Consultation outcome

Review of the scheme to control the cost of branded health service medicines: consultation response

Updated 4 December 2023

Executive summary

The statutory scheme is set out in legislation in the Branded Health Service Medicines (Costs) Regulations 2018 (‘the regulations’) and is regularly reviewed to ensure it is meeting its objectives.

Until the end of 2023, it is one of 2 schemes, alongside the 2019 voluntary scheme for branded medicines pricing and access (VPAS), that control the costs of branded medicines to the NHS.

The 2019 VPAS agreement expires at the end of 2023 and will be replaced by the new 2024 voluntary scheme for branded medicines, pricing, access and growth (VPAG) from 1 January 2024.

The term ‘branded medicine’ refers to a medicine to which a brand name has been applied that enables the medicine to be identified without reference to the ‘common name’ (the generic or international non-proprietary name).

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 consultation on the statutory scheme was open between 18 July and 10 October 2023. This document analyses the responses to the consultation and sets out the government’s response to the issues raised.

Government policy remains to operate the statutory scheme in a way that is broadly commercially equivalent to the voluntary scheme, whether the 2019 VPAS or the 2024 VPAG, which was supported by respondents to this consultation. However, given significant elements of the 2024 VPAG differ from the policy consulted on, equivalence is not possible in full for 1 January 2024. Government will therefore consult in early 2024 on further amendments to the statutory scheme in order to maintain equivalence with the final version of VPAG.

Following detailed consideration of consultation responses, the government has decided to set amended payment percentages for 2024 to 2026 on the basis of an allowed growth rate that has been increased to 2%. This will see payment percentages in the scheme set at 21.9%, 24.0% and 26.8% in 2024, 2025 and 2026 respectively. Payment rates may be further amended, subject to consultation, to take account of updated data on medicine sales or maintain broad commercial equivalence with the final version of VPAG, if required.

The government has also decided to implement an exemption from payment for medicines containing a new active substance (NAS) for 36 months after marketing authorisation in the statutory scheme, with scheme payment percentages scaled to ensure overall growth remains controlled at 2%.

The government has in addition decided to include exemptions from payment for exceptional central procurements (ECP) and centrally procured vaccines (CPV). The ECP and CPV exemptions would exclude those sales from measured sales, meaning that such sales would not count towards overall growth and would not affect the payment percentages in the scheme.

The government will clarify that the statutory scheme applies to all biological medicines, whether or not they are marketed under a brand name, from 1 January 2024.

Following the agreement of an alternative mechanism within the 2024 VPAG, and having consideration of consultation responses, the government has decided not to implement the proposals for a life cycle adjustment (LCA) in the statutory scheme.

We remain committed to the principle of ensuring sustainable spending on older branded medicines and to the future implementation within the statutory scheme of policies designed to achieve this – including to maintain broad commercial equivalence with the approach taken in the 2024 VPAG. We therefore intend to consult on alternative proposals aligned to those agreed in the 2024 VPAG for setting statutory scheme payment percentages in a way that distinguishes between medicines at different stages in the product life cycle.

This document sets out the government response to each of the consultation questions in turn:

In the first section, ‘Relationship with the voluntary scheme’, we set out the government’s consideration of the responses received on the question of broad commercial equivalence between the statutory scheme and the voluntary scheme.

In the second section, ‘Allowed growth rate’, we then set out government’s consideration of the responses received on proposals to increase the allowed growth rate (which will have the effect of changing the payment percentages).

The third section, ‘Exemptions’, covers responses received on proposals to revise which sales of branded medicines are exempt from scheme payments.

Sections 4 to 6 (‘Background and rationale of the LCA mechanism’, ‘Defining older and newer products in the LCA’ and ‘Details of the LCA proposal’) concern the LCA mechanism. They consider responses received on whether these changes should be implemented alongside a new approach to control spending on older branded medicines that are subject to lower levels of competition, and are therefore unlikely to have seen meaningful price reductions in the later stages of their life cycle.

The seventh section, ‘Proposed payment percentages’, considers responses on the government’s proposed payment percentages.

The eighth section, ‘Unbranded biological products’, considers responses on the proposed clarification of the status of biological medicinal products under the scheme.  

The ninth section, ‘Impact of the proposals’, considers responses on our assessment of the impact of our proposals, as well as their effect on those areas where the National Health Service Act 2006 requires us to consider and consult on. These include the:

• economic consequences for the life sciences industry in the UK
• consequences for the economy of the UK
• consequences for NHS patients

The final ‘Statutory duties’ section considers views expressed on our assessment of the implications for the statutory duties of the Secretary of State for Health and Social Care.

‘Annex A: statutory duties’ provides analysis of the relevant statutory duties in relation to the final decisions made about the proposed amendments.

The final impact assessment (IA) is published alongside this document.

The amendments to the 2018 regulations will be set out in the Branded Health Service Medicines (Costs) (Amendment) (No. 2) Regulations 2023 and will come into force on 1 January 2024.

Introduction

The voluntary and the statutory schemes for medicines pricing limit the growth in costs of branded health service medicines. This is done to safeguard the financial position of the NHS, while taking into account the:

• need for medicinal products to be available for the health service on reasonable terms
• costs of research and development (R&D)
• impacts on the UK life sciences industry, wider economy and patients

The statutory scheme is part of a broader set of measures designed to create an environment where medicines are supplied at an affordable price in a way that is consistent with supporting both the life sciences sector and the broader economy.   

On 18 July 2023, the government published a consultation on plans for the statutory scheme for 2024. The consultation aimed to ensure that the statutory scheme could continue to work effectively alongside a successor voluntary scheme, or as a standalone scheme in the absence of this. The consultation asked for responses on a range of proposals, namely on:

• setting the payment percentage
• the inclusion of an exemption for NAS, and a potential ECP and CPV exemption
• an LCA mechanism

During the consultation period, the government ran a number of engagement sessions for industry trade associations, their member companies and patient groups about the proposals. Discussions at these sessions focussed predominantly on the proposals for an LCA.

The consultation on these proposals closed on 10 October 2023, with 97 responses received to the consultation survey. The majority (79 of 97 or 81%) of these responses were from pharmaceutical companies or trade bodies. A further 5 respondents provided feedback on the consultation proposals through the consultation email inbox. These responses were analysed alongside the consultation responses from the survey.

In the following sections, we outline each of the government’s proposals, summarise the responses received to each question in the consultation, and provide the government’s response.

1. Relationship with the voluntary scheme

Do you agree or disagree that, in the event that a voluntary scheme is agreed, the statutory scheme should seek to maintain broad commercial equivalence as far as possible with the voluntary scheme?

Outline of proposals

Our consultation proposed a continuation of the policy of broad commercial equivalence between the voluntary scheme and statutory scheme in order to protect the stability and efficacy of both.

‘Broad commercial equivalence’ means that the government aims to set payment percentages in the statutory scheme that are comparable (but not necessarily identical) to those in the voluntary scheme.

Summary of responses

Respondents to the consultation generally strongly supported the principle of maintaining broad commercial equivalence with a future voluntary scheme.

However, several respondents stated that payment percentages proposed for the statutory scheme remained too high and that broad equivalence should be with a voluntary scheme that set out lower payment percentages.

Several respondents were clear that their support for broad commercial equivalence was conditional on the terms of any new voluntary scheme agreed, and referenced the objectives set out by the Association of the British Pharmaceutical Industry (ABPI) in its publication At the Crossroads at the start of negotiations for a new voluntary scheme.

