By Ben Hirschler

LONDON (Reuters) - The pharmaceutical industry is considering a radical shift in the way it prices drugs in Europe so companies are rewarded for the clinical benefit of treatments rather than the number of pills sold, according to an internal report.

The high price of drugs is straining Europe's cash-strapped health systems and depriving some patients of the latest products, to the concern of manufacturers who argue they can save costs in the long run by keeping people out of hospital.

As a result, companies are looking at a fundamentally different way of getting paid for their innovations, according to the internal report, a copy of which was seen by Reuters.

Its proposed "roadmap for change towards outcomes-based reward systems" will be discussed by the board of the European Federation of Pharmaceutical Industries and Associations (Efpia) on June 16, which groups the world's top drugmakers and national trade associations.

The report is the clearest sign yet that the drug industry is ready to negotiate a new pricing framework with governments and insurers.

"This is not without risk," according to the paper by Efpia's director of market access Francois Bouvy. "If a product does not deliver on its clinical promise, society should not continue to pay for it. Equally, if the product delivers more value than was ever expected, this extra value must be rewarded."

Efpia said in a statement the leaked internal document was developed to support "continued dialogue" with governments on ways to make medicines accessible and healthcare more sustainable, while securing medical innovation.

TOO EXPENSIVE

The concept of drug pricing based on clinical results has been gaining ground for some years and has the support of several leading industry figures, including Novartis <NOVN.S> Chief Executive Joe Jimenez, the current president of Efpia.

Europe already has some ad hoc results-based pricing agreements.

Britain, for example, agreed a deal with Johnson & Johnson <JNJ.N> a decade ago whereby the health service only pays for multiple myeloma drug Velcade in patients who respond after four treatment cycles. Italy uses patient registries to pay for new cancer drugs based on actual patient response.

But the Efpia proposals go further by suggesting the wholesale adoption of the new approach.

The report said "affordability is a major issue for healthcare systems across Europe" and the need for a better system would only grow with the rollout of hard-to-price cancer drug combinations, new antibiotics and stem cell therapies.

Drug pricing is a hot topic worldwide, as advances in medical science come at an increasingly high cost.

A study of cancer drug prices in seven countries released on Monday highlighted cost obstacles in many markets and a report last month into antibiotic resistance also called for a rethink of market mechanisms.

There are likely to be plenty of battles ahead, especially as the industry is looking for a trade-off in the form of relief from market mechanisms that weigh on drug prices in Europe.

In particular, the Efpia paper says external reference pricing, which allows governments to refer to prices in other countries when determining what they will pay, "should be removed as new systems evolve".

The industry also wants an end to tenders for patented medicines and curbs on parallel trade, under which wholesalers buy drugs in low-cost European markets and sell them for higher prices elsewhere.

(Editing by David Clarke and David Evans)