Paying for Innovation to Secure Payback - To Build a Value-oriented Innovative Payment System


In recent years, China has actively expanded the coverage of its healthcare security system and dynamically adjusted the National Reimbursement Drug List (NRDL) annually, enhancing the accessibility of innovative drugs and reducing the burden of diseases. According to statistics, more than 270 innovative drugs were marketed in China from 2016 to 2021, focusing on the disease areas with the greatest disease burden and fastest growth rates (e.g., tumors, rare diseases, cardio- and cerebrovascular diseases, alimentary tract and metabolic diseases). Policy optimization has accelerated the marketing of innovative drugs in China, but many innovative drugs can only be available to a small number of potential patients after being approved, and the problems that patients have no access to or cannot afford them are still prominent. In addition, the large investment, long cycle, high risk and the lack of reasonable returns of R&D of innovative drugs also constrain the sustainable development of the innovative drug industry.
The 2022 Jinling Pharmoeconomics Forum and the Annual Conference of Pharmoeconomics Committee, Jiangsu Pharmaceutical Association were held online on April 16-17. Ms. Kang Wei, Managing Director of China Association of Enterprises with Foreign Investment R&D-Based Pharmaceutical Association Committee (RDPAC), was invited to deliver a keynote speech titled "Continuously Improve the Payment System to Match the Development of the Innovative Drug Industry". She also discussed with experts, scholars and industry representatives on how to improve the payment system for innovative drugs and establish a multi-layered healthcare security system, and put forward suggestions, so as to further guarantee patients' access to innovative drugs and promote the sustainable development of the innovative drug industry.
Develop value-oriented innovative payment to secure payback for innovation
According to the Report of Research on the Inclusion of Innovative Drugs into NRDL in the Context of High-Quality Development of Basic Medical Insurance published by RDPAC, the life cycle of an innovative drug in a mature international market is divided into stages of lengthy R&D (8-15 years), launch (1-2 years), growth (10-15 years) and decline. However, at present, most of the innovative drugs involved in NRDL negotiation have been marketed for a short period, are still at the "launch" stage or early "growth" stage, and need to be protected and encouraged by a reasonable price level. Professor Ding Jinxi from China Pharmaceutical University said at the Forum, "A first-in-class innovative drug features huge initial investment in R&D, and it takes about 12-14 years to recover the investment after marketing according to the international profit and loss model for new drugs. China is now speeding up inclusion into the NRDL, with a very short cycle for new drugs from marketing to inclusion. In the event of significant price reduction, it is indeed difficult to recover the investment."
In this regard, Ms. Kang Wei noted in keynote sharing, "For new drugs within the patent protection period, a value-oriented evaluation and pricing method should be developed to conduct multi-dimensional evaluation on innovative, clinical, social, patient and other value indicators, and perform calculation & estimation of the reimbursement payment standard (RPS) based on grading of different value levels. Meanwhile, a price formation mechanism strictly distinguishing between innovative drugs vs. generic drugs and biosimilars should be built, so that innovation can obtain reasonable payback."
Ms. Kang Wei pointed out, "Innovative drugs and generic drugs are at different stages of the drug life cycle, with huge differences in cost structure, and require a scientific and reasonable basis for price determination. Accordingly, it is not recommended to refer to the prices of generic drugs. Especially for products under the volume-based procurement (VBP), if the prices of selected products are used for calculation & estimation of the RPS, it cannot reflect the great differences between innovative drugs and VMP selected products in clinical value, R&D cycle, life cycle, price formation theory as well as procurement and use rules, which may affect the motivation of the industry to further invest in innovation.”
In addition, for innovators, the development of new indications for an innovative drug also requires considerable costs, while under the current NRDL negotiation, in case of addition of new additions to an included innovative drug, the price is required to be renegotiated and further reduced. In view of such situation, Song Ruilin, Executive President of China Pharmaceutical Innovation and Research Development Association (PhIRDA), suggested that exploration on automatic NRDL inclusion of new indications of an included product should be conducted, without renegotiation of the price, and this initiative will further encourage innovation.
Song Ruilin proposed, "We need to establish a separate and favorable reimbursement payment system for innovative drugs." Taking the security of high-value innovative drugs for rare diseases for example, international experience shows that special criteria or special channels are available to the NRDL inclusion evaluation of drugs for rare diseases in mature markets. Ms. Kang Wei put forward three suggestions, "Firstly, simplify the requirements on materials subject to evaluation; secondly, remove the threshold of annual cap of RMB 500,000 for drugs eligible to be negotiated as well as the annual cap of RMB 300,000 payable by BMI funds; thirdly, grant a higher ICER threshold."
"In terms of the reimbursement payment for innovative drugs, the current 70% fixed reimbursement payment ratio may be changed into a dynamic ratio, with room for commercial health insurance (CHI)." Song Ruilin said, "First of all, in consideration of the cost-based pricing of companies, the appropriate ratio should be depending on the BMI reimbursement payment ability. For common people, any assistance in their access to innovative drugs, more or little, is beneficial, while no reimbursement at all makes them helpless."
With the booming development of its pharmaceutical innovation, China leads the "tier-2" countries in terms of the number of drugs in R&D pipeline and the number of new drugs launched, and China's innovative drug market plays a more influential role throughout the world. Song Ruilin further pointed out, "Promoting the high-quality development of innovative drugs and consolidating the achievements of reform need to be sustained and accommodated by the market ultimately, and a favorable market system needs to be established. A sound policy cycle can stimulate the market potential, and the market potential can trigger the driving force of innovation, so as to practically promote the healthy development of the innovative drug industry."
Release the Vitality of CHI to Make Innovation Affordable
Both the Opinions on Deepening the Reform of the Medical Security System and the Healthy China 2030 Plan issued by the State Council emphasize establishing a multi-layered healthcare security system. To summarize the views of attendees at the meeting, they believe that the payment for and supply of innovative drugs will be further expanded and patients will effectively benefit from the innovation dividends by accelerating the development of CHI and establishing a multi-layered security system with multi-payers.
With reference to the sales structure of prescription drugs in G20 countries in 2020 according to IQVIA statistics, innovative drugs (i.e., patent drugs) only accounted for 11% of market sales in China, indicating a great room for supply of innovative drugs.
Ms. Kang Wei expressed that the willingness to purchase CHI among consumers in China is increasing and pharmaceutical companies are actively cooperating with CHI. It is predicted that the total premium of CHI in China is expected to reach about RMB2 trillion yuan by 2025. However, CHI and BMI has not yet been connected up, the data of treatment and reimbursement has not been shared between CHI and BMI, and one-stop reimbursement has not been realized either. The CHI still accounts for a small proportion of reimbursement payment. Professor Ding Jinxi, China Pharmaceutical University, suggested that CHI will effectively supplement the payment for innovative drugs if the coverage and loss ratio of CHI are raised, more long-term products are designed and connection with BMI are enhanced.
Ding Jinxi also shared at the meeting that, at present, it is increasingly difficult for high-value innovative drugs to be included in NRDL and many relevant companies may choose not to apply for NRDL negotiation due to market expectations. To alleviate the contradiction, he suggested introducing CHI to collaborate with BMI and innovative payment and securing high-value innovative drugs by a "three-stage model", i.e. independent payment by CHI, co-payment by CHI and BMI, and regular payment by BMI.
Ms. Kang Wei expressed: "It is our common goal to establish a multi-layered healthcare security system to meet the needs of patients for innovative drugs. We are expecting more innovative payment channels to improve the accessibility and affordability of innovative drugs and realize early availability of innovative drugs to patients in need."

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