Proposed Changes to Controls on Pricing of NHS Medicines

On 15 September 2016, the UK Department of Health published its response to a consultation on proposed changes to the legislation that controls the price of branded medicines supplied to the NHS. At the same time the UK Government published the Health Service Medical Supplies (Costs) Bill, draft legislation that—if passed—will allow the Secretary of State more closely to align the statutory pricing arrangements with the voluntary arrangements under the 2014 Pharmaceutical Price Regulation Scheme (PPRS). However, no changes to the current statutory pricing regime will take place until the proposed Bill becomes law.

The Bill also seeks to prevent companies who are members of a voluntary scheme from escaping statutory controls on those parts of their product portfolios which fall outside the scope of such voluntary scheme, as well as empowering the Secretary of State for Health to enforce payments due from PPRS member companies under the voluntary scheme even after they have left the PPRS.

The Secretary of State’s powers to control the prices of medicines used for the purposes of the National Health Service in the UK (health service medicines) derive from the National Health Service Act 2006. These powers may currently be exercised, in particular:

• where there is a voluntary scheme in existence between the Secretary of State and the relevant industry body for the purposes of limiting the prices which may be charged or the profits which may accrue from the manufacture or supply of health service medicines; and
• by the Secretary of State making a Statutory Scheme for the purposes of limiting the prices which may be charged or the profits which may accrue from the manufacture or supply of health service medicines, although such Statutory Scheme may not apply to a manufacturer or supplier to whom a voluntary scheme applies.

The prices of most branded health service medicines are currently controlled through the voluntary Pharmaceutical Price Regulation Scheme (PPRS). All manufacturers and suppliers of branded health service medicines who are not members of the PPRS are automatically subject to a parallel Statutory Scheme. Prices of unbranded health service medicines are controlled via Schemes ‘M’ and ‘W’ (for manufacturers and wholesalers), but there is, at present, no Statutory Scheme applicable to such products.

The current version of the PPRS, which came into effect on 1 January 2014, represented a substantial change from previous versions of the scheme, which involved price reductions and profit controls. The 2014 PPRS retained the profit control element, but focused on a form of budget control for branded medicines, namely a requirement for scheme members to make retrospective PPRS payments to the Department of Health reflecting the extent to which growth in expenditure on branded health service medicines supplied by PPRS member companies exceeds a set target.

In contrast, the current Statutory Scheme for branded health service medicines controls prices simply through imposition of mandatory price reductions from a specified baseline date. The Department of Health has expressed concern that the level of savings obtained from Statutory Scheme members is less than that from members of the PPRS, encouraging companies to transfer from the PPRS to the Statutory Scheme.

In September 2015, the Department of Health issued a consultation on its proposed revision of the Statutory Scheme, with the stated aim of bringing it into line with the 2014 PPRS and to achieve a comparable level of savings. Its response to the Consultation was published on 15 September 2016, and was accompanied by a proposal to change the powers of the Secretary of State under the National Health Service Act 2006—the Health Service Medical Supplies (Costs) Bill.

As indicated above, the Department of Health has concluded that companies participating in the Statutory Scheme should (like those in the voluntary PPRS) make payments to the Department of Health based on their sales of branded health service medicines, rather than simply imposing additional price cuts. However, as the Secretary of State’s powers under the legislation underpinning the Statutory Scheme only allow him to impose limits on prices or profits, the Department of Health concluded that:

“amendments should be made to the primary legislation (the National Health Service Act 2006) to put beyond doubt that the Secretary of State has the power to require a payment mechanism in the statutory scheme to limit the cost of health service medicines”.¹

The new Bill therefore provides that, in addition to limiting prices or profits, the Secretary of State may exercise his powers under the 2006 Act for the purposes of providing for any manufacturer or supplier to whom the Statutory Scheme relates to pay him an amount calculated by reference to sales or estimated sales of any health service medicines.

