Consultation outcome

Consultation response

Updated 18 October 2024

Executive summary

The statutory scheme is set out in legislation in The Branded Health Service Medicines (Costs) Regulations 2018 (‘the regulations’ or ‘the statutory scheme’) and is regularly reviewed to ensure it is meeting its objectives. It is one of 2 schemes, alongside the 2024 voluntary scheme for branded medicines pricing, access and growth (VPAG), that control the costs of branded medicines to the NHS.

The Department of Health and Social Care (DHSC) administers the statutory scheme across the UK, and the payments that companies make under the scheme in respect of the UK are allocated to each part of the United Kingdom on an agreed basis each year.

The statutory scheme was last updated on 1 January 2024 following a consultation in 2023, and introduced the following changes:

• payment percentages set for 2024 to 2026 on the basis of an increased allowed growth rate of 2% (up from 1.1%)
• an exemption from payment for medicines containing a new active substance (NAS) for 36 months from the date of marketing authorisation (MA) was introduced
• exemptions from payment for exceptional central procurements (ECPs) and centrally procured vaccines (CPVs) were introduced

As set out in the government’s consultation response published in December 2023, we remain committed to the principle of broad commercial equivalence between the statutory scheme and voluntary scheme, as supported by respondents during the previous consultation. Broad commercial equivalence means that the department aims to set payment percentages in the statutory scheme that are comparable (but not necessarily identical) to those in the voluntary scheme.

However, it was not possible to deliver broad commercial equivalence with the new voluntary scheme in time for the 1 January 2024 update to the statutory scheme. Our consultation response therefore made clear an intention to consult again on proposals designed to achieve broad commercial equivalence, in particular by setting statutory scheme payment percentages in a way that distinguishes between medicines at different stages in the product life cycle.

This consultation ran between 18 March and 26 April 2024 and proposed to introduce elements of VPAG into the statutory scheme in order to maintain broad commercial equivalence between the 2 schemes. The following government response provides an analysis of responses to the consultation and sets out the policies that the department intends to implement.

Following detailed consideration of consultation responses, the department has decided to maintain broad commercial equivalence with the voluntary scheme by implementing the following changes:

• adjusting baseline sales in the statutory scheme by £150 million in 2025, £330 million in 2026, and £380 million in 2027
• introducing a differentiated approach to setting payment percentages for newer medicines and older medicines
• setting the headline payment percentage for newer medicines at 15.5% in 2025, 17.9% in 2026 and 20.1% in 2027
• setting the basic payment percentage for older medicines at 10.6% in 2025, 11% in 2026 and 10.9% in 2027, with a top-up payment percentage for older medicines of between 1 and 25%, if applicable, based on the level of observed price erosion from a reference price
• introducing exemptions to the top-up payment percentage for relevant plasma derived medicinal products (PDMPs) and company sales that total less than £1.5 million of a health service medicine in a particular virtual therapeutic moiety (VTM) each year
• increasing the exemption threshold from scheme payments for small companies, from sales below £5 million to sales of less than £6 million

Publication of this consultation response was originally planned for June 2024 so that changes could be made to the regulations to take effect from July 2024. Calculations for payment percentages were made on the basis of sales data available at the time of consultation. Following the announcement of a general election, the process of publication was paused.

Due to delayed implementation and the subsequent availability of Q1 2024 sales data (leading to revisions in forecasts for newer medicine and parallel import sales), the payment percentages that the department intends to implement are different to those consulted on. Additionally, these figures extend to 2027 to reflect scheme implementation from Q1 2025 as opposed to Q3 2024. More information on why these changes were required can be found in Annex G of the final-stage impact assessment (IA).

The policy intent has not changed.

Introduction

The voluntary and statutory schemes for medicines pricing limit the growth in costs of branded health service medicines. This safeguards the financial position of the NHS, while acknowledging that crucial medicines must be available for NHS use on reasonable terms (for example, taking account the costs of research and development). The schemes aim to deliver benefits for industry, life sciences, the economy and patients.

On 18 March 2024, the government published a consultation that set out proposals aimed at ensuring the statutory scheme continues to work effectively alongside the VPAG, which was agreed in late 2023 and came into force on 1 January 2024. The consultation asked for views on a range of proposals, including the introduction of a differentiated approach to setting payment percentages for newer and older medicines, and on the allowed growth rate (the rate at which allowed sales increases at the start of each year), and adjustments to the baseline (the starting level of allowed sales in any given year). These proposals are designed to ensure broad commercial equivalence with the VPAG, and so are not novel to industry.

The consultation closed on 26 April 2024. The department received 28 responses directly to the consultation, and a further 2 responses via the consultation mailbox. The majority (26 of 30, or 87%) of these responses were from pharmaceutical companies or trade bodies.

In the following consultation response, we cover each consultation question in turn. For each question, we summarise the consultation proposals, analyse the feedback received, and summarise the policy decision reached. The final IA is published alongside this document.

The department’s intention is that the amendments to the 2018 regulations will be made by a statutory instrument that comes into force on 1 January 2025.

Allowed growth rate and baseline adjustments

Do you agree or disagree that the statutory scheme should retain the allowed growth rate at 2% and implement baseline adjustments to allowed sales of £150 million in 2024, £150 million in 2025 and £330 million in 2026?

The consultation proposed to adjust baseline sales (2023 ‘allowed sales’ in the voluntary scheme for branded medicines pricing and access (VPAS)) in the statutory scheme in 2024, 2025, and 2026 to match the adjustments made in VPAG: £150 million in 2024, £150 million in 2025 and £330 million in 2026. The consultation did not propose any change to the current 2% allowed growth rate in the statutory scheme.

Summary of responses

60% of respondents disagreed with aspects of this proposal. While many respondents expressed support for the proposed baseline adjustments to allowed sales, there was strong criticism of an allowed growth rate of 2%.

Impact on investment and the UK life sciences industry

Respondents highlighted the potential negative impacts of retaining allowed growth at 2%. They argued that this rate is below comparator countries and will result in internationally uncompetitive payment percentages, further suggesting that this would discourage investment in the UK and harm the life sciences industry.

Links to the NHS budget, market growth, inflation and demographics

Several respondents stated that the allowed growth rate of 2% is below the rate of growth in the pharmaceutical industry, the NHS budget and inflation. They argued that this is not reasonable and would mean that industry is required to pay an increasing amount to fund medicines spending. They argued that these costs should be better shared between government and industry, with some viewing it as the role of government rather than industry to fund healthcare. Several respondents argued that an allowed growth rate of 2% was inappropriate given demographic change in the UK. They explained that the UK population is aging and becoming increasingly prone to disease, therefore requiring increasing spend on branded medicines needed to treat these patients.

Other cost control measures

Many respondents argued that the existence of other mechanisms to control the costs of medicines spending mean a cap on allowed growth is not necessary or should otherwise be more generous. These alternative mechanisms included the National Institute for Health and Care Excellence (NICE) technology appraisal process and the budget impact test. Some respondents explained that the rationale under which a cap was introduced as a cost controlling measure is no longer valid, given how widespread these other cost controlling measures have become.