Some respondents argued they did not consider it was possible to support broad equivalence without knowing the terms of the voluntary scheme, and that the government should have waited for the outcome of negotiations before consulting on this issue. Some of these respondents questioned how broad commercial equivalence would be achieved in the event a voluntary scheme was agreed and how updates would take place. Similarly, respondents queried what would happen to the proposals of the consultation under the various possible outcomes from voluntary scheme negotiations.

A smaller group of respondents noted information in the IA that indicated the VPAS payment percentage in 2023 would result in an overpayment by industry, which would be addressed through the end scheme reconciliation (ESR) mechanism in VPAS. They argued that broad commercial equivalence meant that a similar exercise should therefore be replicated in the statutory scheme.

A few respondents stated that they did not support broad equivalence. Some of these respondents argued that the statutory scheme payment percentage should be set to a lower rate without consideration of the voluntary scheme, echoing the arguments of those who made their support for broad commercial equivalence conditional on the voluntary scheme agreed. However, a small number of respondents used their response to argue that there should be some incentives that are unique to the voluntary scheme, or that a degree of differentiation between the schemes supported companies with different portfolios and pipelines of medicines.

Finally, a few respondents to the consultation criticised the consultation proposals more widely, arguing that the proposed (in their view) low level of growth and the maintenance of broad commercial equivalence indicated that the government would be unwilling to make an acceptable offer to industry in voluntary scheme negotiations. 

Government response

The government notes the broad support in principle for the policy of broad commercial equivalence, and maintains its position that the continuation of the principle of broad commercial equivalence is important to protect the stability and efficacy of both the statutory and any future voluntary scheme.

Following the announcement of an agreement on heads of terms for the 2024 VPAG in November 2023, the government therefore intends to ensure the 2 schemes should continue to work in a complementary way. However, given significant elements of the 2024 VPAG differ from the policy consulted on, equivalence is not possible in full for 1 January 2024. Government will therefore consult in early 2024 on further amendments to the statutory scheme in order to maintain equivalence with the final version of VPAG.

Until any changes to ensure broad equivalence with any final voluntary scheme agreement can be made, the government will proceed to implement the statutory scheme proposals as set out in this document.

It was clear that many respondents’ support for this policy was conditional on the terms of any voluntary scheme agreed. The heads of agreement for the 2024 VPAG have been reached following extensive negotiation with industry towards mutually agreed objectives of a scheme that supports the sustainability of NHS spending on branded medicines, better patient outcomes and a strong UK life sciences industry. The full scheme terms will be agreed on the same basis. As such, the scheme with which government intends to maintain broad equivalence is considered to have broad industry support.

The government does not agree that consultation on updates to the statutory scheme should have been delayed until a voluntary scheme had been agreed in full. It is important that, had no successor to VPAS been agreed, all parties would have been able to rely on a well considered and robust statutory scheme to provide a clear framework for branded medicines pricing and access from 2024. Allowing the current payment percentage in the scheme to continue would also divorce the payment percentage in the scheme from the observed market conditions.

With regard to the arguments that there should be some differentiation between the statutory and voluntary schemes, broad commercial equivalence does not require the schemes to be identical, but to achieve comparable terms between the schemes. The proposed updates are designed both to set the statutory scheme as a viable alternative to a voluntary scheme when one is in place, and also as a standalone scheme should no voluntary scheme be in place. Therefore, it is appropriate that features of the voluntary scheme are replicated in the statutory scheme.  

The government considers that ESR is required in the 2019 VPAS because the scheme has a defined end point. This is not the case in the statutory scheme. Instead of an ESR process, previous over and underpayments in the statutory scheme have been considered in the setting of the payment percentages alongside forecasts of future medicine sales.

The government would be open to considering a different approach to ESR across the voluntary and statutory schemes, if delivered in a cost-neutral way, noting that such an approach would require an amendment to the 2019 voluntary scheme.

2. Allowed growth rate

Do you agree or disagree with our proposals to increase the level of allowed growth in the scheme and to uprate the baseline from which allowed growth is controlled, which will change the payment percentages, as set out in our impact assessment of the changes?

Outline of proposals

Our consultation proposed to set payment percentages in the statutory scheme using a higher allowed growth rate of 2% (nominal), with growth controlled to this level each year.

We additionally proposed that the baseline from which allowed growth will be controlled reflects a weighted average of allowed growth in the statutory scheme and the 2019 VPAS since 2019 (1.1% and 2% respectively), in line with their relative proportions of scheme memberships as of this year.

Summary of responses

Most respondents (72% of those who responded to the survey) disagreed with the proposals, and many of these respondents strongly criticised the proposals in respect of allowed growth and the baseline in their qualitative response. Some respondents welcomed the increase in the level of allowed growth from 1.1% to 2% while arguing that the increase should be greater.

A substantial number of respondents who criticised the level of allowed growth used to set payment percentages under the proposals also stated that the LCA proposals would further exacerbate the negative impacts they predicted from the level of growth proposed. We have considered the proposals around LCA below.

Funding of medicines

A large number of responses criticised the level of allowed growth used in the scheme as insufficient on the grounds that it resulted in payment percentages that were high in comparison to other countries who used comparable methods of cost control, and made the UK an outlier in terms of medicine pricing policy among comparator countries.

Several also considered that, through the proposals, the government was prioritising the objective of controlling the cost of medicines to the NHS at the expense of the other scheme objectives. Respondents developed this argument in a number of different ways.

Several respondents argued that setting payment percentages to control growth to 2% failed to keep pace with both recent high inflation and increased demand for branded medicines since 2019, citing population factors they considered were driving growth in the use of medicines.

Responses considered that the government was not allocating sufficient funding to medicines to deal with either high inflation or the growth in demand for their use, and argued that there was insufficient financial justification to control costs to this level since it was not calculated on the basis of demand.

Many also noted increased spending in other parts of the health system and argued that medicines spending had declined as both a proportion of the NHS budget and in real terms. As a result, many respondents thought that setting payment percentages to control growth at 2% per annum would result in long-term decline in the UK life sciences sector, since low allowed growth would not leave room for companies to invest in developing and launching new products in the UK.

A small minority of responses agreed that 2% was an appropriate rate of growth or welcomed the increase from 1.1% to 2% growth without further comments.

Impact on launch and supply of medicines

Respondents also made a related argument that the level of growth would result in the continuation of payment percentages that made it uneconomical to launch new products in the UK. Several provided further information in support of this argument in the form of survey data from trade associations in which companies had stated they were likely to withdraw or delay planned launches in the UK, including launches of medicines containing a NAS.

This was also reflected in responses from several companies who identified products they stated they had withdrawn from UK sale or decided not to launch in the UK since 2019. Some also stated they were carrying out reviews of their portfolios and pipelines for medicines that would not be economic to launch or supply under the proposals, and identified specific medicine launches or withdrawals they were reconsidering as a result of the proposals. In a few cases, companies identified multiple medicines where they stated the launch or supply of those products was at risk as a result of the proposals.

Some respondents added that the mitigations for this in the scheme were not, in their view, sufficient and gave examples of products that they stated would no longer be commercially viable under the proposed payment percentages but were ineligible for price increases under existing rules, despite being in short supply or offering a saving compared with generic competitors with higher list prices. Some respondents stated list price increases were not effective for medicines subject to an assessment by the National Institute for Health and Care Excellence (NICE), or that the rules around price increases prevented companies with large portfolios from obtaining increases for individual products, even where they were uneconomical to supply.

Some respondents indicated that high payments were a particular concern for branded generic and biosimilar medicines, since these tended to operate with lower margins than other branded medicines, and that such products would not be viable at high payment percentages. A few respondents from this sector noted the benefits of biosimilar and generic competition with the NHS and suggested that loss of competition may increase NHS costs.

