Abstract

Most innovative medicines come at an extra cost compared with the standard of care, and that extra cost is sometimes substantial. Several authors have expressed concerns with this regard, especially pointing to—but not restricting to—orphan medicines and cancer drugs.^1,2,3 The Expert Panel on Effective Ways of Investing in Health, an interdisciplinary and independent group established by the European Commission, recently stated that there is a need for innovative payment models to ensure that patients have access to innovation “that matters,” while keeping health systems financially sustainable.⁴

It has been argued by several authors that public prices (ie, covered by public health or health insurance money) should better reflect investments for research and development (R&D), while guaranteeing a reasonable return on investment, a logic that is sometimes referred to as “cost plus pricing.”⁵ Although this approach might at first sight seem fair and logical, it raises several issues:

 

• First, it may lead to the wrong incentives, in that (in theory) the higher the R&D expenditure, the higher the price that could be justified. R&D should be as efficient as possible. In cases in which it is not efficient, this would aberrantly be rewarded by the cost plus pricing logic.
• Second, investment costs for medicines that eventually do not make it to the final stage (ie, access to patients) because of insufficient effect or because of toxicity, or other reasons, must be amortized and factored into the cost of R&D of the medicines that make it to the market, which may then lead to a perverse situation in which a company with many of such failures could justify a higher price for the few products that make it to the market. Admittedly, this could be justified if the reason for the failures is that the concepts are novel and might lead sooner or later to a breakthrough. Yet again, “more failures lead to more money” can hardly be justified.
• Finally, this approach does not sufficiently encourage true innovation. Irrespective of the benefit to patients, reward will be according to R&D costs. Hence, cost plus pricing does not reward value. This could be compensated by better patient access (if the product is indeed of high value), but again, the logic that sets price regardless of the added value can hardly be justified.