A Tale of Two Pricing Schemes

In the UK there are two main ways that prices of branded medicines are regulated. The Pharmaceutical Price Regulation Scheme (PPRS) is a voluntary scheme that sets limits on profits and on NHS spend, with paybacks from companies to the Department of Health (DH). Those companies not in the PPRS are then subject to the Statutory Scheme for Pricing of Branded Medicines. The latter has traditionally used headline price cuts to secure savings – with penalties for those companies who don’t comply - just as the PPRS did in the years before the current 2014 scheme.

With the big change to the 2014 PPRS in comparison to previous incarnations – the paybacks - there’s been interest in aligning the Statutory Scheme so that there’s a level playing field for companies whichever scheme they are in, afterall companies in the PPRS compete with those who are in the Statutory Scheme.

The DH consulted in 2015 on echoing 2014 PPRS style paybacks in the Statutory Scheme. Now the Government has set out its position and has begun the formal process of legislating – the Health Service Medical Supplies (Costs) Bill - to allow it to legally seek paybacks from companies in the Statutory Scheme too. Although timing depends on the passage through Westminster, the new legislation could be in place by April 2017.

The underlying drivers for the legislation are many and varied. Writ large is simply the desire to secure more savings for the cash-strapped NHS. With £157 million worth of sales transferring from under the PPRS to the Statutory Scheme, the DH fears it will get less in PPRS payments. With Gilead successfully challenging the 15% headline price cut under the Statutory Scheme that came in alongside the 2014 PPRS, savings under the Statutory Scheme are likely to be less than anticipated too. Amending legislation also demonstrates that the DH means to secure savings and avoid legal challenges: it’s belt and braces to legislate rather than make changes to the Statutory Scheme and take the chance that this proves to be illegal.

Other than paybacks applying to both new and in-market medicines (new medicines don’t count towards paybacks under the 2014 PPRS), the precise amount of the paybacks and how they will be implemented isn’t yet clear. The DH is reserving their position on these. They intend to consult following the passage of the initial Bill. That makes a lot of sense for Government when you consider that DH will anticipate a great deal of pushback and this will allow DH to take a view on the amount required as further PPRS payments are made. PPRS payments can differ not just as sales to the NHS vary, but also according to exchange rates because parallel imports are excluded from PPRS payment calculations as well as other exemptions.

Of course, this makes is harder for companies to know whether they should be in or out of the PPRS. It also adds a further uncertainty in the UK’s post-EU referendum world when companies might actually prefer to know the pain that they will be in, one way or the other.

The Government’s plans for the Statutory Scheme are important not just to those companies directly under the Statutory Scheme, but also those under the PPRS. Payments under the 2014 PPRS would be more painful for those who remain in the PPRS if other companies left the voluntary scheme. The Statutory Scheme also presents the default if the current deal – set to last until the 31 December 2018 – can’t be renegotiated. The DH intends to consult during the summer 2017 on the scale of payments under the Statutory Scheme. If a successor can’t be agreed to the 2014 PPRS then everyone will be subject to the Statutory Scheme. The DH will be well positioned with the implicit threat of tough payments under the Statutory Scheme just as its negotiating with industry on the successor of the 2014 PPRS. That is presumably worth even more than the £88 million a year that the DH thinks it will secure through changes to the Statutory Scheme alone.

Whatever the final decisions about the Statutory Scheme, 2017 is going to be a difficult year for the industry.