The Department of Health and Social Care has confirmed it will implement the majority of the reforms proposed in its consultation on the statutory scheme for pricing of branded medicines.

The consultation was launched in July 2023 and prompted a flurry of criticism from industry, with the Association of British Pharmaceutical Industries (ABPI) responding that the proposed changes “would have disastrous consequences for the life sciences sector, investment in the UK and patients' access to new and existing medicines”. 

Notwithstanding the strong opposition from the sector in consultation responses, the DHSC has decided to implement the majority of proposals, including amended payment percentages for 2024 to 2026 (based on allowed growth rate of 2%) and new exemptions.

Under the new statutory scheme, companies will pay a rebate on the sales of branded medicines to the NHS of 21.9% in 2024, 24.0% in 2025 and 26.8% in 2026. While these rates are a reduction on the 27.5% rate in 2023, they are still significantly higher than comparable regimes in the EU. 

Full details of the Government response and applicable rates under the new scheme can be found here.

The DHSC has decided to not implement the lifecycle adjustment mechanism given the overriding concern by the sector that this proposal could result in products ceasing to be commercially viable given the high rate of the proposed supplementary payment. 

While the lifecycle mechanism has been dropped for now, the DHSC has said it remains committed to ensuring sustainable spending on older branded medicines and will be considering further amendments to the statutory scheme to achieve this. 

The DHSC intend to consult on further amendments to the statutory scheme in early 2024 to ensure that it is broadly commercially equivalent with the new voluntary scheme being introduced from 1 January 2024.

The latest consultation focused on four proposals. While proposal 3 (the lifecycle adjustment mechanism) is being dropped, all others are being implemented. 

Proposal 1 – allowed growth rate: an increase in the permitted growth per annum from 1.1% to 2% (nominal) under the statutory scheme. The DHSC considered that a growth rate of 2% would maintain the current commercial terms for the sector and NHS without (a) resulting in unsustainable budget pressure on the NHS and (b) decreasing growth for the sector.

Proposal 2 – exemptions: inclusion of additional exemptions to the statutory scheme for the following: 

• New medicines containing new active substances (“NAV”) for 36 months from the date of their first marketing authorisation.
• Centrally procured vaccines (“CPVs”) which meet certain criteria. 
• Exceptional central procurements (“ECPs”) which meet certain criteria.

This proposal was put forward to align the benefits under the current voluntary scheme for branded medicines pricing and access (“VPAS”).

Proposal 3 – lifecycle adjustment mechanism: introduction of a lifecycle adjustment mechanism (“LCA”) which would impose additional payments on older products (which would be defined as products where the active substance has been marketed in the UK for more than 12 years) in markets where there is little or no competition.

It was proposed that for older products operating in a market with lower competition a supplementary rate of 36%, 38% and 40% in 2024, 2025 and 2026 respectively would be applied. However, for older products deemed to be operating in a more competitive market would be subject to a flat rate of 10%.

This was the most controversial change being proposed by the DHSC with the aim of creating financial headroom by recouping some value that the NHS would have expected to gain through price reductions as part of a medicine’s lifecycle.

Proposal 4 – unbranded biological products: increasing the scope of the statutory scheme so that it applies to all biological medicines whether or not they are marketed under a brand name.

Please contact our Healthcare team if you have any questions. 

This article was written by Lisa Mulholland and Rory Trust.