UK Department of Health introduces bill to reform medicine pricing control

The UK Department of Health (DH) has filed a new parliamentary bill, the Health Service Medical Supplies (Costs) Bill, which aims to more closely align the requirements for its two pricing schemes for branded medicines (the PPRS and the statutory medicines pricing scheme) and to introduce tighter governmental controls on unbranded product pricing, to avoid possibilities such as excessive price rises for unbranded products in less competitive markets.

The recommendations in the bill are partly based on the newly published outcome of a consultation initiated by the DH in September 2015 on options for reforming the statutory pricing scheme. The bill is summarised here and may be accessed in full here. The new report on the outcome of the 2015 consultation is available here.

Statutory pricing scheme amendments for branded non-PPRS products

The statutory pricing scheme applies to all medicines produced or supplied by companies not signed up to the voluntary PPRS, which currently covers around 75% of branded products (according to the DH). The proposed reforms are as follows:

• Amendment of the National Health Service Act 2006 (sections 261–266) to reinforce the power of government to require non-PPRS companies to make payments to control the cost of NHS medicines.

• These payments may or may not be combined with measures to limit prices directly or control profits.

• Penalties are proposed for non-compliance, and to recover payments owed through courts following a tribunal, and may be single penalties up to GBP100,000 (USD131,000) or daily penalties up to GBP10,000.

Unbranded medicine pricing controls

Currently, for unbranded medicines in the UK, competition in the market is the major controller of prices, but there have been cases of large price increases where there is reduced or no competition. The government has powers to intervene on pricing, but only if the manufacturer or supplier is not part of the PPRS. For companies with a mixed portfolio, their unbranded products are therefore not subject to government price control. In the new bill, the following reforms are proposed:

• Amendment of the National Health Service Act 2006 to enable the government to require companies to reduce the price of a generic medicine, or impose other controls on an unbranded medicine, even if the company is part of the PPRS for its branded medicines.

• This power of intervention is intended to be used to limit the price of unbranded medicines, where competition in the market fails, and companies charge the NHS “unreasonably” high prices for generic medicines.

Information access powers

In addition to proposals for reforming medicine pricing control mechanisms, the new bill contains a section on government access to information on sales and purchases of medicines from various parts of the supply chain. The aim is to allow the government access to full (non-piecemeal) sets of data on request, for specific purposes, without restriction. The DH cites an example where generic manufacturers and wholesalers provide sales and volume data under voluntary arrangements, which the government uses to set reimbursement prices for community pharmacies, but this information may currently be limited to companies signed up to voluntary arrangements, and is thus incomplete. The new bill proposes the following:

• Information requirements for NHS medicines and other supplies will be the same, and will enable the government to obtain information from all parts of the supply chain, from manufacturer to pharmacy, for defined purposes.

• Statutory requirements for existing data collections will be strengthened and expanded, to enable government access to additional products and parts of the supply chain.

• The government will also be able to obtain data enabling it to evaluate supply chains or industry sectors in terms of NHS value for money.

The bill received its first reading on 15 September, with no debate, and a second reading is expected, on a date yet to be announced, followed by a third reading and adoption into law at a future date. The government also intends to continue consulting with stakeholders on the statutory scheme and information requirements after the bill comes into law. These further consultations are expected in the spring/summer of 2017.

Outcome of the 2015 consultation on the statutory medicines pricing scheme

In September 2015, the government published a series of proposals for consultation regarding reform of the statutory medicines pricing scheme for non-PPRS branded medicines (see United Kingdom: 14 September 2015: UK Department of Health consults on statutory drug-pricing scheme amendments). Following the consultation, a report was published with certain recommendations, some of which have been incorporated into the above bill.

After consideration of responses from various organisations including pharmaceutical companies, patient groups, NHS organisations, and charities, the government decided in favour of a system for a percentage payment by companies, encompassing both new and old products. The favoured payment setting is 10–17%, and the DH cites the following likely advantages:

• Additional NHS savings of around GBP113 million in 2017/18.

• A "fairer" outcome for companies in the statutory scheme than setting a uniform cut in list prices, which affects companies differently depending on discounts they offer.

• Encouragement for companies to remain in the PPRS.

• Limiting the average selling price in secondary care, since the payment percentage is applied to total sales after discounts are deducted.

• Avoiding problems of having two list prices for the same product associated with protection of prices of procurement frameworks in place at the time regulations are implemented.

• Helping companies to compete globally by providing stability in UK prices.

Outlook and implications

When the PPRS was first introduced in the UK in 2009, and amended in 2014, the aim was to ensure that branded medicines remained within "affordable limits" for the NHS, and to improve patient access to innovative drugs (see United Kingdom: 7 November 2013: UK government and pharma industry unveil new Pharmaceutical Price Regulation Scheme). However, loopholes have become apparent where companies manufacture or supply a mixture of branded and unbranded medicines, and the new legislation aims to close this gap, alongside removing some of the disparities between price control requirements for the PPRS and statutory schemes. The government originally had plans to introduce a value-based pricing scheme as a PPRS replacement, but this was shelved. The new bill should allow a more unified approach to pricing control, which may solve many of the residual problems with the PPRS scheme.

The enforcement of the new law may well take control of such problems as excessive price rises for generics in non-competitive markets (as an example, see United Kingdom: 7 June 2016: Four UK companies accused of excessively inflating prices of generic medicines used by NHS). According to Warwick Smith, director general of the British Generic Manufacturers Association (BGMA), quoted in Pharma Times, "We understand the government's desire to monitor and control the prices of NHS medicines where they are not effectively limited by competition."

The move to close the gap between old and new branded product pricing controls has been generally welcomed by the industry. According to Dr Richard Torbett, commercial director of the Association of the British Pharmaceutical Industry (ABPI), quoted in UK news source PMLive, "The ABPI acknowledges the need for clarity and pricing on older medicines, and has been calling on the government to take action on the issue of significant price rises in a smaller number of those medicines where a competitive market is not working as effectively."