UK Drug Payment Plan To Save £90m Yearly Progresses Through Parliament
Executive Summary
Legislation to align NHS statutory pricing scheme with the voluntary PPRS using a payment mechanism based on drug sales raises some industry concerns that it not be used simply as a sales tax. If it proceeds through Parliament as expected, it could take effect by mid-2017.
Legislation to revise the UK statutory drug pricing scheme – aimed at saving the National Health Service about £90m ($114m) a year – is expected to be taken up by the House of Lords in early 2017, following recent passage by the House of Commons.
The measure specifically would replace the current 15% cut on list prices under the statutory scheme with a mechanism to impose company payments to the government based on drugs sales to NHS.
Drug companies that currently choose not to participate in the voluntary Pharmaceutical Price Regulation Scheme are regulated by the statutory scheme – but it is has been less effective at saving costs.
The pending Health Service Medical Supplies (Costs) Bill (HC Bill 92) would also give the government greater power over the prices of generic drugs and impose more information requirements on industry (see box). If it proceeds through parliament as smoothly as is expected, it could come into effect sometime in early to mid-2017.
According to the Department of Health, the NHS in England spent £15.2bn on medicines in the 2015-16 financial year, an increase of more than 7% over 2014-15 and more than 20% since 2010-11. Of the total 2015-16 figure, £11.2bn was spent on branded drugs and about £4bn on unbranded generics. Spending specifically in the statutory scheme was £942m in 2015, thus the new proposal would yield savings of nearly 10%.
Goals of the Health Service Medical Supplies (Costs) Bill
- Change the statutory scheme to bring it more into alignment with the way that the PPRS works, by imposing payments on sales of NHS drugs rather than the current 15% cut on list prices.
- Allow the government to control the prices of unbranded generic medicines where companies that have joined the PPRS have a mixed portfolio of branded and unbranded drugs.
- Require all medicines manufacturers and suppliers to provide information on sales and purchases of their products to the NHS with a view to collecting information from various sources in one place.
“With advances in science and our aging population, these costs can only continue to grow,” the department says. “The measures in this bill will amend the NHS Act 2006 to enable the government to secure better value for money for the NHS from its spend on medicines.”
Industry is broadly supportive of the bill, albeit with some reservations. David Watson, director of pricing and PPRS (Pharmaceutical Price Regulation Scheme) at the Association of the British Pharmaceutical Industry, said: “When we look at it from an industry perspective there are certain aspects of bill that have a logic to them and are sensible, and to some extent it kind of tidies up some existing legislation, particularly on information powers.”
But he said industry had concerns over the broad nature of the bill, noting that “it appears to give the department broad powers that it might not necessarily apply, but it wants the law on its side if it chooses to do so in future.”
Industry also has reservations over the planned changes to the statutory scheme, particularly how the money recouped from the planned payment mechanism will be used.
Public consultations about specifics of the payment mechanism are anticipated for next spring/summer.
The government has said it will draw up regulations on the detail of the proposals and seek further input from stakeholders after the bill comes into force. “We are currently anticipating these consultations to take place over spring/summer 2017,” it declared.
Statutory Scheme
At present, companies that do not join the voluntary PPRS automatically have their branded drug prices regulated by the statutory scheme, which limits either the prices or profits on those medicines.
However, the mechanism for controlling prices in the statutory scheme is less effective than the PPRS in terms of savings achieved, so some companies have switched their products to the statutory scheme, thereby reducing the savings from the PPRS, according to an explanatory memorandum from the parliament. The two schemes therefore need to be more aligned, it says.
The statutory scheme has already been changed in recent years: on Jan. 1, 2014, new regulations took effect introducing a 15% cut on the list prices of branded drugs on the market as of Dec. 1, 2013. But this doesn’t seem to have done the trick, at least from the government’s point of view.
In 2015, therefore, proposals on further changes were put out for consultation, with a view to realigning the voluntary and statutory schemes and to “encourage companies to remain in the PPRS to deliver its agreed objectives of stability and predictability to the government and the pharmaceutical industry.” (Also see "UK Government Drug Price Revamp Move Surprises The ABPI" - Scrip, 14 Sep, 2015.)
The changes are now enshrined in the bill, introduced in Parliament in September, which would introduce payments back on sales of NHS drugs in place of the 15% price cut. The payments would be calculated “by reference to sales or estimated sales” of NHS medicines.
“The onus needs to be on the department to show that the money is being used to help make medicines affordable” – David Watson, APBI pricing director
ABPI's Watson said the proposal “signals that the department’s view is that it can control spending by somehow applying a sales tax, which is essentially what this payment mechanism is,” noting that the government has not yet made clear what it intends to do with the money recouped.
“If this is to be anything other than a sales tax, then the onus needs to be on the department to show that the money is being used to help make medicines affordable,” he told the Pink Sheet in an interview. “If they just use the money to subsidize the overall NHS budget alongside the money they get in the spending review from the Treasury, then you are taxing a part of industry to pay for healthcare spend overall. And that I think changes the game quite significantly.”