Supply issues

Respondents expressed a view that higher payment percentages could lead to supply issues for some medicines. They argued that it would signal to industry that the UK is not an attractive place to do business and discourage companies from launching products in the UK market.

Underpayments and overpayments

Some respondents called for a clear and transparent process to adjust payment percentages in the statutory scheme to account for underpayments and overpayments by members in prior years. They explained that such a reconciliation system is required because the forecasts used to set payment percentages for 2025 and 2026 may prove to be inaccurate. This would mean that companies might pay too much or too little in terms of controlling growth to the allowed level, and so there should be a mechanism to address this, like the reconciliation system that exists in VPAG.

Government response

The department intends to implement baseline adjustments to allowed sales of £150 million in 2025, £330 million in 2026, and £380 million in 2027 and retain the allowed sales growth rate of 2%. This is on top of notional 2024 figures of 2% allowed sales growth and a £150 million baseline adjustment.

The allowed growth rate was increased on 1 January 2024 from 1.1% to 2%. This represented an 80% increase to the allowed growth rate that had been in place since 2019. The December 2023 consultation response outlined why we consider this to be an appropriate long-term growth rate for branded medicines, noting that increasing allowed growth beyond this (outside of the context of a time-bound negotiated voluntary agreement with mutual benefits for government and industry) could increase the risk of unsustainable growth in spending on branded medicines in the longer term.

The proposed allowed growth rate takes account of multiple factors, including the pipeline of upcoming new treatments and, ultimately, continued growth forecast in medicine sales. We consider that controlling growth at this level will allow for a viable financial envelope for the statutory scheme overall.

The department understands that price regulation is likely to be a factor in the complex decision-making process surrounding viable investment locations but believes supply side factors (for example, access to a skilled workforce) are likely to be more important when making globally mobile investments. Less government spend on medicines allows for greater NHS spend on projects that make the UK an attractive environment for investment. This might include running clinical trials or employing more trained medical staff.

We consider that the UK is an attractive market for pharmaceutical companies as medicines receive a national funding mandate; the NHS in England is legally obliged to fund medicines recommended by NICE as clinically and cost effective within set timescales. International comparisons of payment percentages are complex due to differences in healthcare systems, disease incidence, demographics, clinical practice, patient choice, the availability of alternative treatment options and wider health system factors.

Regarding inflation, we consider that the branded pharmaceutical industry has relatively low exposure, as production and transportation costs of medicines are a low proportion of their overall price.

With regard to the question of allowing growth below that of the NHS budget, the government does not accept that increased NHS spending in areas such as workforce should result in a similar increase in medicines spend.

The department disagrees that the statutory scheme is rendered obsolete by alternative mechanisms to control costs, as it serves a different purpose. For example, NICE recommendations ensure a product meets the threshold for being clinically cost effective, while the statutory scheme, alongside the voluntary scheme, ensures overall spending on branded medicines remains affordable.

The department does not agree that the proposed rate of allowed sales growth will significantly disincentivise the launch of new medicines in the UK. The NHS has maintained its position as a globally competitive launch market in recent years with an allowed sales growth rate in the statutory scheme lower than 2% and retains the unique selling point of allowing companies to access a market of 55 million people with a single commercial deal.

We have not seen convincing evidence that higher payment percentages for branded medicines lead to supply issues. However, in the exceptional circumstance that a product would otherwise be uneconomic to supply and there is a risk of supply disruption and a negative impact on patients, the department considers that the existing price increase provisions within the scheme are sufficient to mitigate the risk. Moreover, under the Statutory Scheme it is possible for the Secretary of State to make a temporary exemption to a maximum price, as stated in the Branded Health Services Medicines (Costs) Regulations 2018 ^{[footnote 1]}, Section 10. Under these provisions, companies may make an application for a temporary exemption. The department monitors the number of applications received.

The department does not intend to introduce a reconciliation scheme into the statutory scheme to address underpayments and overpayments. The department considers it an important principle of the statutory scheme that payment percentages set in relation to industry sales growth are set prospectively based on a growth forecast, rather than retrospectively on actual observed growth. This is intended to give scheme participants certainty at the point of sale as to the relevant statutory scheme payment percentage that will apply to that sale. Implementing a reconciliation scheme would result in reduced certainty for both statutory scheme participants and the NHS about the relevant payment percentage and whether it will be adjusted after the fact in any year where the actual growth target differs from forecast growth.

Such an approach is therefore not preferred for the statutory scheme which, unlike VPAG, has no defined end date.

Introduction of a differentiated approach to setting payment percentages for newer medicines and older medicines

Do you agree or disagree with the principle that the statutory scheme should have a differentiated approach to setting payment percentages for newer medicines and older medicines?

The consultation proposed that the statutory scheme should introduce a differentiated approach to setting payment percentages for newer and older medicines. This is designed to support 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 payment rate for older medicines that have not seen such price reductions.

Summary of responses

Responses were divided on this question, with a third disagreeing with the proposal. Respondents largely supported broad commercial equivalence between the voluntary and statutory schemes, and therefore agreed with the principle of differentiated payment percentages.

Some respondents showed mixed support for the proposed policy, despite agreeing in principle with a pro-innovation and pro-competition approach to controlling medicines spend. One such respondent suggested that the growth rate for on-patent and off-patent medicines would mean that older off-patent medicines effectively subsidise more expensive, single-source on-patent medicines. They suggested this would not be sustainable in controlling NHS medicine cost and widening access.

Others disagreed with some elements of the rationale behind the proposed approach, as well as plans for implementation. Some respondents were concerned about how newer and older medicines would be defined, and what payment percentages they would be subject to as a result.

Definitions of newer and older medicines

Several respondents criticised the proposed definitions of newer and older medicines. They argued that using the supplementary protection certificate (SPC) as the sole measure of intellectual property (IP) undermined other sources of IP protection in the UK, and that this would undermine the entire IP system in the UK - a system highly valued by pharmaceutical companies.

Supply issues

Some respondents believed the proposals risk making some older medicines commercially unviable. They explained that, while patient access to these older medicines is very important, there would be a risk that companies might withdraw products from the market if higher payment percentages make them unprofitable. Some respondents also argued that higher payment percentages for older medicines were reflective of a lack of appreciation of their value. Responses also cited examples of products that would struggle to reduce prices to avoid higher payment percentages due to the cost of production (which companies may not be fully in control of, particularly for medical devices).

The innovation paradigm

Several respondents disputed the assumption that IP protection enables them to command high prices that are above the opportunity cost to the NHS during the period of exclusivity. They requested evidence in the form of analysis to prove that this is the case. Some respondents also argued that companies already must demonstrate that their medicine is cost-effective through the NICE appraisal process, and so the NHS cannot be said to be overpaying for medicines during the period of exclusivity. Other respondents argued that other, sometimes unquantifiable, benefits of medicines in reducing societal costs (such as absenteeism) should be factored into departmental decision-making around their value.