Impact on investment

Respondents argued, as they had done in earlier consultations, that high payment percentages are damaging industry sentiment towards the UK, deterring life sciences investment, and that this was reflected in the declining proportion of global pharmaceutical investment and clinical trials that took place in the UK. Respondents cited data from the government’s life science competitiveness indicators and their own investment decisions as evidence of this impact.

Respondents argued that the consultation proposals specifically signalled to industry that the government was unlikely to act on industry’s medicine pricing objectives, or that it showed the government intended to maintain the (in their view) already poor commercial environment for medicines in the UK long term. Industry respondents stated this would be interpreted as a signal that the UK did not aim to attract life sciences investment in the long term – in contrast with comparable countries, which provided for a more favourable commercial environment for medicines – and predicted a sharp decline in life sciences investment as a result.

Resetting the baseline from which growth is calculated

Several respondents to the consultation thought that the baseline from which payment percentages are calculated should be reset.

They argued that, since medicine sales grow by more than 2% each year, the payment percentages required to maintain a 2% cap on growth in sales will therefore inevitably increase annually to levels they considered unsustainable were the baseline not to be reset at some point. Several noted the current baseline from which payment percentages are calculated originates back to 2014 and considered payment percentages were reaching unmanageable levels.

Some respondents argued that the government had stated it would not use the current scheme as the start point for the next voluntary scheme. They considered that not resetting the baseline would breach this statement and that it should be extended to the statutory scheme.

Criticism of the model of cost control

A few of these respondents criticised the proposals on principled grounds, arguing that medicines spending should not be subjected to a cap of any sort since other measures, such as assessment by NICE, ensured that spending on medicines represented good value for money.

Some respondents expressing this view supported their argument by citing research that, in their view, showed the government’s assumptions about the opportunity cost of spending on medicines was incorrect. These respondents disputed the £15,000 figure used for the marginal cost of a quality-adjusted life year (QALY) (a unit of health gained) in the wider NHS, or argued that it was incorrect to compare spending on medicines to this figure as other non-NHS spending might also result in health gains.

Some respondents also argued against the model of cost control proposed on the grounds it resulted in uncertainty, since it was unclear what level of payment would be required from industry from year to year to keep growth at a particular level. They argued that the scheme should provide more certainty for industry, with some arguing for a ‘risk sharing’ model where the government would bear some of the cost if industry payments required to maintain the cap on growth were higher than forecast.

Government response

The government intends to set payment percentages in the statutory scheme using a higher allowed growth rate of 2% (nominal), with growth controlled to this level each year, as set out in the consultation.

Additionally, we will implement a baseline from which allowed growth will be controlled to reflect a weighted average of allowed growth in the statutory scheme and VPAS since 2019 (1.1% and 2% respectively) in line with their relative proportions of scheme memberships as of this year.

The government discussion of specific issues raised is set out below.

Low allowed growth means the government is failing to fund demand for medicines

The proposed 2% allowed growth per annum represents almost double (an 80% rise in) allowed growth compared with the 1.1% per annum that applied in the statutory scheme from 2019 to 2023. The proposed allowed growth rate considered multiple factors including consideration of the pipeline of upcoming new treatments featured within our forecast growth in spending on new treatments and, ultimately, continued growth forecast in medicine sales.

Controlling growth at this level is considered to allow for a viable overall financial envelope for the statutory scheme – it results in a more favourable scheme for industry compared with the existing statutory scheme arrangements, while continuing to ensure that spending on branded medicines is affordable to the NHS.

The government is pleased to have secured industry agreement to the new voluntary scheme, with the aim of delivering value for money to taxpayers and support for the life sciences sector, while ensuring patients are able to access the latest therapies. The government has agreed that the new voluntary scheme, VPAG, will have a higher rate of allowed growth than the statutory scheme proposals, which results in additional funding for medicines.

With regard to the argument that medicines spending has declined as a proportion of the overall NHS budget, this is a reflection of investment in the health service more broadly. The government does not accept that increased spending in any one area, such as workforce, should automatically trigger additional spending in another.

Levels of allowed growth do not account for inflation

While the government recognises the inflationary pressures on the economy, the innovative pharmaceutical industry has relatively low exposure to inflation as the production and transportation costs of new medicines are typically only a fraction of their price.

Where absorbing cost inflation is not possible, there are provisions in the scheme for companies to apply for price increases should supply of products be otherwise uneconomical.

Additionally, it is important to recognise that these proposals offer a higher allowed growth rate than currently set out in regulations.

Investment and innovation

Some responses argue that a 2% level of allowed growth will disincentivise life sciences investment and innovation.

Overall, the literature suggests that price regulation is likely to be one element of investment location decisions, but that these decisions are highly complicated, encompassing a wide range of factors and, furthermore, the weight of price regulation in decision making may differ by the type of investment.

While price regulation may have some impact on where companies choose to invest, the greater impact will be from factors such as access to a skilled workforce and academic expertise, where the UK offer continues to be strong. Our view remains that supply side factors are of greatest impact, compared with demand side factors, in company decisions about where to locate globally mobile investments. Further detail is set out in Annex B of the final IA, and in the discussion of the Secretary of State for Health and Social Care’s duties in ‘Annex A: statutory duties’ below.

Spending more on medicines may also result in less money being spent on other things the NHS does that also contribute to making the UK an attractive place to locate investments (like clinical trials), such as employing doctors and nurses. The new Long Term Workforce Plan for England is a commitment from the government to strengthen and grow the healthcare sector.

Additionally, the UK is a uniquely attractive market by virtue of medicines receiving a national funding mandate, with the NHS in England legally obliged to fund medicines recommended by NICE as clinically and cost-effective within set timescales.

Furthermore, the updates to the statutory scheme will provide strong commercial incentives to launch new products in the form of exemptions from payments for innovative medicines containing a NAS.

Supply and launch of new medicines

The government does not agree that the rate of allowed growth will significantly disincentivise the launch of new medicines in the UK.

Over the period of the 2019 VPAS, the NHS has maintained its position as a globally competitive launch market for new medicines. We are confident in the future of the life sciences industry in the UK. The NHS remains a unique proposition – with a single commercial deal, a company can have access to a market of over 55 million people.

The proposals include strong commercial incentives to launch new products in the form of exemptions from payments for innovative medicines containing a NAS. This incentive has been effective in the 2019 VPAS in driving significant improvements in patient access to clinically and cost-effective medicines, while ensuring sustainable and predictable spend growth for the NHS and industry during a period of economic uncertainty.

A recent Global Access to New Medicines Report from the Pharmaceutical Research and Manufacturers of America found that, between 2012 and 2021, the UK was consistently in the top 3 G20 countries for availability and speed of access to new medicines.

The government does not consider it is necessary to provide additional mitigations for newer medicines to achieve price increases.

With regard to mitigations for lower-margin, off-patent branded medicines, the provisions in the scheme for companies to apply for price increases are accessible should supply of products be otherwise uneconomical.

International competitiveness

Some respondents stated that proposed allowed growth rates compared unfavourably to similar countries, reducing the UK’s international competitiveness as a market for, and negatively affecting patients’ access to, medicines. However, the government views that international comparisons are complex and fraught with difficulties owing to a range of factors such as differences in:

• systems
• disease incidence
• demographics
• clinical practice
• patient choice
• the availability of alternative treatment options
• wider health system factors

The NHS in England is internationally competitive in adopting innovative medicines, and industry data shows that there are 5 treatments available in England for every 4 in Europe, as well as almost a third more cancer drugs with the Cancer Drugs Fund providing fast-track access to cutting-edge treatments for patients.