He said any solution should work for all parties, and that it should be an “affordability solution: how do we make medicines affordable so that we get the right level of uptake in NHS? If we go down the route of applying a tax on companies and then use the money for other purposes, from an affordability viewpoint that is not solving the problem.”
MP Wants Money Ring Fenced
A similar point was made during the Dec. 6 Commons debate by Labour MP Justin Madders, who said it was important to ensure that any rebates by manufacturers or suppliers were used “for the purpose of improving access to new and innovative medicines and treatments.”
The secretary of state, he said, had confirmed that £1.24bn had so far been returned to the department of health through the rebate scheme. “That is a considerable sum of money, and it is anticipated that the sum to be received annually will increase when the bill is enacted,” Madders declared.
However, despite numerous questions being asked throughout passage of the bill, “we have still not been able to pin down the government on exactly where this money has gone, other than into the general pot,” he declared. “It is our fear that this new money, which could have delivered a step-change in access to treatments to the benefit of patients and the life sciences sector, will instead be simply added to the baseline, with every £1 from the pharmaceutical sector meaning £1 less coming from the Treasury.”
Given the “often heated exchanges across the Dispatch Box about the true sums being put into the NHS, it would aid transparency if it were made clear that this money was being put in over and above government funding and was ring-fenced for a specific use,” Madders said. In Scotland, he noted, “rebates are already ring-fenced and reinvested to provide new treatments and medicines.”
Generic Pricing
A second key proposal is to tackle the question of high-priced unbranded generics. Although the government currently relies on competition to keep prices down in this segment, “large price increases” have been seen where there is no competition.
One recent example of such behavior is the price hike on unbranded phenytoin sodium capsules by Pfizer and Flynn Pharma, which have just been fined for “excessive and unfair” pricing by the UK Competition and Markets Authority (CMA). (Also see "UK Fine For Pfizer/Flynn’s ‘Excessive And Unfair’ Pricing Sends Clear Message To Others" - Scrip, 7 Dec, 2016.)
The problem, as the government sees it, is that if a company has a mixed portfolio of branded medicines and unbranded generics, and has joined the PPRS, no statutory controls – for example, regulations or directions to limit prices or profits – can be applied to any of its products, including unbranded generics.
“The government intends to limit the price of unbranded generic medicines where competition fails”
The bill would allow the secretary of state for health to require a company to reduce the prices of its generics, or impose other controls on them, even if the company was in the PPRS for its branded drugs. “The government intends to use this power to limit the price of unbranded generic medicines where competition in the market fails and companies charge the NHS unreasonably high prices for these products,” it says in a fact sheet accompanying the bill.
Watson said the government had closed a technical loophole, and that this was a sensible move that meant the Department of Health could apply the same pricing powers regardless of which scheme a company was in for its branded medicines.
The government says it will work with industry and the CMA to determine when a price is “unreasonably high.” But Watson said that “reasonable” was “a difficult concept,” pointing out that might be some cases where price rises are justified.
“The department will never directly understand why a price has gone up,” he said. “It should be talking to individual companies to see where price rises are justified and where they aren’t, and the important thing is to be transparent,” he said. The government would also need to bear in mind that there is often a degree of cross-subsidy between products so that one could be more profitable or higher priced than another across the company’s product range.
Once an “unreasonably high” price had been ascertained for any particular product, the government says it would probably give directions on its price to the company concerned “after consultation with the industry body” (i.e., the ABPI). It also plans to monitor whether this case-by-case approach is the most effective way of tackling this issue, or whether new regulations might in future be more appropriate.
More Information Gathering
The third key aspect of the bill is to give the government more powers with regard to information gathering. At present it does not have a full set of data about all products used in the NHS and there are restrictions on how it can use the information it does have.
For example, generic manufacturers and wholesalers provide sales and volume data under voluntary arrangements that the government uses to set reimbursement prices for community pharmacies. But this does not cover all products or companies, “which limits the robustness of the reimbursement price setting mechanism,” the fact sheet says.
The bill would bring together existing information requirements for medicines and medical supplies in one place, and would also allow the secretary of state to obtain information on sales and purchases and to access data on more products and from more parts of the supply chain for medicines and medical supplies, in order to determine whether the NHS was really getting value for money from the supply chain as a whole or from specific sectors or product groups.
The government stresses that it does not propose to ask for information on profits and revenues on a routine basis, but only when there are value-for-money concerns – for example in cases of “unreasonably high” prices where there is no competition in the market.
It adds that because companies already have to keep sales and income data for tax purposes for six years, there should generally speaking be no extra burden on them unless they are asked for additional information – but even then the burden should be “relatively small.”
The industry was initially concerned about the broad nature of the information gathering requirement in the bill, but these concerns seem to have assuaged, at least to some extent.
Watson said industry was now “clearer on the information they are looking for – if you took the bill at face value companies would be tied up in knots.” He said it seemed the government’s position was “not to police every single aspect of data on every single medicine” but just to have enough information so that when there is an issue they need to look at, the information will be to hand.
Still, what industry wants in this area is for the government to be “more specific about the problem they are trying to solve, what they need the information for, and the regulations to be clear on what that information is,” Watson said. “We are hopeful that they are listening. We will hopefully see further versions of regulations in the new year that will clarify this for industry.”