Exemptions

Respondents emphasised the need for exemptions from payment or other exceptional measures to protect patient access. They explained that the proposed payment percentages might cause companies to withdraw products on which patients rely. Therefore, they argued, there needs to be a system to ensure continued patient access to important medicines. Some respondents stated that they were unsure if the exceptional measures in the statutory scheme would be sufficient to mitigate this problem.

Scope of the statutory scheme

Some respondents expressed concern about the fact that all biological medicines are subject to the statutory scheme, as confirmed by the previous consultation. Previously, some biological medicines, such as flu vaccines, had been treated as out of scope. Respondents claimed that commercial decisions had been made based on incorrect assumptions prior to this clarification. Respondents requested that the scope of the inclusion of biological medicines in the statutory scheme should be revisited.

Provision of reference prices

Respondents stated that companies will require more detailed information on reference prices to fully understand the impact of these proposals on their portfolios. Respondents also expressed concerns that they had not been provided with a list of reference prices for the implementation of the differentiated approach in VPAG, explaining that this also makes it challenging to plan effectively for this year.

De-branding

Some respondents called for the reintroduction of differential treatment for non-biological complex medicines that are branded by choice compared to medicines that are forced to carry a brand name. They explained that it would be commercially unfair to treat these situations in the same way since an unbranded small molecule medicine would have a competitive advantage over a small molecule required to carry a brand by the regulator.

Government response

The department intends to introduce a differentiated approach to setting payment percentages for newer medicines and older medicines, as proposed in the consultation. Without a differentiated approach, the statutory and voluntary schemes would diverge away from broad commercial equivalence. This could undermine the statutory scheme as a viable alternative to VPAG and risk creating instability in the medicines market.

The department still considers that the innovation paradigm holds as a description of the medicines market: new medicines command a high price at the start of their lifecycle, but lower towards the end. New innovations are awarded IP protection, which enables them to command this high price. Older medicines are expected to face price competition from generics and biosimilars, meaning that prices fall towards the cost of supply, and below the opportunity cost to the NHS. As a result, the NHS achieves value for money and improves net health gain overall (over the whole product lifecycle) notwithstanding the loss of health gain in the early periods, while supporting innovation with high prices earlier in the lifecycle.

While this system has been instrumental in enabling innovation in and patient access to medicines, it does not always operate exactly as intended due to the complexities of the medicines market. In particular, there is evidence that many older products are not facing competition sufficient to reduce prices and so are continuing to be sold at a high price even in the later stages of the product lifecycle. As an example, VPAS presentation level returns for 2021 show a large proportion of the sales of older products (those launched before 2009) appear to be in single supplier markets with no competition. Of the total of​ £1.9 billion of sales of older biological products in 2021, 70% of the sales value was on single supplier products.​ Of the total of £1.2 billion of sales of older non-biological products required to be sold by brand name in 2021, 65% of the sales value was on single supplier products.​This increases the cost of medicines to the NHS and so increases scheme payment percentages required to keep growth to 2% per annum.

The department therefore remains committed to the principle of ensuring sustainable spending on older medicines through a differentiated approach to setting payment percentages for newer and older medicines. Ensuring sustainable spending on older products also supports the NHS to continue investing in patients’ access to newer medicines under the innovation paradigm.

The department will provide reference prices to members of the statutory scheme before the differentiated mechanism takes effect.

A full discussion of the government’s response to concerns about the definitions of newer and older medicines follows in the responses below.

The department considers that, given biological medicines should be prescribed by brand name, the statutory scheme should not create an unintended incentive for companies to remove their brand name. Unlike non-biological medicines, unbranded biologicals do not tend to promote competitive markets in the same way. This is because prescribers are advised to include the name of the marketing authorisation holder on prescriptions for unbranded biological medicines.

Furthermore, given the exceptionality of unbranded biological medicines, we consider that equal treatment across all biological medicines promotes fairer competition by removing the possibility that otherwise equivalent versions of the same product are subject to different commercial terms solely because of the terms of their marketing authorisation. As long as there is a general requirement for biological products to carry a brand, there is a risk of unequal competition between branded versions of a product and any version that can be sold without a brand name. Promoting fairer competition supports the objectives of the scheme, since such competition is likely to reduce cost to the NHS and support resilience of supply.

As such, the department considers it appropriate that all biological medicinal products - whether branded or not - are included within the scope of the statutory scheme.

The department does not agree that the level of payment percentages will jeopardise the supply of medicines in the UK. We have seen no convincing evidence of higher payment percentages in branded medicines pricing schemes leading to supply issues. However, in exceptional circumstances where a product would otherwise be uneconomic to supply, leading to potential supply disruption and having a negative impact on patients, companies can apply to the department for a price increase. Moreover, under the statutory scheme it is possible for the Secretary of State to make a temporary exemption to a maximum price, as stated in the Branded Health Services Medicines (Costs) Regulations 2018, section 10. Under these provisions, companies may make an application for a temporary exemption. We are confident in the future of the life sciences industry in the UK. The NHS retains a unique proposition - with a single commercial deal, a company can have access to a market of over 55 million people.

Q3 and Q4 2024

Do you agree or disagree that payment percentages for Q3 and Q4 of 2024 should be set such that they control growth in Q3 and Q4 only?

The differentiated approach to setting payment percentages for newer and older medicines in the statutory scheme was planned to take effect from Q3 2024. Unlike previous consultations on in-year amendments to the statutory scheme payment percentage, the consultation proposed not to adjust payment rates upwards or downwards to meet an estimated full year (or three-quarter year) target. Rather, the consultation proposed to calculate the appropriate payment rates for the period of Q3 to Q4 2024 only.

Due to the general election, implementation of the amended statutory scheme has been delayed to Q1 2025. The following summary of responses is included for transparency only as the question is no longer relevant in the same way. Q3 to Q4 2024 payment rates will continue to be controlled by the statutory scheme regulations as amended as of 1 January 2024.

Summary of responses

The majority of respondents (53%) supported payment percentages for Q3 and Q4 of 2024 set to control growth in these quarters of 2024 only, and only 7% of responses disagreed with this approach. Responses largely recognised the pragmatism of this approach.

Preparation for the differentiated approach to setting payment percentages

Respondents supported companies being given time to prepare and plan for the introduction of a differentiated approach to setting payment percentages, so delaying this introduction until Q3 was welcomed by many. Some respondents stated that companies need detailed information on reference prices to fully understand the impact of these proposals on their portfolios. Respondents also expressed concerns that they had not been provided with a list of reference prices for the implementation of the differentiated approach in VPAG, explaining that this also makes it challenging to plan effectively for this year.

Operational simplicity

Respondents largely supported payment percentages for quarters 3 and 4 controlling growth in those quarters only for the sake of operational simplicity, as adjusting payment percentages to control for other quarters would add another layer of complexity. That said, a minority of responses advocated different approaches, such as payment percentages adjusted for quarters 1 and 2, or a transition period covering the whole year followed by payment percentages in 2025 adjusted for any overpayments or underpayments resulting from this approach.

Government response

The department intends to set payment percentages from Q1 2025 to control growth from Q1 2025 only. We recognise the uniqueness of the circumstances of a consultation response being delayed by a general election, and so do not intend to adjust payment percentages for underpayments or overpayments that result from the delayed implementation of these changes in 2024. The department will provide reference prices to members of the statutory scheme before the differentiation mechanism takes effect.

