I published a thought piece on indication-based drug pricing in May 2020; at the time, the Office of Heath Economics in London had just published a consultation report on the topic, which collated the views of key stakeholders in healthcare.[1] Three and a half years later, the topic remains just as relevant.
Pharmaceuticals are increasingly being designed to target fundamental biological pathways that are shared by multiple indications. As a result, drugs are frequently applicable to multiple indications, at various stages of disease. In the context of a portfolio within an asset, indication-based pricing could help recognise the unique value a product brings to specific patient populations versus the single price approach.
What is indication-based pricing?
Indication-based drug pricing, which reimburses a treatment at different prices for each approved use, should offer a flexible approach to compensating for a drug’s value by indication. By aligning a drug’s price with its demonstrated value in specific conditions, indication-based pricing can better reflect therapeutic benefits. However, how realistic is its implementation, and what are the pros and cons of indication-based pricing?
What are the benefits?
- Indication-based pricing may expand patient access – more indications would be allowed under broader reimbursement terms, benefiting more patients.
- Research and development in lower-value indications would be encouraged, as pricing in the drug’s anchor indication would be maintained.
- Access to low-volume, high-value indications that would not be economically viable for development under a single price scheme would be enabled.
What are the drawbacks?
While indication-based pricing has the potential to address issues such as the provision of more nuanced and targeted pricing strategies that align price with value, its implementation is complex for both manufacturers and healthcare systems.[2, 3]
- Although patient access may improve, indication-based pricing is likely to increase drug spending in the short term, adding to payers’ concerns about affordability.
- Pricing negotiations between pharmaceutical companies and payers become more complicated, potentially increasing negotiation time and complexity.
- There may be a significant administrative burden. Pricing for each indication necessitates a large amount of data on efficacy, patient outcomes, and other variables, which can be difficult to collect and manage.
- There is a scarcity of reliable and comprehensive data for tracking by indication, making indication-based pricing difficult to implement in practice. There could also be legal or contractual roadblocks to overcome.
How can indication-based pricing be implemented?
There are three main mechanisms cited in the literature for implementing indication-based pricing[4]:
- Different brands for each indication.
- A single, weighted average list price across indications.
- A single list price for the most valuable indication.
The first of these choices appears to be the most rational, it is also cited as pure indication-based pricing [2], and it is clinically logical to identify drug usage by condition. Despite this, we see very few examples of indication-based pricing using different brands, and only few countries allow this, generally where dosages differ by condition. In other countries, indication-based pricing is implemented via different rebates depending on the indication.[2]
Practical evidence supporting or refuting the merits of indication-based pricing is scarce, and the debate on indication-based pricing is unfinished.
With an increasing number of treatments being developed for multiple indications, how important is it to consider whether widespread use of indication-based pricing could help address concerns about funding, research and development, and access to these medicines?
- Cole, A., Towse, A., Zamora, B., The Debate on Indication-Based Pricing in the U.S. and Five Major European Countries, O.C. Research, Editor. 2018.
- Preckler, V. and J. Espin, The Role of Indication-Based Pricing in Future Pricing and Reimbursement Policies: A Systematic Review. Value Health, 2022. 25(4): p. 666-675.
- Cole, A., Towse, A., Zamora, B., Indication-Based Pricing (IBP) Consultation Report. 2020: https://www.ohe.org/publications/indication-based-pricing-ibp-consultation-report.
- Campillo-Artero, C., et al., Price Models for Multi-indication Drugs: A Systematic Review. Appl Health Econ Health Policy, 2020. 18(1): p. 47-56.