Once implemented, our proposals aim to maintain the affordability of branded medicines spending across the NHS. By controlling growth in the cost of medicines, we ensure value for money for the taxpayer and enable the NHS to continue investing in patient access to new medicines.

Resetting the baseline

The requested adjustment to the baseline would not reflect the approach taken in the 2024 VPAG. The government also notes that the changes to the baseline and allowed growth that were consulted on result in lower payment percentages for industry than the current scheme.

The government will, however, continue to review the payment percentages in the scheme, along with updated data on medicine sales and forecasts, as they become available, to ensure the payment percentages set continue to meet the objectives of the scheme.

Criticism of cost control through price control schemes

The government reiterates that it does not agree that the price control schemes are made unnecessary by the existence of alternative cost-control mechanisms.

The statutory scheme serves a different function to NICE value assessments and the other cost containment mechanisms mentioned by respondents. For example, whereas a NICE recommendation ensures a product meets the threshold for being clinically and cost-effective, and NHS England commercial arrangements reduce net prices, allowing in-year reinvestment in better care for patients, the statutory scheme (alongside the 2019 VPAS and the 2024 VPAG) ensures that overall spending on branded medicines remains affordable.

The government does not agree that it is unnecessary to control the costs of medicines. By controlling growth in the cost of medicines, we ensure value for money for the taxpayer and enable the NHS to continue investing in patient access to new medicines.

With regard to criticisms of the use of the figure of £15,000 as the marginal cost per QALY in the wider NHS, this is used as standard across DHSC. The estimate is based on an observational study conducted by the University of York. Multiple follow-up 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 the marginal cost, the government recognises that the cost per QALY of new medicines may be higher than the marginal cost per QALY in the wider NHS, and this recognition forms the basis of the innovation paradigm. Nevertheless, it remains appropriate to consider this cost when considering spending on branded medicines.  

3. Exemptions

Do you agree or disagree that the statutory scheme should provide an exemption from payment for medicines containing a NAS?

Do you agree or disagree that the statutory scheme should provide an exemption for CPVs?

Do you agree or disagree that the statutory scheme should provide an exemption for ECPs?

Outline of proposals

Firstly, we proposed to introduce an exemption from scheme payments for sales of medicines containing a NAS for 36 months from the date of their first marketing authorisation, with the payment percentage for remaining sales in the scheme scaled to keep total net sales growth at 2%.

Secondly, we proposed to introduce an exemption from scheme payments for CPVs. As in the 2019 VPAS, this will cover the sale of a vaccine that meets all of the following criteria – that is:

• for national immunisation programmes that are recommended or advised by the Joint Committee on Vaccination and Immunisation (JCVI)
• procured by a central government body
• managed by the UK Health Security Agency (UKHSA) or a successor body

Thirdly, we proposed to introduce an exemption from scheme payments for ECPs into the statutory scheme. As in the 2019 VPAS, this will cover procurements of medicines that meet all of the following criteria – that is:

• for the purposes of emergency preparedness, or stockpiling for national security or pandemic preparation
• conducted by a central government body
• managed by UKHSA or a successor body

Summary of responses

Most respondents supported the inclusion of the proposed exemptions in the scheme, with 76%, 68% and 76% of respondents agreeing that the scheme should include exemptions for medicines containing a NAS, CPVs and ECPs respectively.

Many respondents argued to extend the exemptions proposed.

New active substances

Consultation responses were broadly supportive of the NAS exemption, recognising it will reward the development of innovative new drugs and ensure that companies have a strong incentive to launch them quickly in the UK, improving NHS patient access to new branded medicines.

While most respondents broadly welcomed the proposals for an exemption for medicines containing a NAS, several respondents caveated their support or argued for further changes to the exemption. The most frequent argument raised in responses was that the NAS exemption should apply from the date of first sale and not from the date of the marketing authorisation, as delays to NICE approvals mean that companies do not receive the full benefit of the exemption.

Several respondents also argued that the government should not scale up the payment percentage to account for the NAS exemption, since this meant the cost of the exemption is effectively cross-subsidised by industry. They proposed instead that the government should bear the cost of the exemption. This view was shared by most of the respondents who disagreed with the inclusion of the exemption, who were concerned that the effect of the NAS exemption contributed to increasing payment percentages for other products to levels they considered unsustainable.

A few respondents stated or implied that the NAS exemption would not overcome their concerns about the viability of launching some new products. For example, some companies identified particular products they were reconsidering for launch in the UK that would stand to benefit from the exemption, or argued that, once the exemption expired, the payment percentages reduced the commercial value of the NAS exemption.

There were also a small number of respondents who disagreed with the exemption for other reasons, including that:

• inclusion of additional benefits in the statutory scheme could undermine the attractiveness of the voluntary scheme
• the price of medicines should be determined by their safety and efficacy alone

Centrally procured vaccines and exceptional central procurements

The majority of responses supported the exemption for CPVs and ECPs in the scheme and generally agreed with the reasons for the exemption.

The main theme raised among the moderate number of comments was that it would be helpful to provide additional clarity about the circumstances under which the conditions of the exemptions relating to UKHSA might be waived.

A few respondents disagreed with the proposal for the CPV exemption, arguing that it resulted in treating some medicines differently to others. These respondents considered that all medicines should be treated equally and vaccines should not be subject to favourable treatment.

A very small number of respondents also stated that:

• the criteria were drawn such that it would be difficult for products to qualify for the exemption
• while supporting the exemptions, they disputed that spending on JCVI-recommended vaccines was less likely to come at the cost of other equally (or more) effective healthcare spending than NICE-approved medicines
• they believed incorrectly that the cost of the proposed CPV and ECP exemptions would be borne by industry

Additional exemptions

Several respondents, while welcoming the exemptions proposed, argued for significant further exemptions, including:

• for a general exemption from the scheme for blood and plasma-derived products, beyond that proposed as part of the LCA. Respondents argued that the LCA proposals recognised the strategic importance of this category of medicines, which are in global shortage. They considered a separate exemption to that proposed under the LCA was required to support the supply of these products
• for biosimilar medicines, since they compete with brand originators and are likely to result in savings to the NHS, which would be reduced as a result of scheme payments
• for products sold on NHS framework tenders, which offered low prices and therefore savings. Respondents argued that the application of scheme payments reduced the ability of companies to offer lower prices in such tenders
• to incentivise innovation, for products that have participated in innovative access pathways (such as the Innovative Licensing and Access Pathway (ILAP) or the early access to medicines scheme (EAMS)) should be treated like a NAS product and have access to exemptions from payment
• for dental varnishes – a small number of respondents cited the exemption for dental anaesthetics in the 2019 VPAS and argued that, since the use of some dental varnishes in the NHS was sufficiently similar to the use of dental anaesthetics to which an exemption is applied, this exemption should be replicated in the statutory scheme, and extended to cover dental varnishes in the statutory scheme and any future voluntary schemes

Some respondents also argued that the statutory scheme should do more to support small and medium-sized companies. They argued that the medium-sized company exemption currently in place in the 2019 VPAS, which operates as a taper for companies with between £5 million and £25 million of sales under the scheme, should also be replicated in the statutory scheme. Some respondents also argued that the threshold to qualify for the small company exemption and/or the taper for medium-sized companies should be raised to reflect inflation or provide greater support for such companies.

Government response

Following consideration of the responses, the government intends to implement the proposals for NAS, ECP and CPV exemptions. 

These proposed exemptions for medicines containing a NAS were strongly supported in the consultation, though several respondents raised issues or questions about their use. Similarly, the ECP and CPV exemption proposals were met with a majority of positive responses, recognising that these exemptions will ensure that the market is resilient against exceptional events when they occur.