Definitions of older and newer medicines

Do you agree or disagree with the definitions for newer and older medicines listed below?

The consultation proposed that, in its simplest terms, ‘newer medicines’ are originator branded health service medicines (except parallel imports) defined, in all but exceptional circumstances, at VTM level where either:

• the SPC, if granted, remains in force for the active ingredient
• an SPC is neither in force nor has expired, lapsed, or been surrendered, and the first licensed presentation for the active ingredient is less than 12 years from marketing authorisation

The consultation proposed that ‘older medicines’ are all other branded health service medicines (except parallel imports) that do not meet the definition of newer medicines. This includes all non-originator presentations (branded generics and biosimilars) that are not licensees of the originator.

Summary of responses

The majority of respondents (70%) disagreed with the definitions for newer and older medicines. Respondents were particularly concerned that the definitions would damage IP protection in the UK, as well as discouraging innovations that would not result in medicines being defined as new.

Intellectual property

Respondents highlighted the importance of IP protection to the life sciences industry. They argued that using the SPC as the sole measure of IP and ignoring other valid measures of IP risks undermining the UK’s excellent system of IP protection.

Innovations among older medicines

Respondents criticised the definitions as being anti-innovation, arguing that they devalued innovations among older medicines that would not result in a medicine being classed as a newer medicine, as there would be no change in payment percentage to incentivise the investment. Responses cited examples such as: medicines for use in treating rare or orphan diseases, different presentations or indications of a medicine that provide significant benefits, new paradigms in drug delivery mechanisms, and innovation in areas of national and government priority such as those to support achieving NHS net zero goals. Responses recommended that any definition of newer medicines include these innovations.

Supply and launch issues

Respondents argued that definitions might deter the launch of older medicines with innovations not covered by the SPC definition, and therefore have a negative impact on supply. Responses explained that launching a medicine with innovations not covered by the newer medicine definition still entailed the same health technology assessment (HTA) process and commercial agreements as launches of new medicines but would be subject to higher payment percentages and so be less commercially viable.

Defining at VTM level

Some respondents criticised the definition of medicines as older or newer at VTM level. They argued that VTMs compete with each other in some instances, such as in the iron supplement market, so that looking at VTMs in isolation missed the main source of competition for many medicines.

12 years from marketing authorisation

Respondents criticised the decision to take 12 years from marketing authorisation as the dividing line between older and newer medicines, arguing that it was completely arbitrary. Some respondents suggested that the length of time before a medicine was deemed ‘older’ should better reflect maximum patent lengths.

Alternative definition

Several respondents supported an alternative definition for older medicines proposed by the Association of the British Pharmaceutical Industry (ABPI). This definition defined a medicine as older if it was no longer protected by an SPC or any patent that would prevent the marketing of a product similar to the innovator product, or if 12 or more years had elapsed since its marketing authorisation date - whichever of these criteria came later.

Government response

The department intends to use the definitions for newer and older medicines as set out in the consultation, which are the same definitions agreed to by industry in VPAG negotiations. Using different definitions in the statutory scheme to VPAG would complicate the commercial environment and make it more difficult for industry to operate. In truly exceptional circumstances, the department considers that companies can use the price increase request mechanism in the statutory scheme to mitigate issues surrounding innovations not covered by the definitions and supply challenges involving such medicines.

In terms of IP, the department considers that it is proportionate for the statutory scheme to adopt a simple definition of an older product (defined with respect to the active substance rather than any other feature such as the age of the brand, the indication or the mode of application) that avoids potential uncertainty or disputes. Whether a product is defined as older or newer for the purposes of the statutory scheme will have no bearing on whether that same product is able to exercise its IP rights but will impact the payment percentage owed under the statutory scheme.

The department considers that it is right to mirror the approach taken in VPAG and consider newer and older status in terms of the active substance rather than another facet of a medicine. Development of new active substances is qualitatively different from development of new formulations, indications or brands, with different regulatory requirements and commercial incentives, and it is appropriate that it is treated differently under the statutory scheme. An alternative definition could encourage evergreening of newer medicines status, where long established active substances continued to be treated as newer medicines due to incremental innovations that - although potentially valuable - do not prevent competition at active substance level and do not require the same level of up-front investment to develop.

The VTM is used as the basis for the definitions because it is an abstract representation of an active medicinal ingredient or substance without strength and form. As stated above, the department considers that newer or older status should be attributed to the active substance.

Twelve years was chosen as the length of time from the marketing authorisation date to define an older medicine as this loosely reflects the average length of exclusivity/the patent period (albeit this varies case by case). The department recognises that there will be some products for which IP has expired earlier than 12 years and others for which IP will expire later than 12 years. However, our intention is not to define an older product such that it perfectly reflects IP but rather in a way that indicates an easy-to-operationalise proxy for the time in a product lifecycle where we would ordinarily expect to see average selling prices start to fall. This approach is intended to support the aims of the scheme since it supports competition, which in turn reduces costs, facilitates the availability of medicines on reasonable terms and supports competitive markets in the UK life sciences industry.

ABPI, acting on behalf of industry, agreed the definitions we have proposed to use in the statutory scheme for VPAG. Alternative definitions would not be conducive to stability in the branded medicines market.

Payment percentage for newer medicines

Do you agree or disagree that the payment percentage for newer medicines is set at 11.6% for Q3 and Q4 in 2024, 14.1% in 2025, and 16.5% in 2026?

The consultation proposed that the payment percentage for newer medicines be set in such a way that is forecast to control net sales of branded medicines to the level of allowed sales in each year of the scheme. Forecasts both of overall sales growth and older medicines income were set out in the Consultation Stage IA.

Using this methodology, and on the basis of data up to Q4 2023, the consultation proposed that the payment percentage for newer medicines be set at:

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

Summary of responses

The majority of respondents (60%) disagreed with the proposed payment percentages for newer medicines.

Impact on investment and the UK life sciences industry

Many respondents argued that these payment percentages are above comparator countries and internationally uncompetitive. They suggested that this would discourage investment in the UK, which they argued is already behind its competitors, and consequently harm the life sciences industry.

Supply and launch issues

Several respondents argued that payment percentages set at this level for newer medicines would contribute to companies deciding not to launch medicines in the UK in the future. Some respondents stated that the UK is no longer a priority early launch market for their companies and would see fewer launches in future years.

Calculation of payment percentages

Respondents criticised the calculation of payment percentages, arguing that adjusting the payment percentages based on actual growth to limit growth to 2% would lead to greater volatility in the scheme. Some respondents criticised the different forecast assumptions used by VPAG and the statutory scheme proposals and explained that these differences also contribute to instability in how the schemes operate.

Reconciliation scheme

Some respondents called for a clear and transparent process to adjust payment percentages in the statutory scheme to account for underpayments and overpayments by members in prior years. They explained that such a reconciliation system is required because the forecasts used to set payment percentages for 2025 and 2026 may prove to be inaccurate. This would mean that companies might pay too much or too little in terms of controlling growth to the allowed level, and so there should be a mechanism to address this, like the reconciliation system that exists in VPAG.

