Tougher Times Ahead Under UK PPRS

Under the voluntary 2014 Pharmaceutical Price Regulation Scheme (PPRS) in the UK, member companies have to pay back if NHS spending on branded medicines goes over pre-agreed growth rates. With no growth allowed for 2014, and 2015, it was always going to be a matter of when, and how much, not if, payments would be made.

Payments now amount to GBP229million (USD 359m) with a worrying trend of going up each quarter of 2014.  The total payment for 2014 will be more when the final quarter’s payment is made.

Companies had to tally up what they’d be likely to pay in advance based on forecasts of the branded medicines bill to help them decide to join the PPRS or not. At the time the deal was struck, back in 2013, it was expected to be 7.13% in 2015 rising to 9.92% in 2016 and for 2017 and 2018.  Now companies have just been told that it’s actually going to be 10.36% in 2015, and 15% for 2016, 2017 and 2018.

In money terms, these percentages now mean that the Department of Health (DH) can expect to enjoy a payment of £454 million (USD712 m) in 2014/15, and £995 million (USD1,561 m) in 2015/16. The DH passes the money on to the devolved nations, with the money flowing to NHS England in England. In Scotland, it’s being used to buy new medicines – but that amounts to just £40 million ($63m), not even 20% of the payments made to date.

The payments represent real money to use in the NHS, a key difference to the drive for those elusive efficiency gains many talk about. With higher payments, even greater scrutiny is likely to be on just what the NHS will spend the cash on.

Those companies who might be rethinking their membership of the PPRS need to remember that the alternative is tough too; a price cut under the statutory scheme that could be up to 25% on prices compared to their 31^st December 2013 baseline under proposals consulted on during October and November. Plus there’s the complexity that some companies under the statutory scheme might be owed compensation because of an unexpected quirk about the interaction with European and UK procurement law – it seems that the regulations should not have applied to framework agreements entered into or before 31 December 2013. Speculation has it that this might not be a one time issue either.

It’s probably too early to draw strong conclusions, but many will be thinking about what early experience with the 2014 PPRS means for future agreements and whether or not they really want to in, or out.

Leela Barham is an independent health economist. You can find out more about on her website and contact her at leels@btinternet.com