Similar exemptions are currently features of 2019 VPAS but not of the statutory scheme. Introducing them into the statutory scheme ensures that statutory scheme companies can benefit from such exemptions, and that these exemptions are available to all companies who sell branded medicines to the NHS in either scheme.

NAS, CPV and ECP exemptions

With regard to the NAS exemption, several respondents argued that the NAS exemption should be restructured so that the government – and not industry – bears the cost of providing the exemption while controlling growth to a certain level. However, the government considers that the design of the exemption ensures further incentives for companies to bring forward new products.

The government also disagrees that the NAS exemption should apply from the date of first sale and not the marketing authorisation. Such a change would reduce the incentive for companies to move quickly through the process of NICE assessment, which would result in longer waits for patients to access new medicines. The government also notes that the speed of NICE appraisals has increased substantially over the period of VPAS.

It is important to clarify that, under the ECP and CPV exemptions proposed in the consultation, sales classified as ECPs and CPVs in VPAS would not count towards measured sales in the statutory scheme, and would therefore not affect the level of measured growth in the scheme, which is one of the factors that determines the calculation of the payment percentage. The inclusion of these exemptions would not affect the payment percentage for products that are not exempt.

In recognition of the responses querying the legislative certainty of the ECP and CPV exemptions, the government will ensure regulations are drafted in such a way that they clearly reflect the policy intent that currently exists and functions well in the 2019 VPAS, and give companies assurance on which products are covered by this exemption. We have worked closely with UKHSA to ensure that the ‘managed by UKHSA’ criteria is fully developed and comprehensive.

The government considers it is important to implement the proposal for the Secretary of State for Health and Social Care to have discretion to waive the criteria for management by UKHSA, where management by UKHSA or a successor is not possible due to exceptional circumstances.

This will ensure that ECPs and CPVs can be procured when UKHSA lacks the organisational capacity to conduct or manage the stockpiling and/or distribution as a result of its response to an emergency situation. The government envisages the use of this discretion in situations where UKHSA is engaged in measures to protect public health in response to a variety of emergency situations. The Secretary of State’s view is that, had UKHSA not already been involved in managing this response, then they would have managed the stockpiling and/or distribution, but that a third party had to be engaged as a matter of necessity.

Requests for further exemptions

Some respondents argued for a general exemption from the scheme for blood and plasma-derived products beyond that proposed as part of the LCA.

The exemption proposed under the LCA was designed to reflect the relative novelty of the LCA proposal and that market competition, which was a key aspect of the LCA, functioned differently for this group of medicines. While the government has decided not to proceed with the proposals for LCA, it remains committed to the principle of ensuring sustainable spending on older medicines and, in doing so, would further consider whether to include exemptions for certain blood and plasma-derived products in recognition of the strategic importance of this category of medicines.

Blood and plasma-derived products have been able to make use of existing mitigations in the scheme and remained viable at higher payment percentages than those proposed in the consultation. However, in light of consultation responses, the government intends to further develop our policy on this category of medicines, and consider including proposals for a general exemption for blood and plasma-derived products in a future statutory scheme consultation, alongside or as part of measures to maintain broad commercial equivalence with the approach taken in the 2024 VPAG.   

The government does not consider there to be a case for medicines that participate in EAMS or ILAP to receive a similar exemption to that proposed for NAS medicines, since such products are already likely to be NAS products.

The government and NHS strongly support the use of biosimilar medicines. The LCA proposals aimed to provide additional rewards for products, such as biosimilars, that compete with branded originators. However, biosimilars are required to be branded for good reasons and switching between products is also more complex. They, therefore, do not experience the same competition as true generics and the government considers that it is appropriate that they make payments under the scheme. The government remains committed to the principle of ensuring sustainable spending on older medicines and, subject to consultation, to the future implementation within the statutory scheme of policies designed to achieve this, aligning with the approach set out in the 2024 VPAG.

The government does not consider that there is a case to replicate the existing exemption for medium-sized companies in VPAS into the statutory scheme. The exemptions proposed are those thought to be essential for a scenario in which the statutory scheme acts as a standalone scheme, and the medium-sized company exemption is an additional benefit negotiated from VPAS. The medium-sized company exemption will be available to companies within the 2024 VPAG.

The government does not consider that there is a case to replicate the exemption for dental anaesthetics in the 2019 VPAS, nor to extend it to cover additional products in the statutory scheme. The exemptions proposed are those thought to be essential for a scenario in which the statutory scheme acts as a standalone scheme, and the exemption for dental anaesthetics is an additional benefit negotiated from VPAS. The exemption will be available to companies within the 2024 VPAG.

4. Background and rationale of the LCA mechanism

Do you agree or disagree with the principle that in relative terms payment percentages should be higher for older products when not subject to adequate competition, and lower for newer products and older products when subject to adequate competition?

Outline of proposals

The consultation asked respondents to consider a proposal that, by requiring additional payments from older products in markets where there appears to be little or no competition, financial headroom could be created to reduce the payments required on new innovations and provide a flat, lower payment for older products in more competitive markets.

Following consideration of the consultation responses, the government does not plan to proceed with the consulted-on proposal. However, as set out in our response below, government remains committed to the principle of ensuring sustainable spending on older branded medicines and the future implementation within the statutory scheme of policies designed to achieve this – including to maintain broad commercial equivalence with the approach taken in the 2024 VPAG.

Summary of responses

Most respondents to the consultation did not support the proposals for an LCA, with 71% of responses stating that they disagreed.

Respondents used their qualitative responses to raise concerns about the proposals on both principled and practical grounds, with strong objections to the design of the proposals and their operational viability.

A significant minority of respondents, particularly from the generics and biosimilars sectors, indicated that they supported the LCA in principle, while raising specific concerns about implementation design. Similarly, some respondents who criticised the details of the proposals and suggested alternatives also expressed broader or principled objections to the LCA.

Overall, respondents who disagreed identified a wide range of principled and practical objections to the LCA, relating to:

• the operational viability of the proposals
• issues they considered unresolved in the design of the LCA
• the unintended consequences and impacts they predicted from the model proposed
• the use of the definitions proposed within it

These issues featured prominently in responses to questions about the rationale for the LCA and are discussed in more detail in the relevant sections below.

Overarching practical considerations

Several respondents stated that there was insufficient detail about how the LCA would work in practice and identified policy issues around this proposal that they considered had not been sufficiently resolved. They argued that the government should wait until further refinements and clarifications could be made so that there was sufficient certainty for industry about how LCA would work before proceeding further with the proposals.

Respondents stated they did not have access to the very recent market data required to make the commercial decisions that would be necessary under the LCA mechanism. Respondents noted they would not have data on their competitors’ market shares or launches and that existing data sources were not sufficiently accurate for them to rely on. They doubted that a system based on sales reports to the DHSC could be implemented in a sufficiently timely way to overcome these, since there would be a lag in the submission, analysis and publication of market share data based of these returns. Some also questioned whether this would result in the inadvertent disclosure of commercially sensitive data in small markets.

Several respondents also raised practical issues about specific aspects of the consultation, which are considered in the relevant sections below.

Overarching issues

The main principled objection raised to the proposals was that they would likely penalise companies who already supplied medicines at close to the cost of production, even in the absence of competition.

Respondents noted that competition might not emerge in markets where costs of production were high and/or where there were relatively few sales, and some discussed examples of products operating at low margins despite facing little competition. They therefore disagreed that the presence of a certain level of competition should be used to determine whether older medicines were providing good value or not. A few such respondents developed this further, arguing that the purpose of the scheme was not to promote competition for its own sake.