Government response

The department intends to set the payment percentage for newer medicines, at:

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

These payment percentages have been adjusted from those consulted on based on the most up-to-date sales data (at time of calculation) from Q1 2024. For more information on why these changes were required, please see Annex G of the Final Stage IA.

These payment percentages are considered to be broadly commercially equivalent to the payment percentages for newer medicines in VPAG. The department does not consider that these rates are internationally uncompetitive.

Payment percentages are calculated based on the latest forecasts available. The proposed payment percentages take account of the industry sales data (for VPAS or VPAG, the statutory scheme, and parallel imports) up until the end of Q1 2024.

VPAG payment percentages for 2025, 2026 and 2027 will be adjusted to take into account Q1 2024 industry sales data. No further adjustments in the statutory scheme will be made to the payment percentages for newer medicines from those proposed here without further consultation.

The department does not propose to introduce a reconciliation scheme into the statutory scheme to address the issue of underpayments and overpayments like the one that exists in VPAG. The department considers it an important principle of the statutory scheme that, where payment percentages are set in relation to industry sales growth, these are set prospectively based on a growth forecast rather than retrospectively based on actual observed growth. This gives scheme participants certainty at the point of sale about the relevant statutory scheme payment percentage that will apply. Implementing a reconciliation scheme would result in reduced certainty for both statutory scheme participants and the NHS about the payment percentage that applies and whether it will be adjusted after the fact in any year where the actual growth target differs from forecast growth. Such an approach is therefore not preferred for the statutory scheme which, unlike VPAG, has no defined end date.

Basic payment percentage for older medicines

Do you agree or disagree that the basic payment percentage for older medicines is set at 10.03% in 2024, 10.6% in 2025 and 11% in 2026?

The consultation proposed that, as in VPAG, all older medicines pay a basic payment percentage. The consultation proposed to set the basic payment percentage in the statutory scheme at 10.03% in 2024, 10.6% in 2025, and 11% in 2026. This represented the same level of payment as in VPAG, adjusted to reflect the VPAG investment programme payment.

Summary of responses

Respondents were divided on this question, with approximately a third of responses agreeing, a third disagreeing, and a third neither agreeing nor disagreeing or leaving the response blank. Support from respondents focused on the principle of broad commercial equivalence with VPAG while criticism focused on the payment percentages being too high, as well as querying the difference in the basic rate between the proposals and VPAG.

Impact on investment and the UK life sciences industry

Several respondents argued that these payment percentages are above the UK average in previous years as well as above comparator countries and therefore internationally uncompetitive. They stated that this would discourage investment in the UK and therefore harm its life sciences industry. Respondents argued that the price of older medicines was already sufficiently regulated by price erosion as a result of competition and other cost control measures. It should also be noted that some respondents did agree that the proposed basic rates were acceptable.

The basic payment percentage above 10%

Many respondents queried how the funds generated by the basic payment percentage above 10% (so 0.03%, 0.6% and 1.0%) would be used. Given that these percentages are equivalent to the levy for the VPAG investment programme in VPAG, several respondents argued that these funds should be invested in the programme. Respondents also wanted to know if a basic payment percentage above 10% would result in the statutory scheme generating more income than required to keep allowed growth at 2%.

Government response

The department intends to set the basic payment percentage for older medicines in the statutory scheme at 10.6% in 2025, 11% in 2026, and 10.9% in 2027.

We do not consider that these rates are internationally uncompetitive. We consider that this level is appropriate, as it is within the range of rates that have been previously set within the statutory and voluntary schemes without causing issues for products operating in competitive markets.

With regards to the suggestion that other measures sufficiently regulate the price of older medicines, our evidence suggests that the levels of cost reduction for older branded medicines remain lower than seen in generics markets, even where competition is present. It is therefore appropriate to protect NHS budgets by applying a standard minimum payment across all older medicines.

The department does not propose to use funds generated by the basic payment percentage for the VPAG investment programme specifically. The adjustment to the basic payment percentage in the statutory scheme to reflect the VPAG investment programme payment is made to ensure the stability of both schemes. Unlike newer medicines, payment percentages for older medicines are fixed (at rates that align with those fixed in VPAG) rather than set according to a target rate of allowed growth. Any additional income generated is taken into account when setting payment percentages for newer medicines such that they control allowed growth at 2%.

Top-up payment percentage for older medicines

Do you agree or disagree 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, as set out above and subject to the exemptions below?

The consultation proposed that, as in VPAG, certain older medicines (those that have experienced a reduction in price on their relevant reference price of less than 35%), additionally pay a top-up payment percentage. The consultation proposed that the top-up payment percentage that applies be determined on a linear sliding scale up to a maximum of 25% based on the level of observed price reduction: the greater the price reduction, the lower the top-up payment percentage. For example, a medicine that experienced a price decline of 34% against its relevant reference price would pay a top-up payment percentage of 1%, a medicine that experienced a price decline of 33% would pay a top-up payment percentage of 2%, and so on. The consultation proposed that the maximum top-up percentage of 25% should apply to older medicines with an observed price decline of 10% or less.

Summary of responses

The majority of respondents (73%) disagreed that older medicines should pay a top-up payment percentage. While there was support for broad commercial equivalence, there was criticism of the level of top-up payment percentage and price decline and concerns about the impact on supply.

Supply and launch issues

Respondents stated that a payment percentage of this level risks making some older medicines commercially unviable. They explained that patient access to these older medicines was very important, but that there was a risk that companies might withdraw products from the market if higher payment percentages made them unprofitable. Some responses also claimed that higher payment percentages for older medicines demonstrated a lack of appreciation of the value of these older medicines.

Price decline

Respondents criticised the level of price decline, that products would need to experience to avoid payment of the top-up payment percentage, as being too high (proposed at 35%). Respondents requested the rationale behind the decision to opt for this level of price decline as the threshold. They argued that reducing prices of medicines by 35% would make them commercially unviable. Some respondents highlighted the role of inflation and Brexit in making price reductions even more challenging.

Untested approach

Respondents criticised the approach for being untested, meaning that any negative consequences are difficult to predict and mitigate against. Some respondents stated that companies need detailed information on reference prices to fully understand the impact of these proposals on their portfolios. Respondents also expressed concerns that they had not been provided with a list of reference prices for the implementation of the differentiated approach in VPAG, explaining that this also makes it challenging to plan effectively for this year.

Government response

The department intends that, as in VPAG, certain older medicines (those that have experienced a reduction in price on their relevant reference price of less than 35%) will additionally pay a top-up payment percentage. The top-up payment percentage that applies will be determined on a linear sliding scale up to a maximum of 25% based on the level of price reduction: the greater the price reduction, the lower the top-up payment percentage.

We consider these levels of price decline and top-up payment percentage appropriate. Setting different top-up payment percentages to VPAG, or a different relationship between the level of price decline and the applicable top-up payment percentage, would not deliver broadly commercially equivalent schemes and could lead to unintended consequences and instability in the medicines market.

