 Adam Wishart had an interesting article on the procurement of drugs by the NHS, and the role of NICE. The article is "the unbearable cost of living". I apologise if my summary of the article in any way misrepresents it, and I suggest people read it themselves.

Adam Wishart has himself lost a parent to cancer, and so at the start of the article is very much on the side of the patients who are asking why they are being denied new treatments which they think might help them, which have been rejected by the National Council for Clinical Excellence on the grounds that they cannot be justified in terms of value for money. Naturally the patients believe that the lives of their loved ones (usually their loved ones, not themselves) is worth any amount of money.

This is a very emotive, and emotional, issue and some people will think that the NHS should be about saving lives and not about the cost of treatment. Adam Wishart explores this and quite unusually moves beyond his initial position to recognising that finances are limited, and if we spend too much on any one treatment we reduce the amount available for other treatments. He asks the very difficult question, that has to be tackled by the NHS and by NICE, "should we give preference to terminally ill patients by giving them access to expensive new treatments that could extend their life, or should we spend the money on less ill patients who will benefit from their treatment for years to come". The wisdom of Solomon indeed is needed for such questions.

He raises the question of why the drug companies charge so much for their new products, and quite reasonably explains that they are out to make a profit, and the way to do that is to charge a high price. And if people will pay $100 000 for another year of life (and wouldn't we all if we had the money) then it is in their interests to charge that - even if it means some people cannot afford it.

The point I wanted to get to though is his final point - "why can't NICE negotiate lower prices?". The NICE process is to approve drugs for clinical use on the basis of value for money - and it is a pass/fail system. If you cannot demonstrate that the efficacy of your new drug justifies its cost, then it is not approved and will not be provided on the NHS.

There are several drug treatments that are quite beneficial, and quite expensive, and fail the NICE test because of their cost - surely if we negotiated with the manufacturers to lower their prices we could provide them on the NHS?

This seems sensible at first glance, certainly to people not used to the commercial environment. What is not apparent is that this will lead to higher prices overall.

What NICE are doing is asking for, effectively, a fixed price proposal. They want the bidding companies to put in their very best price - the one that will give them the best chance of winning business. Removing the oppportunity to negotiate puts the pressure on the drug companies to put in a low price to improve their chance of winning the contract - in effect they are going to always put in a price on the low side of the range of possible pricing points.

If we introduce post bid negotiation we have a number of consequences.
The first is the that the drug company no longer has so much fear of not being succesful, and so is more likely to put in a price in the middle or top of their possible pricing band - if this price is too high they can always reduce it in negotiation to win the business. The fear of not getting the business is a key factor in salesmen setting lower prices - remove it and they will go for higher margins.

So, the average input prices will go up - and the average price paid will go up as a consequence. We will approve anything below our value for money point, though those prices may be higher than under the no-negotiation system, and will negotiate on those that are too expensive. On average this means prices paid increase - not the first time, and not on everthing, but over time and on average they will rise. Note that the performance of the drug has not improved - but the price we pay will rise, meaning the NHS becomes less cost effective.

Note that we have also created more work for ourselves by allowing negotiation, and slowed the process down.

This is not obvious to everyone, and does lead to people feeling their life is undervalued. The reason for NICE's approach is to do the maximum good with the resources available - and the way to do that is to put the drug companies under pressure. Unfortunately it does the same for patients too.