Extending this argument, a smaller number of respondents anticipated that the LCA would drive requests for price increases from older products with low margins. They argued that, since many of these products were likely to be eligible for and awarded price increases, this would in turn increase net costs, defeating the purpose of the proposals.

A significant number of respondents argued that the LCA was unlikely to succeed in its objectives and cited 2 main reasons for this. Firstly, they predicted that the benefits of remaining a branded medicine were outweighed by higher payment percentages, and that many older medicines would choose to de-brand and become generics. Such medicines would have freedom of pricing as generics and would no longer make payments under the scheme. Respondents predicted this would result in a net cost to the NHS. Secondly, respondents predicted that the LCA, and specifically the definition of competition, would discourage innovation late in a product’s life cycle. These arguments are developed further in the relevant sections below.

Several respondents also stated that there was little evidence that prices for older medicines remained unjustifiably high beyond the expiry of their intellectual property (IP) protections, and that therefore there was no justification for the policy.

A small number of responses set out their view that:

• older branded medicines were likely to be just as beneficial as newer ones, and that prices should not be dependent on age but on patient benefits offered
• it was inappropriate for companies to be penalised with higher rates on products if they did not face sufficient competition as this was largely beyond their control

Government response

Following consideration of the consultation responses, the government has decided not to implement an LCA in the statutory scheme on 1 January 2024. However, government remains committed to the principle of ensuring sustainable spending on older branded medicines and the future implementation within the statutory scheme of policies designed to achieve this – including to maintain broad commercial equivalence with the approach taken in the 2024 VPAG.

During the consultation, the government set out the rationale for its proposals for an LCA, which was that the medicines market relies on the ‘innovation paradigm’, meaning that new medicines achieve high prices at the start of their lifecycle, which lower towards the end. New innovations are awarded IP protection, which enables them to command this high price – typically above the opportunity cost to the NHS, meaning the NHS could produce more health gain if funds were allocated to alternative treatments instead of these new innovations.

In return, older medicines are expected to face price competition from generics and biosimilars, resulting in prices falling towards the cost of supply and below the opportunity cost to the NHS. When this occurs, the NHS can improve health with the innovation at a cost lower than alternative uses of the funds, enabling the NHS to achieve value and improve net health gain overall (over the whole product life cycle) notwithstanding the loss of health gain in the early periods, while supporting innovation with high prices early in the life cycle.

While, following consideration of the agreement of an alternative mechanism in the 2024 VPAG and the consultation responses, the government does not plan to proceed with the consulted-on proposal, it remains the case that some products continue to be sold at a high price in the later stages of the product life cycle in the absence of competition.

DHSC therefore remains committed to the principle of ensuring sustainable spending on older medicines and the future implementation within the statutory scheme of policies designed to achieve this – including to maintain broad commercial equivalence with the approach taken in the 2024 VPAG. Ensuring sustainable spending on older products also supports the NHS to continue investing in patients’ access to newer medicines under the innovation paradigm.

We therefore intend to consult on alternative proposals aligned to those agreed in the 2024 VPAG for setting statutory scheme payment percentages in a way that distinguishes between medicines at different stages in the product life cycle.

5. Defining older and newer products in the LCA

Do you agree or disagree with the definition of an older product as being any product where the active substance has been marketed in the UK for at least 12 years?

Outline of proposals

We proposed to define an ‘older’ product as any product where the active substance has been marketed in the UK for at least 12 years, defined from the first marketing authorisation date for a medicine containing that active substance.

Summary of responses

Respondents raised a number of concerns about the definitions of ‘older products’ and ‘competition’ in the LCA proposals. Several argued that, were the consulted-on proposals to be implemented, the choice of the definitions would have negative impacts on the development and supply of medicines.

Several respondents strongly disagreed with the use of time-based rather than IP-based definitions of older medicines.

They argued that IP protects incentives to develop and bring to market new products, and that subjecting medicines that may potentially still have IP protections to the LCA could undermine the incentives and ability of companies to develop and bring new medicines to market. This was because companies relied on the protections of IP from competition to recoup investment in medicines – however, under the proposals, they would likely be subject to the high payment in LCA after 12 years, since the IP protection would ensure they would not have competitors. They therefore argued that this would reduce the value of their IP protection and, in turn, their ability and incentive to develop and market new medicines. Some of these respondents proposed that older products should instead be defined as those where the supplementary protection certificate had expired.

A minority of respondents disagreed, arguing that, as IP could be used to prevent competitor products emerging after it was justified to do so, the government should retain a time-based criterion. These arguments were more prevalent among responses from the generic or biosimilar sectors.

Government response

As stated in our response to the previous ‘Background and rationale of the LCA mechanism’ section above, the government has decided not to implement the LCA from 1 January 2024.

This does not mean that the government agrees with all the points made by respondents, but the government does not believe that this is an appropriate time to implement this policy in light of the agreement of an alternative mechanism in the 2024 VPAG.

6. Details of the LCA proposal

Do you agree or disagree with payment percentages proposed for the supplementary rate?

Do you agree or disagree with payment percentages proposed for the lower rate?

Outline of proposals

The consultation proposed that older products operating in a market with lower competition would be subject to payment percentages at a ‘supplementary rate’ of 36%, 38% and 40% in 2024, 2025 and 2026 respectively.

The consultation also proposed that older products operating in a more competitive market would be subject to a flat payment percentage of 10%.

Summary of responses

Respondents generally disagreed with the proposed payment percentages. The main concern raised by respondents was that the supplemental rate was unreasonably high, and would result in products ceasing to be commercially viable.

Respondents reiterated their arguments elsewhere in the consultation that:

• many of the products in question would have already reduced prices, either as a result of competition not captured by the proposed definition in the scheme or as a result of previous price cuts, and would not be viable at such payment percentages
• many products that did not face competition were already operating at low margins due to high costs or small markets, and so would also be non-viable at such rates
• the effect of the high rate would be to deter the market entry of new competitor medicines that would otherwise result in savings to the NHS
• the proposals would reduce incentives for innovation towards the end of a product’s life cycle and to develop unique formulations that benefitted specific groups of patients (such as paediatric formulations)

These arguments are developed in more detail in the relevant sections of the consultation.

Several respondents also argued that both proposed payment percentages for the supplemental and lower rate appeared arbitrary, or considered that the level was not supported by sufficient evidence about expected savings following competitor entry. Many proposed lower rates were the LCA to be implemented – however, a smaller but still significant number of respondents agreed that the lower rate was correct or supported the use of a flat rate for competitive, older products.  

Finally, some respondents also argued that it was unfair for older non-competitive products to be subsidising the products that qualify for the lower rate.

Do you agree or disagree with how we propose to define the competitiveness of markets for older medicines?

Outline of proposals

The consultation proposed to define a competitive market as any market where no single company (or group of companies with the same parent company) controls greater than 80% of sales quantity (that is, units as opposed to packs) measured at individual generic presentation level, known as virtual medicinal product (VMP), when measured UK wide.

This means that, under the proposals, medicines containing the same active substance, form and strength would be considered to make a single market for a product.

Summary of responses

The proposal to define competition by reference to VMP was criticised in the consultation.

Several respondents argued that defining competition by reference to market share by quantity, as defined at VMP in this way, did not reflect established legal, regulatory or procurement definitions of ‘competition’. Respondents were concerned that the adoption of this, even if only for the purpose of the LCA, risked undermining other systems upon which industry relied, such as IP, where competition was considered more holistically.

The most frequent issues raised by respondents related to what they thought were likely to be the unintended consequences of the definition used. Respondents argued VMP was too narrow and restricted eligibility for the low LCA payment percentage unduly, since significant competition between products took place at levels other than VMP.