The department does not agree that the top-up payment percentage will jeopardise the supply of medicines in the UK. Price decline is measured against the price of medicine when newer, when it is normal for medicine to sell with significant profit margins as per the innovation paradigm. When medicines go off patent it is not unusual to see price decline as large as or larger than 35%. Though the top-up payment percentage may reduce profit margins, we expect the vast majority of products will remain profitable and note that the NHS retains the unique selling point of allowing companies to access a market of 55 million people with a single commercial deal. For specific cases where the proposed payment percentages for older medicines might jeopardise the supply, there is a provision in the scheme to allow for price increase requests.

While the approach is novel, the department agreed this approach with industry in VPAG. The department signalled in the previous consultation its intention to bring the statutory scheme into broad commercial equivalence with VPAG, so the introduction of top-up payment percentages is not unexpected.

Calculating observed price decline

Do you agree or disagree with this approach to calculating observed price decline using reference prices?

The consultation proposed to calculate observed price decline in the statutory scheme, and therefore the level of top-up payment due on an older medicine, with reference to:

• the observed average selling price. The observed average selling price will be calculated across the whole scheme year, save for when a product moves between newer and older medicines status part way through a year, in which case the observed average selling price will be calculated across the relevant quarters where the product was an older medicine
• the price of the originator medicine (or medicines) containing the relevant active ingredient in the year prior to becoming an older medicine. This ‘reference price’ would then be the price against which price decline is measured and is intended to reflect the average selling price of the period where the originator medicine of that active ingredient had exclusivity

The consultation proposed that, in its simplest form, this ‘reference price’ be calculated as follows:

• for branded presentations that are older medicines at or after 2015, the reference price is the average selling price of the product in the calendar year prior to becoming an older product
• for branded presentations that are older medicines before 2015, the reference price is the list price as of 1 January the year before becoming an older medicine (or earliest list price available), with a 12.5% downward adjustment
• for branded presentations that are new entrants, the reference price is based on the list price of comparable products (such as originator products of the same formulation, strength and pack size) as of 1 January the year before becoming an older medicine, with a 12.5% downward adjustment

Summary of responses

Just over half of the responses (53%) disagreed with the approach to calculating observed price decline.

Operational clarity

Respondents criticised the approach for being untested, meaning that any negative consequences are difficult to predict and mitigate against. Respondents also expressed concerns that companies have not yet been given data by DHSC on reference prices. Respondents stated that companies need this information to fully understand the impact of these proposals on their portfolios. They explained that this also makes it challenging to plan effectively for this year, and difficult to provide comprehensive views on the approach to calculating price decline. Respondents also explained that the lack of data makes it difficult to ascertain the feasibility of this approach. Respondents also had queries about how reference prices would be determined in more complex cases, such as those for combination products. Some respondents called for greater simplicity in the approach to ensure effective implementation and avoid loopholes.

Assumptions

Respondents criticised some of the assumptions underlying the approach to calculating observed price decline. Respondents criticised the downward adjustment figure of 12.5% from list price for medicines that became older prior to 2015 as arbitrary and requested the rationale for this decision. Some respondents expressed concern that the reference price would fail to consider any price decline that may have taken place prior to when the reference price was calculated.

Government response

The department intends to calculate observed price decline as set out in the consultation. This approach to calculating observed price decline was agreed with industry in VPAG following negotiation. The same approach should be used in the statutory scheme to avoid the operational complexity and destabilising impact of different systems of calculating price decline in the branded medicines market.

Reference prices aim to establish a fair benchmark for the price at which a branded presentation was likely being sold prior to the loss of exclusivity of the originator medicines. Accordingly, the government aims to set reference prices on the reference anchor date (1 January of the year prior to becoming an older medicine). Under the innovation paradigm, it is unlikely that a product will have seen meaningful price decline prior to this stage in its lifecycle. Where information on price as of the reference anchor date is not available, the department will use the closest data available prior to the reference anchor date, taking account of a preference for a comparator that is closer in formulation, strength and pack size.

Similarly, the downwards adjustment to a reference price when using a list price is intended to reflect that suppliers may offer discounts against list prices, with the choice of 12.5% reduction based on historic information and designed to act as proxy for the average discount offered against a list price.

Exemptions to the top-up payment percentage for plasma derived medicinal products

Do you agree or disagree that there should be an exemption from the top-up payment percentage for relevant PDMPs?

The consultation proposed that the statutory scheme offers the same exemptions from the top-up payment percentage for older medicines as VPAG, covering:

• relevant PDMPs

Summary of responses

The majority of responses (77%) agreed with the exemption from the top-up payment percentage for relevant PDMPs.

The scope of the exemption

Responses stated that the exemption should be extended from the 13 VTMs that the government proposed to all PDMPs, citing specific immunoglobulins not covered by the exemption such as anti-tetanus, anti-rabies and anti-hepatitis B medicines. They noted that all PDMPs experience the same supply challenges as they are all derived from plasma, meaning production cannot be increased to meet rising demand, making these products particularly vulnerable to shortages. Respondents argued that, as all PDMPs face these same challenges, these products should be exempt from the top-up payment percentage, and not only the 13 VTMs in the proposals.

Respondents also proposed that PDMPs should be exempt not only from the top-up payment percentage, but from other payment percentages as well. They argued that the supply constraints of PDMPs are unique as they are made from human plasma, a raw material for which supply cannot be closely controlled. Respondents also argued that the finite nature of PDMPs coupled with high global demand means there is a high risk of companies withdrawing from the UK market if they can secure better prices elsewhere, such as the USA.

Government response

The department intends to implement the same exemptions from the top-up payment percentage for relevant PDMPs as in VPAG. Changing this exemption in the statutory scheme would lead to divergence from the principle of broad commercial equivalence. Companies base decisions around whether to join VPAG or be subject to the statutory scheme based on this principle, and so it would be unreasonable to significantly alter the scope of this exemption. Nevertheless, in light of these responses, the department will keep the list of PDMP exemptions under review.

Exemptions to the top-up payment percentage for certain older medicines

Do you agree or disagree that there should be an exemption from the top-up payment percentage for sales of older medicines with annual measured sales of less than £1.5 million across one VTM by one scheme member, subject to the commercial relationships provision above?

The consultation proposed that the statutory scheme should offer the same exemptions from top-up payment percentages for older medicines as VPAG, covering sales where a company sells less than £1.5 million of a given medicine (at VTM level) each year. DHSC will reserve the right not to apply this exemption where, in the reasonable opinion of DHSC, the scheme member has artificially reduced their annual revenues across a VTM through commercial relationships with another company, including but not limited to licensing arrangements.

Summary of responses

The majority of respondents (67%) agreed with the exemption from the top-up payment percentage for sales where a company sells less than £1.5 million of a given medicine each year. Respondents highlighted that this exemption would maintain broad commercial equivalence and help to ensure the UK remains a viable market for companies to supply low value and low usage products, therefore protecting patient access to these medicines.

Further exemptions

A small number of respondents called for further exemptions. For example, one respondent argued that the exemption ceiling should be increased when a company increases production of a medicine to address shortages in instances where a competitor left the market.

