The Kennedy report: Appraising the value of innovation and other benefits

The Kennedy report: Appraising the value of innovation and other benefits

Report synopsis

This July has seen the publication of the Kennedy report, narrowly preceded by the Life Sciences Blueprint statement from the newly established Office for Life Sciences.

Written by Professor Sir Ian Kennedy and entitled Appraising the value of innovation and other benefits —a short study for NICE, the Kennedy report includes 25 recommendations aimed at improving relations between the National Institute for Health and Clinical Excellence (NICE), the pharmaceutical industry and the general public.

Sir Ian is keen to recognise that NICE is doing a good job in very difficult circumstances. However, he does criticise NICE for failing to communicate to the wider world how it works and why it makes the decisions it does. He says “NICE rarely appears to be on the front foot in terms of setting and discussing the agenda of resource allocation. Instead, it too frequently finds itself responding to the characterisations (and caricatures) of others... it finds itself regarded as blocking patients’ access to drugs, rather than holding the ring between conflicting demands.”

Broadly speaking, the report recommendations boil down to the following:

In a podcast released by NICE around the time of the report, Sir Ian also talks about another recent development in the way drugs are approved for the NHS—namely patient access schemes. He refers to cancer at the end of life as having “elbowed its way onto the middle of the stage” particularly with reference to end-of-life provision, which he says 
“I think could well constitute a Trojan horse for the whole of NICE, unless it’s controlled”.

Needless to say, the Kennedy report and the Life Sciences Blueprint have created something of a stir. Here we have the reactions of Alison Clough, and those of Christopher McCabe, Tania Stafinski, Richard Edlin and Devidas Menon.

Valuing health, valuing innovation or subsidising the UK life sciences industries?
Confusion at the heart of the Kennedy report

Christopher McCabe^A, Tania Stafinski^B, Richard Edlin^C and Devidas Menon^D

^AProfessor of Health Economics, Academic Unit of Health Economics, Leeds Institute of Health Economics, University of Leeds. ^BResearch Program Coordinator and PhD Candidate, Department of Public Health Sciences, School of Public Health, University of Alberta, Canada. ^CLecturer in Health Economics, Academic Unit of Health Economics, Leeds Institute of Health Economics, University of Leeds. ^DProfessor of Health Policy and Management, Department of Public Health Sciences, School of Public Health, University of Alberta, Canada.

Introduction

In his recent report to the National Institute for Health and Clinical Excellence (NICE),¹ Sir Ian Kennedy suggests modifying the NHS reimbursement process to support life science industries in the UK. If adopted, these recommendations could lead to inequities and reduce the ability of the NHS to provide value for money to the taxpayer. In this article, we focus on those of Kennedy’s numerous and wide-ranging recommendations that relate to how NICE considers the value of health technologies, how it should value innovation, and its relationship with the Government’s commitment to promoting the UK life sciences industry.

Background

A consistent theme of reviews of NHS reimbursement processes is that the NHS is a “poor customer” for innovations in healthcare—it does not adopt new technologies rapidly and there is significant geographical variation in the rate of adoption.^2–4 Recommendations from NICE are mandatory within the NHS, and its decisions are largely based on whether a treatment provides value for money. Efforts to ensure value for money in the context of new and expensive treatments continue to cast a negative light on the NHS.

The latest attempt to address these concerns is the Kennedy report—Appraising the Value of Innovation and Other Benefits. It considers:

Kennedy presents a comprehensive and balanced assessment of the challenges facing NHS decision makers, and the relative contributions of pharmaceutical companies, clinicians and NHS decision makers, particularly NICE, to the current state of affairs—a position he describes as “undeclared hostilities, if not war”.

Few parties escape criticism. Kennedy states that pharmaceutical companies “must accept the rules of engagement consequent on a fixed budget allocated through a statutorily established mechanism”. Clinicians are criticised for advocating treatment for their patients without considering their responsibilities “to the patients of others, and to the NHS”. NICE, for its part, is criticised for failing to communicate effectively either the need for its decisions or the basis on which they are made.

Value of healthcare

Kennedy acknowledges that there are benefits of healthcare that the quality-adjusted life-year (QALY) instrument does not take into account. Some of these benefits are expansions of the concept of health (e.g. to include aspects such as loss of quality of life following sensory loss, which are not captured in the EuroQol-5D framework); others are characteristics that modify the value we attach to a given change in health (e.g. for health at the end of life). A third area for consideration is the range of social benefits that flow from health (e.g. productivity and economic wellbeing). The list of individual factors is long—and becomes longer still when one considers the potential for interactions between factors.

There is clearly a need for research into which of these many possible benefits the NHS should consider, what weight should be given to each and, crucially, how they relate to each other. However, Kennedy recommends that NICE should not wait for such research, but should begin to take account of these factors in its estimation of the cost effectiveness of appraised technologies. He calls for the benefits for innovative treatments to be expanded beyond health (as measured by the QALY), and to include preferences (e.g. mode of administration and treatment location) that would not ordinarily be considered within standard cost effectiveness. The inclusion of these preferences would be based on knowledge about the specific population, disease and technology under consideration. By contrast, little information is available about the healthcare for those who bear the opportunity cost (i.e. those who forego interventions as a result of an innovative treatment being introduced) beyond an estimate of cost effectiveness.

Whilst the proposed changes may make it much easier to say how important innovative treatments are to potential recipients, we cannot say how important the treatments foregone are to those who stand to lose them. Without this ability, it is almost inevitable that the system will be inappropriately biased in favour of innovative technologies, since only these technologies are in a position to have additional benefits counted. Unless the effects of disinvestment are also considered, the proposed changes are clearly inequitable and will conflict with the core NHS principle of equal access to healthcare.