Many respondents identified examples of products that faced competition with products that did not share a VMP (that is, they were not necessarily the same substance in the same form or strength).

A few respondents also noted that the NHS does not use the definition when procuring medicines competitively and considered this was evidence of significant competition that took place beyond VMP level. Respondents argued that competition was already likely to be reducing prices in such cases and it was therefore inappropriate to apply a higher payment percentage to such products. They predicted that these products would cease to be commercially viable if subjected to higher payment percentages, since they already faced competition on price.

Respondents also developed the arguments made elsewhere in the consultation that there were several examples of products with unique VMPs that operate at low margins for reasons unrelated to competition. They argued that high manufacturing costs, small markets for some products or already low prices as a result of previous price cut-based schemes had already resulted in low prices and/or margins for some products. Therefore, they stated that these products will not be commercially viable under the supplemental payment percentage, and suppliers will withdraw or not launch such products. 

Clinical guidance and practice requires brand prescribing in some areas, even if there is no MHRA requirement for a product to be branded. However, the consultation proposals would treat medicines branded for this reason as branded by choice. Such products do not have the ability to de-brand but are treated as if they do. 

Several respondents also thought the proposals were likely to deter companies from stepping in to address short-term supply shortages since, in many cases, this could result in them accounting for more than 80% market share and becoming eligible for the high payment percentage.

Respondents also argued that VMP-based definitions of competition would penalise companies launching or supplying essential products based on older active ingredients to small groups of patients, or orphan medicines (which are unlikely to generate sufficient profit to justify R&D costs). This was because new formulations or strengths that benefit patient groups (such as new paediatric formulations or easier modes of administration) were likely to be unique VMPs, reflecting the fact that they were specialised products for smaller markets. Respondents argued that, as a result, such products would have limited competition and be subjected to the supplementary rate, but would still have low margins and high costs, reducing the incentive to develop and market such products. Some respondents proposed alternative definitions, such as those based on the World Health Organization’s classification of medicines.

In a similar vein, many respondents thought that VMP-based definitions would also discourage innovation at the end of a product life cycle and the repurposing of older medicines for new uses. Respondents stated that innovations such as new methods of delivery, which could make it easier for patients to take a medicine, would be new or unique formulations that would therefore be unique VMPs subject to the higher supplemental rate. Many companies stated that the application of this rate would significantly reduce the incentive to develop and market new versions of older products or invest in repurposing, both of which benefit patients.

A large number of respondents also raised concerns about the potential impact on medicine sold under competitive ‘framework’ tenders to the NHS. Respondents generally acknowledged the benefits of the flat, low rate for medicines sold on tenders. However, several argued that these benefits did not hold for medicines where there was only one company bidding to supply the product, or where one company was awarded 80% or more of the supply under the ‘framework’. Respondents noted that companies generally gave highly competitive prices for such tenders, but the risk of being subject to the higher rate would lead companies to increase their tender prices or see them ‘hand back’ contracts awarded to them if it became apparent at this stage that they would be subject to the supplemental rate. Some proposed that products on frameworks should not be subject to the high rate.

Do you agree or disagree with the proposal to collect supplier’s quarterly sales data at individual presentation level?

Outline of proposals

The consultation proposed that, in order to make an accurate and up-to-date determination of a supplier’s share of sales of a particular product, the government would collect sales data at individual presentation level (VMP level) on a quarterly basis. Currently, this data is only collected on an annual basis.

Summary of responses

Most respondents disagreed with this proposal.

While some noted that this type of collection was likely to be essential for the proposed LCA to work, most respondents argued that the approach was likely to be extremely onerous for small companies, with some providing estimates of the additional costs involved in support of their argument.

Respondents also raised similar issues in response to this question as they did elsewhere in the consultation. In particular, respondents considered that there was a lack of clarity about when and how changes to payment percentages could be varied on a quarterly basis to reflect sales data, and several criticised the potential uncertainty this would create. Most respondents, echoing arguments made elsewhere in the consultation, doubted that such a system was possible since there would be a lag in the submission, analysis and publication of market share data.

Several also repeated their concerns about whether this could result in the inadvertent disclosure of commercially sensitive data in small markets.

Do you agree or disagree with our proposed approach to small molecule medicines that are branded by choice?

Outline of proposals

The consultation proposed that a supplementary rate should be applied to all older medicines branded by the choice of the marketing authorisation holder, rather than by regulatory requirement, regardless of the competitiveness of the market in which they are operating.

The rationale for this proposal was that, even if subject to competition, companies are choosing to market these medicines under a brand name that confers certain commercial advantages when they could otherwise choose to do so under a generic name.

Summary of responses

Most respondents disagreed with this proposal.

The most frequent objection to this proposal was that there is no clear list of medicines that are ‘branded by choice’ to operate this element of the policy and that regulators were unable to provide such a list. They considered that, unless such a list could be produced and any disputes addressed, it would not be possible to implement the policy, and companies would be uncertain about what category their products were in.  

Respondents also argued that the benefits of not paying the supplemental rate on older medicines outweighed the benefits of branding, and that the government had overestimated the benefits of branding and the extent to which brands compete with generics.

Several respondents gave examples of their branded products, which they stated competed with and, in some cases, offered savings for the NHS against generic competitor products. They predicted that, instead of paying the higher rate, companies would instead choose to cease supply or de-brand products to avoid the scheme altogether, meaning the expected savings would not be realised. Several respondents also thought that this de-branding would be likely to increase the overall costs of medicines to the NHS, since the loss of scheme payments and ability of generics to raise prices would outweigh any savings generated by remaining products paying the supplemental rate.

Several companies also argued that clinical guidance and practice requires brand prescribing in some areas, even if there is no regulatory requirement for a product to be branded – however, the consultation proposals would treat medicines branded for this reason as branded by choice. Respondents stated that such products do not have the ability to de-brand, but would be treated as if they do under the proposals.

Do you agree or disagree with the proposed exception for products launching into an existing market for the first time for up to 12 months?

Do you agree or disagree with the proposed exception for blood and plasma-derived products?

Outline of proposals

We proposed that:

• any new competitor product launched into an existing market (a market where the originator product has been marketed in the UK for more than 12 years) for the first time will be subject to the lower payment percentage for the first 12 months after launch, even if they are launching into a market that is non-competitive and would otherwise attract the supplementary rate
• all older blood and plasma-derived products should be subject to the lower payment percentage, regardless of the level of competition in the market

Summary of responses

Most respondents to these questions included their response in their overall disagreement with the LCA proposals, with a significant number of responses referring to the wider unintended impacts they anticipated from the LCA, though some responses agreed that the exceptions proposed for new competitor and blood and plasma-derived products were a positive part of the proposal.

The main theme raised by respondents regarding the proposed exception for new competitor products was that 12 months was likely to be too short for some products to build up sufficient market share to qualify for the lower payment percentage. Some respondents noted that this might vary by product type as biosimilars and branded generic products might take different lengths of time to achieve 20% market share. Some respondents suggested the length of the exception should be determined by the average time to 20% market share for the type of product suggested.

Several respondents reiterated their earlier argument that the level of the supplementary payment percentage would deter the launch of new competitor products, and added that they did not consider the exception proposed for such products would overcome this since it was unpredictable whether they would achieve sufficient market share over time to qualify for the lower rate.

With regard to the exception for blood and plasma-derived products, a significant number of respondents used their response to make the case for a broader exemption for such products beyond the LCA proposals. They argued that, since blood and plasma-derived products remained in global shortage for structural reasons, the competitive benefits of the pricing schemes were not applicable to them. Moreover, they stated that these supply constraints meant that they experience disproportionate impacts from any volatility in the pricing schemes. They argued, therefore, that they should have a wider exemption from payments under the schemes.

