Health care costs are rapidly expanding. Several cost containment approaches such as price reductions, internal price referencing, tendering and risk-sharing have been applied extensively. Although undisputedly potent in the short-term, tendering and price reduction approach lack selectivity and both oversee product’s innovation level and particularities of involved patient categories. On the other hand, risk sharing schemes were implemented to tackle uncertainty primarily for short term and due to their binary evaluation context they tend to benefit insurer and sustainability is severely doubted . Therefore they cannot be considered as a long term approach. Other current pricing schemes such as EPR do not promote innovation, while some authors argue that EPR leads to high prices of medicines which are not aligned to their value .
Value based pricing is a paradigm shift that distributes risk among payer and industry and offers measurable value to payers. Our approach indicates that value based pricing is a feasible approach in Cyprus Health sector. Nevertheless, several practical issues were raised during the procedure that have to be tackled before value based pricing is disseminated. We identified only one clinical study, whose design matches current practice in Cyprus, nevertheless this would not be the norm for the majority of drugs. Marketing authorization holders run randomised controlled trials for regulatory purposes, whose design deviates from real life settings due to comparator choice, exclusion and inclusion criteria, patient population, duration of the trials, setting, outcome measures and duration. Assessing data and synthesizing relevant models for economic evaluation raise substantially complexity factor and this constitutes value based pricing a lengthy, labor and expertise demanding process. It would demand strong support and commitment by government and mainly a multidisciplinary pool of people with the appropriate health economic, statistical and epidemiological skills. A small country such as Cyprus may struggle to maintain the necessary human resources required especially given current financial recession. Another obstacle emerging from size of Cyprus deals with maximum output capacity. A proper economic evaluation may span up to one year, and it’s doubtful whether current Health context can support more than one committee. Therefore, relevant output capacity of this committee will be low and full market coverage is illusive. Consequently it’s expected that given that such a committee is assembled, it can focus only on selected products, with significant disease or budget impact. This could create inequalities among pharmaceutical market and create 2 tier products.
Cyprus, due to its small size and remote location, is classified as a non-attractive small pharmaceutical market . A distinct characteristic of this market is the existence of low competitive forces, which tend to shift monopoly power to supplier. Supplier’s monopoly power is also augmented by entry barriers, such as obligations of marketing authorization holder to supply summary of product’s characteristics in Greek, along with Greek labeled packages. Being a small market deters the development of alternative supply chains, such as parallel imports, which could have compromised dominant position of a single supplier. Therefore, we would need to assess potential exit of pharmaceutical industries from Cyprus, in case of price reductions. However, this has to be weighed against a much faster introduction of products to the formulary.
Sorafenib has two indications, renal and liver cancer. Under proposed value based pricing, this will create severe implications since potentially sorafenib will carry 2 prices, which will further increase complexity factor of reimbursement process. This may lead to a weighted value based pricing, based on estimated utilization data.
Establishment of a WTP threshold remains uncharted territory for many countries primarily due to ethical reasons and the decision making is performed on the basis of unpublished pertinent thresholds. Cost effectiveness has a comparative and a limiting context since all medicines would be cost effective under an infinitely large WTP threshold. For our study we adopted recommendations of WHO, which provides that multiplies of per capita domestic product can be used as economic threshold. More importantly, this approach takes into consideration financial capacity of each country. According to this approach, three time per capita domestic product is the highest WTP threshold; anything above this is considered to be non- cost effective and resources could create more health utility diverted to other therapeutic territories. This is in line with differential price concept and in contrast to external price reference, this allows affordability of each country to contribute to prices of pharmaceuticals.
Some authors take a step forward and suggest the introduction of varying thresholds level: each one addressing a specific health state under the condition that ethical and legal concerns can be addressed. A higher WTP threshold would probably suit better condition with greater burden of illness, such as rare and orphan diseases, end of life treatment, highly innovative products and medicines that exhibit wider societal benefits, such as benefits to carers . Many authors argued about potential extra weight of QALY in end of life treatments  while others debate that even a QALY at the end of life actually varies according  to the way it was obtained, with gain in palliative care being superior [49, 50] to gains in life expectancy. Since all health programs actually compete for funds it’s possible that this diversity may be beneficial for some patients and injurious for others. Ginette Camps-Walsh  suggests 5 different categories of threshold within NHS which differentiate acute, chronic, paediatric, rare and end of life diseases. The categories above have varying degrees of treatment options and as a result, each category has diverse unmet medical needs.
Capitalising on this, we adopted the higher WTP threshold, due to orphan drug status of sorafenib.
The above issue is also linked to utilisation of different health state measure tools. It’s accepted that available health state measurement tools  can deliver varying results and it’s also documented that patients in different stages of the same disease have different perception of time  and health state preferences .
These findings create further complications regarding the selection of endpoints of the study (Overall survival or Progression free survival) which must be consistent in order to ensure homogeneity among potentially comparative products.
Comparator selection and specifically the base care product, is of paramount importance. In a time series setting, the price of future products will be a step-up dependant based on past and current value based prices. In our case, we compared sorafenib to BSC, with BSC being the base case product. Upon future introduction of axitinib, its price will greatly depend on price of sorafenib and there will be notable differences between sorafenib’ s reference (2880 euro) and sorafenib’ s value based price (1816 euro).The level of complexity will further rise given that in oncology regimens, it’s not rare to encounter expensive products, apart from primary ones, which are given as adjuvant or to cure side effects. It’s still unknown how to address this issue regarding products that were priced ex post and products that will be priced ex ante.
Another decisive task is to express all values into money: Some authors suggest the net-benefit while other authors argue for the use of multicriteria decision analysis, by using weight value for each benefit type .
Value based pricing is expected to engage R & D companies in a quest for really innovative products, but it may deter companies from investing into territories, in which marginal benefits are anticipated . Another pending issue is the pricing of equivalent products and the concern that this will impede further price competitions which have led to massive reductions in some therapeutic categories, such as statins .
As proved by our analysis value based pricing does not result in high pharmaceutical prices when society’s WTP is known and under a specific context it can be considered a cost containment tool . This does not come under surprise since oncology products due to their innovative mode of action status, high R & D costs and considerable failure rates ask for higher prices.
In our study we transferred health utilities from published study. Value based pricing framework in other countries, such as Germany provides that a product gets a provisional price, and afterwards “real life effectiveness data”  are gathered, which will be utilized to set a value based price . For new products this preferably has to be carried out in national level. This is in line with other approaches which provide that new products get a price based on an ex ante evaluation while existing products get a price based on a rolling ex post evaluation .