Kennedy also calls for a higher cost-per-QALY threshold to be applied to ‘innovative’ technologies—a change that may further bias the healthcare system. A higher threshold will inevitably mean that less health can be produced from the fixed NHS budget.

Kennedy’s recommendations beg several questions, for example:

If NICE proceeds immediately on Kennedy’s recommendations, its decision makers must act with little robust evidence. If they place too high a weight on healthcare factors, NICE risks having to withdraw recommendations—amidst inevitable controversy. On the other hand, the legitimacy of the decision makers, and NICE in general, will be called into question if too low a value is given to a treatment that is initially denied.

What qualifies as an innovation?

When arguing that a different cost-effectiveness threshold should apply to certain ‘innovative’ technologies, Kennedy argues that a qualifying product must:

Thus, an innovation is a new licensed technology that meets an NHS priority need and has a substantial impact on the outcomes of at least 70% of indicated patients, who can be reliably and prospectively identified.

In offering an operational definition of innovation, Kennedy demonstrates an underlying problem with the paying-for-innovation argument. Innovation can be differentiated from mere invention by its production of outcomes that are valued—in this case by the NHS (on society’s behalf). If healthcare rather than health is to be valued within cost effectiveness, then what important elements of healthcare remain to justify a higher threshold? The only way that a higher threshold appears relevant is if there are additional benefits beyond those judged by patients, and the argument here hangs on the contribution that innovation makes to the wider economy. If so, should it be the role of the Department of Health to fund an essentially industrial policy?

Alternatives should be considered

At its heart, the Kennedy report proposes that the NHS reimbursement policy should be amended, through NICE, to become a means of providing a subsidy to UK life science industries. Few argue that the presence of these industries is undesirable, and many may even believe a subsidy is warranted. However, it is legitimate to ask whether the NHS purchasing policy is the most efficient, effective or appropriate means of supporting domestic industries.

Critically, it would appear more cost effective to subsidise the UK life sciences industries through early-stage incentives such as tax breaks for research rather through NHS reimbursement. At the time of NICE appraisal, an innovative product will have been through the development stage; the majority of the associated risks will have been successfully navigated and the broad health improvements will be demonstrable. The cost-effectiveness analysis is carried out to determine what the NHS will pay for the product. Providing a subsidy at this stage may increase the benefits that the manufacturer can expect from future investment, but it will not address the earlier risks. By contrast, early incentives, such as tax breaks on research and development, could reduce the cost of research and so allow companies to carry out a broader range of investigations. With this broader range, the chances of successful research will improve. Early incentives both improve the expected value of health investments and reduce the risk of investment. They ought, therefore, to provide a greater incentive per pound spent—and a greater impact.

Early-stage incentives are probably less costly too. Because of European competition regulation, NHS purchasing decisions are unlikely to be able to differentiate, legally, between products produced by companies based in the UK or in other European Union states. Given that the majority of technologies are likely to be from manufacturers outside the UK, every pound spent supporting UK industries at the NHS remuneration stage will be accompanied by the additional cost of subsidising similar industries elsewhere in Europe.

Conclusion

With its acceptance of the Kennedy report, the government appears to be committed to using some of the NHS budget to meet its industrial policy aims. The methods used to do so require further thought. A more effective and transparent strategy would be to extract funds from the current NHS budget and place them in a ring-fenced fund for public investment to support the UK life sciences industries. This would clearly signal to the NHS which of its funds it should use to promote the health of the population, and which it should spend on marketing itself as a customer. Using its main budget, the NHS could then pursue efficient commissioning of health treatments that society values for health reasons. However, if the subsidy must apply within the NHS reimbursement mechanism, the ring-fenced innovation budget would need to meet the full difference between a treatment’s cost and its value to the NHS. NICE recommendations in such cases would still be based on cost effectiveness—the NHS budget would pay for the meal so long as the ring-fenced subsidy pays the tip.

NICE is under pressure to subsidise the UK life science industries and to communicate its methods transparently. Unfortunately, the mechanisms recommended by the Kennedy report will lead to both a lack of transparency and an inefficient subsidy of UK industries. If the NHS budget—and by implication the health of the population—must be sacrificed to subsidise industry, it would seem more transparent and more efficient to do so using a fixed budget with a clearly identified role, ideally based on tax breaks or other early-stage, research-focused incentives, as opposed to tacking on some kind of innovation premium at the reimbursement stage, which merely reduces the necessary emphasis on providing value for the taxpayer’s money.

Please click here to add your own comments on the Kennedy report

References:

1. Kennedy I. Appraising the value of innovation and other benefits: a short study. London: NICE, 2009.
2. Office of Life Sciences. Life Science Blueprint: a statement from the Office of Life Sciences. London: OLS, 2009.
3. Cooksey D. Review and refresh of bioscience 2015: a report to the government by the bioscience innovation and growth team. London: Department for Business, Enterprise and Regulatory Reform, 2009.
4. Darzi A. High quality care for all: the NHS next stage review final report. London: DH, 2008.

Note from the authors: CM and RE are health economists and TS and DM are health service researchers. All authors have a research interest in considering issues of social value and are collaborators on proposed research. The current paper was constructed whilst TS and DM were visiting at the University of Leeds. All four authors contributed to the preparation of this manuscript; CM and RE drew up draft versions, while TS and DM provided valuable comments. All authors declare that they have no competing interests, and no specific source of funding was used in the preparation of this manuscript.