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Operationalising Value Based Pricing of Medicines: A Taxonomy of Approaches


  • Sussex, J.
  • Towse, A.
  • Devlin, N.


Recent reforms to the National Health Service (NHS) in England include important changes in the regulation of prices for new medicines. From January 2014, the existing Pharmaceutical Pricing Regulation Scheme (PPRS) will be replaced by "value based pricing" (VBP) for branded medicines sold to the NHS. This will apply only to new medicines; those marketed before 2014 will continue to be governed by the PPRS. To date, the UK Government has not been specific about how VBP will be implemented, but has indicated that calculations of value will extend beyond the QALY approach currently used by NICE. The Department of Health has stated that it will include "the range of factors through which medicines deliver benefits for patients and society". In this OHE Research Paper, the authors identify and describe the full set of possible means by which value based pricing might be operationalised, categorise these by developing a taxonomy of approaches, and provide an initial assessment of the challenges, pros and cons of each. They review the elements of value that could be considered and how these might be measured and valued, combined into an overall assessment of a medicine's value,and then linked to the maximum price the health service is willing to reimburse. Finally, they 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 the taxonomy. A revised version of this paper has been published in PharmacoEconomics and can be downloaded from - Please cite as - Sussex, J., Towse, A. and Devlin, N., 2013. Operationalizing value-based pricing of medicines. PharmacoEconomics, 31(1), pp.1-10.

Suggested Citation

  • Sussex, J. & Towse, A. & Devlin, N., 2011. "Operationalising Value Based Pricing of Medicines: A Taxonomy of Approaches," Research Papers 000177, Office of Health Economics.
  • Handle: RePEc:ohe:respap:000177

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    References listed on IDEAS

    1. Adrian Towse, 2007. "If it ain't broke, don't price fix it: the OFT and the PPRS," Health Economics, John Wiley & Sons, Ltd., vol. 16(7), pages 653-665.
    2. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
    3. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-255, March-Apr.
    4. Gandjour, Afschin & Gafni, Amiram, 2010. "The additive utility assumption of the QALY model revisited," Journal of Health Economics, Elsevier, vol. 29(2), pages 325-328, March.
    5. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
    6. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
    7. Sussex, J., 2010. "Innovation in Medicines: Can We Value Progress?," Seminar Briefings 000219, Office of Health Economics.
    8. Ofra Golan & Paul Hansen & Giora Kaplan & Orna Tal, 2010. "Health Technology Prioritisation: Which criteria for prioritising new technologies, and what are their relative weights?," Working Papers 1006, University of Otago, Department of Economics, revised Jul 2010.
    9. Shah, K. & Praet, C. & Devlin, N. & Sussex, J. & Appleby, J. & Parkin, D., 2011. "Is the Aim of the Health Care System to Maximise QALYs? An Investigation of," Research Papers 000180, Office of Health Economics.
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    Cited by:

    1. Garau, M. & Towse, A. & Garrison, L. & Housman, L. & Ossa, D., 2012. "Can and Should Value Based Pricing Be Applied to Molecular Diagnostics?," Research Papers 000160, Office of Health Economics.

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    Economics of Health Technology Assessment; Economics of Industry;

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health


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