The Government has also taken to the opportunity to address a number of additional areas under the 2006 Act:

• The introduction of a mechanism for enforcement of sums owed under the PPRS: At present, the only enforcement mechanism available to the Secretary of State in relation to a PPRS member is to issue a notice that the scheme is no longer to apply to that company. The Bill creates a statutory basis for recovery of amounts payable under the PPRS, which may be subject to a demand by the Secretary of State and enforced through the Courts in the same way as sums due under the Statutory Scheme.
• Controls on price increases for unbranded medicines: The Government has also taken the opportunity to close a loophole in the National Health Service Act 2006 which provided that manufacturers or suppliers who were members of a voluntary scheme could not be subject to statutory price control. This exemption had been relied upon by some PPRS member companies to increase prices of unbranded medicines (which are not controlled under the terms of the PPRS). The Bill resolves this by allowing the Secretary of State to control the prices of products supplied by a member of a voluntary scheme where such products fall outside the scope of the voluntary scheme.
• Provision of information: In order to try to prevent future abuses, the Bill includes a new power allowing the Secretary of State to require information on sales and purchases of health service medicines and other medical supplies from any person who manufactures, distributes or supplies them. Again, the details will be subject to further consultation. The intention is to improve the Department of Health’s ability to collect data, enabling more informed decisions on pricing and reimbursement across the supply chain.
• Prices of medical supplies: The Bill increases the scope of the Secretary of State’s powers to controls prices to include medical supplies other than health service medicines.

The new Bill must be debated and approved by both Houses of Parliament and receive Royal Assent before taking effect.

The Consultation response published on 15 September states that a further consultation in relation to the form of the Statutory Scheme will take place once the Health Service Medical Supplies (Costs) Bill becomes law. However, the response to Consultation provides a clear indication of the Department of Health’s present intentions:

• The Department of Health referred to the fact that, since the commencement of the 2014 PPRS, £157M of sales have transferred from the PPRS to the Statutory Scheme. This supports its view that the current mandatory 15% list price reduction under the Statutory Scheme should be replaced by a payment mechanism linked to value of sales in order to align more closely with the PPRS. Sales of “new products” launched since 1 December 2013, currently excluded from the mandatory price reduction under the Statutory Scheme, would also be subject to the payment mechanism.
• The exemption for companies with sales of branded health service medicines less than £5M in the previous year, will be retained.
• The Statutory Scheme will continue to apply only to prescription-only medicines; and GSL and P products should be excluded from the payment mechanism and the calculation of sales for the purposes of the small company exemption.
• The payment mechanism will not apply to sales of products procured under framework agreements made under the Public Contracts Regulations 2006 on or before the date of coming into force of the new regulations or following a tender which closed on or before that date. However, the Consultation response indicates that the Department of Health is not planning to exclude sales under future framework agreements, which had not been entered into when the regulations are brought into force. Companies will therefore have to take into account the payment mechanism when submitting tender responses after that date.
• Price increases may be permitted where necessary as a result of supply difficulties.
• The Department of Health intends to proceed with its proposal to increase transparency of pricing by publishing lists of current maximum prices for health service medicines and is currently liaising with the NHS Business Authority to develop the proposed lists.
• In addition to the proposed new legislative controls on pricing of unbranded generics, the Consultation response indicated that where there was no competitive market to control prices the Department of Health will continue to work closely with the Competition and Markets Authority and alert them to cases where there may be market abuse. The Department may additionally consider with the representative bodies for relevant stakeholders, the need for amendments to existing health service supply pricing arrangements.

The new Bill must be debated and approved by both Houses of Parliament and receive Royal Assent before taking effect. Assuming it is passed, the Department of Health will carry out further consultations seeking views on the operation of the proposed payment mechanism, the level of payment percentage, the need for exemptions from the Statutory Scheme price controls, and the arrangements for enforcement and sanctions.

The Department of Health has indicated that these consultations are likely to take place in spring/summer 2017, and as such changes to the current Statutory Scheme are expected to be implemented in late 2017/2018.