Government response

The department intends to implement an exemption from the top-up payment percentage for sales where a company sells less than £1.5 million of a given medicine (at VTM level) each year, as set out in the consultation.

In exceptional circumstances where there is a risk of shortage of a particular medicine, we consider that existing provisions within the scheme are sufficient to mitigate supply risks.

Operational requirements

Do you agree or disagree with this approach to DHSC operationalising the proposals?

The consultation set out the operational requirements associated with the department’s proposals. These include details on sales reporting requirements for the differentiated approach to setting payment rates for older and newer medicines, information requirements associated with setting reference prices, and sales reporting requirements associated with the exceptional central procurement and centrally procured vaccines exemptions.

Summary of responses

50% of responses disagreed with the proposed approach to implementing the proposals, with the remaining respondents fairly evenly split between agree, neither agree nor disagree, don’t know, and no response. Criticism of the approach focused on its complexity and difficulty, and respondents argued that implementing the proposals would result in a greater administrative burden for both companies and the DHSC.

Administrative burden for companies

Respondents agreed with the list of sales reports required and the timelines for providing them. However, respondents argued that tracking their prices at virtual medicinal product level across the year and accruing for payments would substantially increase the amount of time and resource required for them to operate the scheme as proposed, compared to previous versions of the statutory scheme. Respondents suggested streamlining any reporting not essential to the operation of the scheme to mitigate this, in particular, some of the detail in the presentation level reports such as the breakdown between primary care, homecare, and all other sales. Respondents also suggested that the complexity of the proposals made disputes and queries surrounding data more likely, which would also require further resource.

Administrative burden for DHSC

Some respondents suggested that DHSC would also face additional workload as a result of administering these proposals. Respondents pointed to the fact that DHSC was already finding it challenging to administer the differentiated affordability mechanism in the voluntary scheme and would face the same challenges with these proposals. Some responses expressed concern about capacity at DHSC to resolve any issues with the operation of the scheme, such as with reference prices or price increase requests.

Delay in provision of reference prices

Some respondents emphasised that companies need detailed information on reference prices to fully understand the impact of these proposals on their portfolios. Respondents also expressed concerns that they had not been provided with a list of reference prices for the implementation of the differentiated approach in VPAG, explaining that this also makes it challenging to plan effectively for this year. Respondents highlighted that companies require support and guidance to understand DHSC’s approach to calculating reference prices, particularly for products that might be challenging to calculate.

Untested approach

Some responses criticised the implementation of an untested approach, particularly for reference prices and exceptional circumstances. VPAG has not been operating long enough for these elements to have been fully tested. One respondent expressed discontent that the full details of these proposals were not available when companies were deciding whether to join VPAG in 2024.

Government response

The department intends to operationalise the proposals as set out in the consultation. We consider that changes to reporting arrangements under the scheme are necessary for successful implementation of our proposals.

Nevertheless, the department is keen to minimise unnecessary bureaucracy and continues to work with industry to ensure that reporting requirements are appropriate and proportionate, and to provide guidance for companies on the calculation of reference prices. Accordingly, the department plans to provide updated guidance and information to support implementation of the proposals.

Small company sales exemption

Do you agree or disagree that the statutory scheme should implement an increase in the small companies exemption to those companies with sales below £6 million?

The consultation proposed that the threshold for companies not attracting scheme payments or counting towards overall measured sales in the statutory scheme be increased from annual sales of £5 million to annual sales of £6 million.

Summary of responses

The majority of responses (77%) agreed with increasing the threshold for being a payment company in the statutory scheme to annual sales of £6 million. Respondents accepted that this exemption helps to maintain broad commercial equivalence and support smaller companies.

Medium sized company sales exemption

Several respondents stated that the medium sized company sales exemption should also be replicated in the statutory scheme, meaning medium sized companies with sales of below £30 million would be exempt from payment up to a threshold of £6 million of sales. They argued that this would bring the statutory scheme into broad commercial equivalence with VPAG, which offers this exemption. Respondents also argued that this exemption helps to support medium sized companies and avoid perverse incentives for small companies if they expect sales to increase above £6 million.

Government response

The department intends to increase the threshold for companies not attracting scheme payments or counting towards overall measured sales in the statutory scheme from annual sales of £5 million to annual sales of £6 million.

We do not intend to introduce the medium sized company sales exemption (as offered in VPAG) into the statutory scheme. Broad commercial equivalence means that government aims to set payment percentages in the statutory scheme that are comparable (but not necessarily identical) to those in VPAG but does not entail replicating all of the exemptions and other provisions of VPAG into the statutory scheme. The medium sized company sales exemption is an additional benefit negotiated in VPAG as in previous voluntary schemes, and available to all companies by joining VPAG.

Impact of the proposal

Do you agree or disagree with the analysis in the IA of our proposals, including impacts on those areas where the NHS Act 2006 requires that we consult?

The IA published alongside the consultation set out the modelling that supports proposals for the statutory scheme.

Summary of responses

The majority of responses (63%) disagreed with the analysis of our proposals in the IA. Criticism from respondents focused on assumptions that the analysis was based on, a perceived lack of understanding by government of the impacts of the proposals, and the methodology of the IA. Responses included calls for an independent review of the IA.

Assumptions

Respondents argued that the IA should use more reliable and up to date data. For example, responses criticised the use of £15,000 to estimate the cost of an additional quality-adjusted life year (QALY) in the NHS, arguing that the original study this was based on is now over a decade old and contains contested conclusions. Respondents also criticised that this does not take into account inflation and is based on 2016 prices. Respondents also requested greater transparency on the assumptions and calculations used in the IA so that further sensitivity analysis of different options could take place.

Estimated impacts

Respondents argued that the IA underestimates the impact of the proposals on investment in the UK. They argued that the UK’s share of research and development investment is not static, and that the proposed pricing mechanisms will have an impact on investment. Respondents cited specific examples of investment decisions and statistics on investment to support this claim, including recent declines in investment that they link to high payment percentages. Several responses cited the 2023 NERA Economic Consulting review to support this claim. Some also stated that the IA does not consider some more significant impacts. For example, some respondents argued that the definitions of newer and older medicines will undermine IP protection and therefore discourage investment.

Respondents also suggested that the IA underestimates the value of research and development investment on health benefits in the NHS. Respondents also claimed that the IA does not consider negative impacts on patient access to medicines, which they argue may result from the proposals due to supply issues.

Methodology

Respondents argued that the IA did not follow the guidance set out in HM Treasury’s Green Book. For example, respondents suggested that the IA does not apply adjustments for optimism bias. Also, respondents stated that the counterfactual ‘business as usual’ option was flawed as it should not have been based on continuing the statutory scheme on its current terms, as government was clear about its intention to update the statutory scheme. Respondents also argued that Green Book guidance means that the IA should analyse a wider range of scenarios.

Respondents argued that the IA should be reviewed by the Regulatory Policy Committee (RPC), given disagreement between industry and government over the impacts of both the statutory and voluntary schemes in this and previous consultations.

