Value-Based Pricing and QALYs as benchmarks for IP-protected pharmaceutical prices

Article 102(a) TFEU when pharmaceutical prices exceed the costs per gained Quality-Adjusted Life Year (QALY) as a consequence of treatment.²²¹ Their reasoning is that a price exceeding the willingness to pay by society – which is inter alia determined by the costs per QALY – indicates that particular price not bearing a relationship to the economic value of the

219 Thomas J., ‘Patent “Evergreening”: Issues in Innovation and Competition’ 2009 CRS Report for Congress, 3;

Kumar A & Nando A. (n51), 2.

220 See Dwivedi G., Hallihosur S. & Rangan L. (n49), 352.

221 Canoy M. & Tichem J., ‘Lower Drug Prices can Improve Innovation’ 2018 European Competition Journal 14(2-3), 301; Fontijn C., Akker I. & Sauter W. (n8), 13-14.

product.²²² Unfairness would follow from the negative consumer surplus in cases where prices outweigh the societal benefits provided by the innovative product, as this would run counter to the objective of fostering innovation with IP. Thus, when an Originator leverages their IP or regulatory exclusive right beyond the prices which would foster innovation, i.e. the goal of the IP system as such, the price can be deemed unfair.²²³

The notion that pharmaceutical prices should reflect gained societal benefits is in itself not a new argument. Value-Based Pricing (VBP) for patented, innovative pharmaceuticals has been implemented by Sweden since 2002,²²⁴ and discussion regarding its merit was reignited when the UK’s NHS announced considering the implementation of this approach in 2014.²²⁵ In short, the goal pursued by VBP-policies is to strike a balance between rewarding innovation and retaining affordability of medicine(s) by having as guiding principle that the price represents the value to the consumer, rather than the costs of production plus profit for the producer.²²⁶

This proposal would facilitate the application of competition law intervention and links unfairness with the willingness to pay of health provider intermediaries, irrespective of their nature as a monopsonist or – as is the case of the Dutch healthcare sector – private or public insurers.²²⁷ As mentioned supra , the ECJ recently emphasised the notion that the concept of consumer welfare – and detrimental effects thereto – includes the harm to intermediate consumers, in casu constituting the national government healthcare services or public insurers.²²⁸ Case law thus supports this aspect of the solution.

The advantage of linking the United Brands-test to QALY-maxima in cases of patented or SPC-protected pharmaceuticals would therefore be situated within transparency regarding

222 Ibid.

223 Ibid. 302.

224 Persson U., Svensson J. & Pettersson B., ‘A New Reimbursement System for Innovative Pharmaceuticals Combining Value-Based and Free Market Pricing’ 2012 Applied Health Economics and Health Policy 10(4), 218.

225 See inter alia Kanavos P. Manning J., Taylor D. Schurer W. & Checchi K., ‘Implementing value-based pricing for pharmaceuticals in the UK’ 2010 2020Health Organisation Final Report; Sussex J., Towse A. &

Devlin N., ‘Operationalizing Value-Based Pricing of Medicines A Taxonomy of Approaches’ 2013

PharmacoEconomics 31(1), 1-2; Raftery J., ‘Value based pricing: can it work?’ 2013 BMJ 347(7929); Jommi C. Armeni P., Franscesco C., Bertolani A. & Otto M., ‘Implementation of Value-based Pricing for Medicines’

2020 Clinical Therapeutics 42(1), 16.

226 Persson U., Svensson J. & Pettersson B. (n225), 218.

227 Canoy M. & Tichem J. (n222), 302.

228 Case C-377/20 (n92), para 46.

legal pricing and uniform protocols. The balance struck between societal stakeholder interests would mitigate the commonly submitted objection from the pharmaceutical lobby, being that price regulation would cause a chilling effect on innovation if prices were set under what is necessary to retain pharmaceutical R&D as lucrative.

As with any approach however, a couple of matters should be addressed prior to unequivocally vouch for incorporation of QALY-benchmarks in the application of the excessive pricing-dogma. Firstly, QALYs are calculated on national level and thus variate from country to country. For example, in the Netherlands the maximum value per QALY amounts €80.000,-,²²⁹ while the UK handles a range of £20.000,- to £30.000,-, although proposals have been made to increase the maximum to £50.000,-.²³⁰ Secondly, different parameters are used to come to a set rate, such as the added bonus of additional years, added societal value from providing care such as the prospects of patients being able to return to work, and the side effects and efficacy of specific medicine. Thirdly, QALY is subject to temporal change, given that the purchasing power and budgetary limitations of national health systems and service providers in-or decrease over time.

This approach would thus make excessive pricing-intervention highly contextual: it would not only be dependant on the Member States’ demarcated thresholds, but also the parameters used to determine these, the point in time wherein the procurement agreements would be concluded, as well as factors that differ per disease, the specific individual concerned and the pharmaceutical product in question.²³¹ It is submitted that these regional and temporal variables and deviations in policy-setting would make intervention by the Commission or Courts too complicated, or even outright impossible. While not per se problematic, as competition law is a national competence and field of policy, the lack of prospects for a precedent set by the Commission could mean risking a fragmentation of Article 102(a) TFEU intervention against pharmaceutical undertakings. The outcome would namely be dependant on the competent CA. As such, coordinated EU-wide pricing practices would have to be dealt with by individual – although capable of coordinating tactics together – Member States,

229 Fontijn C., Akker I. & Sauter W. (n8), 13.

230 Pauly M., ‘The Questionable Economic Case for Value-Based Drug Pricing in Market Health Systems’ 2017 Value in Health 20(2), 278; Garrison L. & Towse A., ‘Value-Based Pricing and Reimbursement in Personalized Healthcare: Introduction to the Basic Health Economics’ 2017 Journal of Personalized Medicine 7(3), 3.

231 Estoppey L., Kurth F. & Romanens M., ‘Toxic Pharma Prices: from Hypothesis to Action?’ 2016 Athery’s e-publications, 6.

leading to diverging conclusions and interpretations, corroding legal certainty for dominant Originators with an EU-wide MA for specific marketed drugs.

Alternatively, it has been suggested to take ex ante probabilities of success and investment of a prospective pharmaceutical product into account in the context of the first of the United Brands-test.²³² In principle, there is no concrete objection to this assumption; however, it is submitted that feasibility in practice is doubtful, as confidential economic overhead costs for all projects must be collected by the CA in question. Infringement investigations are time-consuming, and the inclusion of requiring internal documentation would cause further administrative burden on authorities, thereby delaying definitive decision-making even more.

Consequently, the executive capacity of CAs would be more strained, pharmaceutical undertakings would operate under more uncertain market conditions, and the benefits of concluding that prices are too high would only conceptualise long after the damage to the social health system has occurred.

In conclusion, equating high prices of IP protected pharmaceuticals is objectionable, not only on normative and legal, but operational grounds too. It is therefore submitted that competition law intervention on grounds of Article 102(a) TFEU, while certainly possible – and lauded – in cases of off-patent drugs, the framework does not lend itself appropriate for application against IP protected pharmaceuticals. Hence, Member States and EU institutions are advised to look for alternative alleys to keep drugs and treatments affordable without tampering with innovation incentives.