The case for value-based pricing for COVID-19 vaccines, therapies

As planning for the distribution of a COVID-19 vaccine begins in earnest, experts say policymakers should include value-based pricing in those considerations.

Pricing for value would ensure drug companies and other firms are able to continue to innovate new ways to address the virus without lining their pockets with billions in profits off of a critical vaccine, write researchers led by Peter Neumann, director of the Institute for Clinical Research and Health Policy Studies at Tufts Medical Center, in an article for Health Affairs.

The researchers say COVID-19 vaccines and therapies will likely require a hybrid pricing approach that cribs from multiple strategies, but measuring value is key for policymakers to "consider the full costs and benefits of products and the wide-ranging ramifications of their actions."

"There are no easy answers to pricing in a pandemic," they wrote. "People may understandably recoil from the idea that drug companies will pocket billions, but pricing to value will help achieve the ultimate goal of ensuring more innovations are available for the next pandemic."

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The researchers flag three models that may have merit for COVID-19 vaccines or treatments: a cost recovery approach, using monetary prizes or advanced market commitments (AMCs).

The latter option is already in effect in the market to some degree, according to the report, as the U.S. government has already arranged to purchase 100 million doses of Pfizer and BioNTech's vaccine contingent on Food and Drug Administration approval or emergency use authorization.

However, this arrangement has come under fire as the $1.5 billion price tag may reflect a profit margin of more than 60%. If similar arrangements are possible for the future, policymakers must account for the potential value of a product before agreeing to a price.

The researchers said AMC arrangements are likely to be the most applicable to vaccinations and testing, as these products require broad access quickly. 

A monetary prize approach was launched to incentivize additional testing development, with XPrize launching a $5 million competition backed by powerhouses like Anthem, Amazon and Google.

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Under a cost recovery approach, drugmakers would be reimbursed for production and distribution costs to ensure wide access. While the U.S. government has entered such arrangements for certain products, and it would be allowable under the Defense Production Act, a cost recovery approach has never been deployed for drugs before.

The researchers also warn that this approach can do little to incentivize future innovation.

"Paying manufacturers for costs incurred, instead of benefits conferred, rewards higher costs and inefficient processes and thus sends perverse signals to innovators," the researchers said.

Value calculations will require looking at the value from both a health system and a societal perspective, the researchers said. That means maintaining information on both the health impacts, positive or negative, and the non-health impacts, such as easing fear in the community and allowing schools to more effectively reopen.

"Although estimating the full value of a drug for COVID-19 is difficult, the pandemic’s economic impact leaves little doubt that it would be substantial," they wrote.