The Department of Health & Social Care has confirmed that it will implement proposals to update the Statutory Scheme for branded medicines pricing to align it more closely to the voluntary scheme, with changes due to come into effect from the start of 2025.

DHSC published its response to a consultation on proposed changes to the Statutory Scheme which, along with the voluntary scheme for branded medicines pricing, access and growth, controls the costs of branded medicines to the NHS. 

Despite significant opposition from industry respondents to some of the proposals, the DHSC has decided to adopt the policies as set out in the consultation, mostly without amendment. 

The latest consultation was launched in March 2024. It follows a previous consultation and round of changes to the Statutory Scheme in December 2023, DHSC confirms new statutory scheme for pricing of branded medicines. 

In relation to the latest consultation and response, the Association of the British Pharmaceutical Industry broadly supported the government’s intention to bring the Statutory Scheme into alignment with the Voluntary Scheme, but also noted that many of the proposals remain novel and untested. It stressed taking “a careful and comprehensive approach to monitoring these new schemes to allow any emerging issues to be addressed before they unduly impact patients, companies, or the wider NHS”. 

The latest consultation response confirmed implementation of the following proposals:

Proposal 1 – allowed growth rate: to confirm whether the allowed growth rate should continue at 2% and whether the baseline adjustments to allowed sales should be £150 million in 2024, £150 million in 2025, and £330 million in 2026. 

The DHSC concluded that the 2% allowed growth rate should continue and that the baseline adjustments to allowed sales should be £150 million in 2025, £330 million in 2026, and £380 million in 2027.

Proposal 2 – definitions of older and newer medicines: the consultation proposed definitions of older and newer medicines. ‘Newer medicines’ were proposed to be originator branded health service medicines (except parallel imports) where either:

• The Supplementary Protection Certificate (SPC) remains in force for the active ingredient, or
• The SPC is neither in force nor has expired, lapsed, or has been surrendered, and the first licenced presentation for the active ingredient is less than 12 years from marketing authorisation 

Older medicines are branded health medicines (except parallel imports) that do not meet the definition of newer medicines.

The DHSC has decided to use the definitions of newer and older medicines as set out in the consultation, which are the same that were agreed to by industry in the Voluntary Scheme.

Proposal 3 – the introduction of a differentiated approach to setting payment percentages for newer and older medicines: the DHSC proposed lower payment rates for newer medicines and for older medicines that have seen significant price reductions, allowed for by the introduction of a top-up rate for older medicines which haven’t seen such price reductions. 

The DHSC concluded that the proposal should be implemented, to ensure that the Statutory Scheme remains broadly commercially equivalent to the Voluntary Scheme. 

Proposal 4 – payment percentage for newer medicines: the DHSC proposed to change the payment percentage for newer medicines to:

• 11.6% in Q3 and Q4 of 2024.
• 14.1% in 2025. 
• 16.5% in 2026.

In light of responses, the DHSC will set the following payment percentages for newer medicines:

• 15.5% in 2025.
• 17.9% in 2026.
• 20.1% in 2027.

The DHSC does not consider the higher rates to be internationally uncompetitive, an issue raised by respondents.

Proposal 5 – basic payment percentage for older medicines: the DHSC proposed that, in alignment with the Voluntary Scheme, all older medicines should pay a basic payment percentage of:

• 10.03% in 2024.
• 10.6% in 2025.
• 11% in 2026.

In light of responses, the DHSC will set the following basic payment percentage for older medicines:

• 10.6% in 2025.
• 11% in 2026.
• 10.9% in 2027.

Proposal 6 – top-up payment percentage for older medicines: the DHSC proposed that relevant sales of older medicines should pay a top-up payment percentage if they have demonstrated price decline of less than 35% compared to a reference price.

To remain broadly commercially equivalent to the Voluntary Scheme, the DHSC will require an additional top-up payment percentage. The top-up payment percentage that applies will be up to a maximum of 25% based on the level of price reduction: the greater the price reduction, the lower the top-up percentage. 

Proposal 7 – calculating observed price decline: the DHSC consulted on changing the method of calculating the method of observed price decline.

Despite over half of the respondents disagreeing with the proposed change to calculating observed price decline, the DHSC intends to calculate observed price decline as set out in the consultation – which is in line with the Voluntary Scheme.

Proposal 9 – exemptions to the top-up payment percentage for plasma derived medicinal products: the majority of responses agreed with the exemption from the top-up payment for relevant products. 

The DHSC intends to implement the same exemptions from the top-up payment for relevant products as exist in the Voluntary Scheme to retain broad commercial equivalence.

Proposal 10 – exemptions to the top-up payment percentage for older medicines: the consultation proposed that there should be an exemption from the top-up payment percentage for sales of older medicines with annual measured sales of less than £1.5m. 

The DHSC intends to implement an exemption from the top-up payment percentage for sales where a company sells less than £1.5m of a given medicine each year.

Proposal 11 – small company sales exemption: the proposal was that the Statutory Scheme implemented an increase in the small companies’ exemption to those companies with sales below £6m.

The majority of responses agreed with increasing the threshold. The DHSC intends to increase the threshold for companies not attracting scheme payments to £6 million, from £5 million. The DHSC does not intend to transplant the medium sized company exemption from the Voluntary Scheme into the Statutory Scheme.

The DHSC intends that the required amendments to the Branded Health Service Medicines (Costs) Regulations 2018 will be made by a statutory instrument that comes into force on 1 January 2025. The statutory instrument has not yet been laid before Parliament.

If you would like to discuss any of the above please contact a member of our Healthcare team.

This article was written by Rory Trust and Matthew Pegler.