Government response

The department does not agree with these criticisms of the IA.

Use of £15,000 per QALY as the marginal cost per QALY in the wider NHS is standard practice across the department. While the estimate is based on an observational study conducted by the University of York in 2013, subsequent studies have continued to support these findings. The methodology is set out within academic journals and has been subject to peer review. With regard to criticisms of the use of marginal cost, we recognise that the cost-per-QALY of new medicines may be higher than the marginal cost-per-QALY in the wider NHS. This recognition forms the basis of the innovation paradigm. Nevertheless, it remains appropriate to take account of this cost when considering spending on branded medicines. For more information, see Annex D and ‘Affordability mechanisms for newer medicines and for older medicines’ in the IA.

In terms of investment, the department maintains that factors such as the availability of a skilled workforce and favourable tax conditions are of the greatest significance in decision-making regarding location of research and development (R&D) activity. These are all areas in which the UK performs strongly. For more information, see Annex C of the IA.

Additionally, pharmaceutical investments are globally mobile, meaning investment decisions are made based on assessment of anticipated global returns rather than UK sales. Therefore, there is not a close enough correlation observed between the price paid for finished medicines in the UK and the level of investment. However, we understand the influence of sentiment, and that price regulation schemes may be a consideration in the decision to locate some investments. The department is therefore pleased that the overwhelming majority of the pharmaceutical industry has expressed confidence in the novel arrangements proposed by joining VPAG.  For more information, please see Annex C of the IA.

The department does not agree that the proposals will jeopardise supply of medicines in the UK. The NHS retains the unique selling point of allowing companies to access a market of 55 million people with a single commercial deal. For specific cases where there are exceptional supply issues for particular medicines, there is a provision in the scheme to allow for price increase requests. The department and the ABPI will monitor the performance of the price erosion mechanism, including consequences for medicines supply, through the bi-annual VPAG operational review group.

The department does not agree that the IA requires RPC scrutiny. The reason for this is the regulation under consideration in this IA only impacts companies that choose to sell to the NHS. The department therefore considers the proposals to be in connection with procurement as set out in section 22 of the Small Business, Enterprise and Employment Act 2015. As such, the proposals are out of scope from the definition of regulatory provisions as set out within paragraph 2.3 of the Better Regulation Framework guidance. This position has been confirmed previously by the Economic and Domestic Affairs Secretariat at the Cabinet Office.

The department thanks respondents for their comments requesting further scenario analysis and further analysis on the impacts of R&D in the life sciences sector. The department believes that the current level of analysis is proportionate, but we will continue to monitor the case for amending this level of analysis.

In terms of analysing the benefits of higher medicine spending, we use the same formulaic approach to estimate the potential impact of the proposals versus the counterfactual on UK investment as in previous IA. This reflects the methodology set out for central government appraisal and evaluation in the Green Book. For more information, please see Annex C of the IA.

The department does not agree that the IA was not undertaken in line with Green Book guidance. The options considered are those available within the scope of the funding envelope available for the statutory scheme. The counterfactual scenario used is the appropriate one, as specified by the Green Book, as this represents “the continuation of current arrangements, as if the proposal under consideration were not to be implemented. This is true even if such a course of action is completely unacceptable”.

Statutory duties

Do you agree or disagree with our initial conclusions about the impact that the proposed updates to the statutory scheme will have in terms of the statutory duties of the Secretary of State?

The consultation considered specific duties when proposing updates to the statutory scheme. These include consideration of the Secretary of State’s duties under the NHS Act 2006 Act, the public sector equality duty under the Equality Act 2010, the Family Test and the Environment Act 2021.

Summary of responses

47% of responses disagreed with our conclusions about the impact of the proposals in terms of the statutory duties of the Secretary of State.

Patient access to medicines

Respondents argued that the proposals would negatively impact patient access to medicines. They reiterated earlier arguments that the proposed payment percentages, particularly for older medicines, would result in some medicines becoming commercially unviable. Respondents argued that this would mean companies may withdraw from the UK market or choose not to launch in the UK. Respondents explained that this would prevent patients accessing these medicines and increase inequalities as patients able to afford private healthcare would have greater access.

Some respondents highlighted the impact of proposals on specific medicines or groups of people. For example, several respondents highlighted the fact that the influenza vaccine is not covered by any exemption within the statutory scheme as it is not centrally procured, but access might be jeopardised by high payment percentages. One response stated that the proposals would negatively impact hormone treatments, which would have a disproportionately negative impact on menopausal women.

The life sciences industry

Respondents argued that proposals would have a negative impact on the life sciences industry in the UK, as high payment percentages would discourage investment. Respondents argued that this would have a negative impact on pharmaceutical research and development in the UK, undermining the Secretary of State’s duties to promote relevant research and the use of evidence obtained from research in the NHS. Some respondents also noted that companies often fund aspects of clinical education programmes, usually connected with disease areas for which they supply treatments. Respondents argued that the proposals would create a poor research environment for medicines, and therefore companies would no longer fund these activities. They suggested that this negatively impacts on the Secretary of State’s duties in respect of education and training for NHS staff.

Government response

The department is confident that the consultation proposals advance the Secretary of State’s statutory duties, including the duties to promote a comprehensive health service, to have regard to the need to reduce health inequalities and to promote research.

Most respondents who anticipated negative impacts on the duties of the Secretary of State did so on the basis that they expect the proposals to result in reduced supply and a less favourable environment for the launch of medicines to the UK. This consultation response sets out the reasons why we do not anticipate these proposals to impact negatively on supply or launch of medicines in the UK and has outlined that effective mitigations are already in place should individual medicines become uneconomical to supply without such mitigation.

The role of these proposals in ensuring continued sustainability of NHS medicines spending is aligned with equality duties The proposals aim to ensure the continued availability of medicines while protecting NHS spending in the best interests of patients, including those with protected characteristics.

Respondents argued that the proposed payment percentages would have a negative impact on pharmaceutical research and development investment in the UK. We remain of the view that supply side factors, such as availability of scientific labour, are of greatest significance in the decision to locate research and development activity. We therefore do not agree that the updates are likely to result in significant impacts to research and development investment in the UK.

The department does not agree that the Secretary of State’s duties in respect of education are affected by the proposals. The system of education and training for NHS staff is not reliant on discretionary contributions made by suppliers of medicines and is not intended to be. Moreover, by ensuring that both schemes continue to fulfil their objectives of controlling costs, we are avoiding unfunded cost pressures arising in the NHS that would affect its ability to provide education and training for NHS employees.

1. Specifically that: Section 6.5 - “Green Book appraisal is not concerned with the macroeconomic effects of spending which is the concern of government when it makes macro spending decisions on the overall level of spending and taxation.” Section 6.6 - “Therefore, changes to gross domestic product (GDP), or gross value added (GVA) or the use of Keynesian type multipliers arising from different options cannot provide useful information for choosing between options within a scheme and are therefore not part of the Green Book appraisal process. However, macro variables may well form part of the higher-level analytical research that informs identification of policy, and policy priorities.” For more information see Appraisal and evaluation in central government (2022). ↩