The UK's ‘New’ Statutory Scheme for Pricing of Branded Medicines

With a new consultation from the UK’s Department of Health proposing changes to the Statutory Scheme for Pricing of Branded Medicines - essentially the back-stop to the voluntary Pharmaceutical Price Regulation Scheme (PPRS) - what could this mean for negotiation of a successor to the 2014 PPRS?

Two tools of regulation of prices of branded medicines in the UK

The UK pharmaceutical industry – at least for branded medicines – is regulated through two key tools. The first is the Pharmaceutical Price Regulation Scheme (PPRS). The PPRS is voluntary, negotiated on behalf of the industry by the Association of the British Pharmaceutical Industry (ABPI) with the Department of Health (DH), on behalf of all the nations in the UK. The second is the Statutory Scheme for Pricing of Branded Medicines. The PPRS is an indirect form of regulation, using profit control, and in 2014 introduced PPRS payments. PPRS payments are due from companies when spend by the NHS on branded medicines goes over pre-agreed growth rates.

The Statutory Scheme is essentially a back-stop to give Government a way to directly regulate prices when companies choose not to be members of the PPRS. If you’re no in the PPRS, you’re under the Statutory Scheme. The Statutory Scheme, just as the PPRS has, is changing. The DH opened a consultation on the Statutory Scheme on the 23 August 2017, proposing changes to secondary legislation.

A fair playing field?

The ‘new’ Statutory Scheme – underpinned by primary legislation in the Health Service Medical Supplies (Costs) Act 2017 – is in part, aiming to bring a stronger degree of alignment between the two forms of regulation.

The 2014 PPRS departed from negotiated list price cuts and instead introduced PPRS payments. The size of these payments relate not only to negotiated allowed growth rates in the branded medicines bill, but also to just how many companies and the value of their sales under the PPRS.

The DH is presumably keen to ensure that PPRS payments are at least as expected, because they have in the past allocated out to the NHS funding that is based on forecasts and not on what is actually paid. Drops below forecasted PPRS payments have led to the DH being given additional funding from HM Treasury in the past. One of the reasons for less than expected savings from the PPRS has been because companies have left the PPRS (others include growth in spend on drugs excluded such as parallel imports). In extreme it also has implications for industry; the PPRS needs ‘enough’ companies to be part of it to ensure that the already high PPRS payments – £1.87 billion by Q1 2017 – to be proportionate and remain attractive versus the Statutory Scheme.

The DH consultation notes that the Statutory Scheme has produced lower savings than the PPRS. The DH suggest that this reflects the PPRS payments being related to net sales, whereas the Statutory Scheme had a price cut on list prices.

The DH talks about a level playing field between the schemes, important not just to secure savings but important too for competition. This is because not all the ‘big’ companies are in the PPRS. For example, Gilead is under the Statutory Scheme. Gilead competes with companies who are part of the PPRS.

The key changes in the DH consultation include a move away from list price cuts in the Statutory Scheme, and instead to payments on sales. This is, in essence, what the PPRS has too. The DH suggests that the payment percentage should the same as that set in the PPRS for 2018 - that’ll be somewhere between 2.38 per cent and 7.8 per cent - when it’s due to come in on April 1, 2018.

What the PPRS doesn’t have, but the DH consultation proposes for the Statutory Scheme, is that payment on sales includes sales of new medicines. In the PPRS, collective spend under the PPRS includes new medicines and this informs the payment percentage all companies pay. However, individual company payments are calculated excluding sales of new medicines (New Active Substances or NAS), defined as coming on to the market after the December 31, 2013.

Exemptions will be made for presentations in extant frameworks at the time the new Statutory Scheme comes into force, as well as sales of low cost presentations, and small company sales will be exempt too (sales less than £5 million). Sales of low cost presentations were already exempt under the traditional Statutory Scheme, and both the Statutory Scheme and the PPRS already have small company exemptions.

For maximum prices, the DH is proposing a reversal of the 15 per cent list price cut for drugs under the Statutory Scheme as at 31 December 2013. When a drug wasn’t on the market on the December 31, 2013, the maximum price will be the price at which it was first placed on the market, or a price set later by the Secretary of State. Companies will need to notify the DH for prices for new medicines as well as changes to prices over time. Price falls need to be agreed too.

In an effort to dot the i’s and cross the t’s the DH also proposes changes to ensure that existing powers for penalty payments for non-compliance with the Statutory Scheme are applied to payments on sales. Similarly penalties are extended for the new processes for agreeing prices, so too is an appeals process. This is to ensure that the Statutory Scheme has ‘teeth’.

The DH also propose to make use of new information powers (covered in more detail in a separate consultation running until the 17 November 2017). They want price lists compiled for agreed maximum prices for all presentations, and not just for drugs under the Statutory Scheme but under the PPRS too. The DH may also seek information of the costs of manufacture, distribution of supply of a product. It seems that this could inform agreed maximum prices under the Statutory Scheme. Clinical need and the cost of comparable medicines within the UK, and the cost in other countries, whether it’s a NAS, patent expiry, profit of the company, as well as volume and budget impact over 5 years, could inform DH agreement to prices on new drugs and price rises on existing drugs covered under the Statutory Scheme too. In a nutshell, the DH will determine what price/price increase is ‘reasonable’. The process for price setting, price rises and falls will also take longer than it traditionally has been under the Statutory Scheme.

The Department’s consultation closes on October 17, 2017.

The backdrop to the negotiation of a successor to the 2014 PPRS

The DH is either about to start, or has already, negotiating a successor to the 2014 PPRS. Although anything could happen, that the DH is working to align the PPRS and the Statutory Scheme through payments on sales suggests at least that this mechanism is a contender for staying in a post-2018 PPRS.

The DH is also setting out the default regulation if no agreement can be reached on a successor to the PPRS. In addition to the move to payments on sales, penalties and information requirements, the DH is also proposing that the Government reviews the legislation that sets out the Statutory Scheme every year, instead of every seven years. Not only that, but the payment percentage under the Statutory Scheme will be reviewed not just every year - as in the PPRS - but could also be reviewed on a “more frequent” basis.

Just how much companies both want – and believe – in the stability of the PPRS could therefore be a key factor they trade off to secure a successor PPRS with the DH. So too will be pipelines; companies confident of bringing new medicines to market may well do better under the PPRS.