Government response

This response applies to all questions in this section.

As stated in our response to the ‘Background and rationale of the LCA mechanism’ section above, the government has decided not to implement the LCA from 1 January 2024.

As noted previously, this does not mean that the government agrees with all the points made by respondents, but the government does not believe that this is an appropriate time to implement this policy in light of the agreement of an alternative mechanism in the 2024 VPAG.

The government’s view on a broader exemption for blood and plasma-derived products is set out in the ‘Exemptions’ section above.

7. Proposed payment percentages

Do you agree or disagree with the payment percentages proposed in the non-LCA scenario?

Do you agree or disagree with the headline payment percentages proposed in the LCA scenario?

Do you have any comments on the proposed methodology used in determining the payment percentages (as set out in the impact assessment)?

Outline of proposals

The consultation proposed that, were no LCA introduced in the statutory scheme, the government would set payment percentages to control growth in the scheme at 2% nominal per annum, resulting in payment percentages of 21.7%, 23.7% and 26.6% in 2024, 2025 and 2026 respectively. Following the receipt of updated sales data, these figures have been revised to 21.9%, 24.0% and 26.8% in 2024, 2025 and 2026 respectively.

Were the LCA to be implemented in the statutory scheme, the consultation proposed that newer products would pay a payment percentage of 9.7%, 11.1% and 15.4% in 2024, 2025 and 2026 respectively.

Summary of responses

Most (over 70%) respondents disagreed with the payment percentages proposed in both the LCA and non-LCA scenarios.

The main themes in responses to this question echoed those around allowed growth: respondents strongly reiterated their view that the payment percentages proposed were unsustainable and would return the level of rebate on medicines spending required in the UK to levels they considered ‘internationally competitive’. They reiterated their view that the government was failing to provide sufficient funding for medicines, given recent high inflation and increased demand for medicines, and that this had resulted in an uncompetitive environment for commercial medicines under which a wide range of medicines would no longer be commercially viable.  

Respondents also emphasised their view that this would have negative impacts on the supply and launch of medicines and overall investment in life sciences in the UK, citing evidence they considered to show declining life sciences investment in the UK because of recent high payment percentages.

In this context, several respondents proposed that the proportion of the NHS budget devoted to medicines should be fixed so that medicines spending would rise in line with other NHS spending.

With regard to the headline rate under LCA, respondents largely declined to comment on the headline rate proposed, arguing that it was more important for the government to provide for sufficient spending on medicines to return overall rebate rates to levels they considered internationally competitive. Several argued that the headline rate proposed under the LCA was based on flawed assumptions and therefore unlikely to generate the savings required to implement the payment percentages proposed.

Similarly, few respondents chose to comment directly on the methodology used to determine payment percentages in the scheme. However, many respondents questioned the economic analysis of the IA, which they considered had underestimated the impact of the proposals, or considered that the government had ignored evidence of the impacts provided in previous consultations. This is covered in more detail in the ‘Impact of the proposals’ section below.  

A few respondents who commented on the calculations noted that 2023 growth to date had been lower than forecast and expected that, were the government to proceed to set payment percentages to control growth to 2%, the payment percentages would be revised downwards to reflect this in future. Several also reiterated their calls for a reset of the baseline used to calculate the payment percentage.

Government response

Many issues raised by respondents in this section closely correlate to those in the ‘Allowed growth rate’ section above. In particular:

• worries about rates that are too high or unsustainable
• worries that the payment percentages do not account for inflation
• concerns about a lack of international competitiveness

The government’s discussion of these issues is set out in the previous ‘Allowed growth rate’ section.

The government regularly reviews the payment percentages in the statutory scheme. Should it become apparent following the receipt of updated medicines sales data that payment percentages no longer meet the objectives of the scheme, the government would likely bring forward proposals to update the scheme.

On this basis, the government intends to implement the payment percentages in the non-LCA scenario as set out the consultation. Payment rates may be further amended, subject to consultation, to take account of updated data on medicine sales or maintain broad commercial equivalence with the final version of VPAG, if required.

8. Unbranded biological products

Do you agree or disagree that the government should apply the statutory scheme to both branded and non-branded biological medicines from 1 January 2024?

Outline of proposals

The consultation proposed to clarify that the statutory scheme should be applied to all biological medicines, whether or not they are marketed under a brand name.

Summary of responses

The majority of respondents (54%) supported the proposal, with a sizeable proportion stating they did not know.

A consistent theme in responses was to welcome the clarification, with several respondents commenting that biological medicinal products were already required to be sold as a brand anyway.

A small number of respondents used their responses to argue that biosimilar products should not be subjected to the scheme since the use of these products results in savings for the NHS compared with the use of branded originator biological medicinal products.

A very small number of respondents disagreed, arguing that the scheme should apply to branded products only and that it was unfair to apply the scheme to the few unbranded biological medicines.

Government response

Given the general support for this proposal, the government intends to apply the statutory scheme to all biological medicines, whether or not they are branded. This is intended to remedy the uncertainty around whether the statutory scheme applies to all biological medicines.

While a few respondents queried the potential application of the scheme to unbranded products, MHRA requires biological medicines to carry a brand name and instances of unbranded biological medicines are exceptional. This clarification is designed to ensure the equal treatment of and fair competition between all biologic medicines. It also ensures the scheme operates consistently with MHRA’s approach.

The treatment of biosimilar medicines is discussed in the ‘Exemptions’ section above.

9. Impact of the proposals

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

Summary of responses

The majority (63%) of respondents to the consultation disagreed with the analysis in the IA.

Several respondents thought that the IA had underestimated the impact of the commercial environment on life sciences investment and supply. They explained their view that the government had not sufficiently considered the evidence of impacts and had relied on incorrect assumptions in its assessment of the impacts – specifically that:

• products would remain commercially viable at the payment percentages proposed, given the mitigations in the scheme – some respondents criticised the mitigations as inaccessible to some products
• local commercial considerations are unrelated to investment decisions – whereas such considerations are material to industry decisions about where to invest

Several respondents also took issue with statements that continuing to set payment percentages using a defensible methodology supported industry sentiment towards the UK. They argued that the more consequential influence on industry sentiment towards the UK was the level of growth in medicine spending, which they reiterated that they considered to be insufficient.

Respondents also stated that the government had consistently underestimated the role of industry sentiment about the commercial environment for medicines in decisions about where to locate globally mobile investments. They argued that this was borne out in research that showed a link between:

• the commercial environment and investment
• the government’s Life sciences competitiveness indicators, which had showed a decline in investment
• data from the ABPI on the number of clinical trials taking place in the UK

Respondents also reiterated arguments made elsewhere that the proposals signalled that the government intended on controlling growth to (in their view) unsustainably low levels, which, in the longer term, would have a disproportionately negative impact on investment in the UK.

Respondents also argued that the assumptions in the IA systematically underestimate the wider benefits of medicine spending. Several responses to the consultation cited research that was considered to show the benefits of increased spending on medicines, which had not been accounted for by the IA. Several respondents questioned the comparison of the cost per QALY used in the IA and some argued that this should be compared to the QALY benefits of government spending more widely.

Several respondents argued that the IA had failed to abide by the guidance set out in HM Treasury’s Green Book on IAs. Specifically, they considered that:

• it had not sufficiently considered alternative options to the preferred option, including higher allowed growth in medicines spending
• the impact should have been assessed over a longer period than the 3 years considered

Several respondents also argued that the counterfactual policy option considered (that is: ‘do nothing’) was not a credible option and an alternative, more realistic counterfactual should have been chosen. Respondents suggested that the continuation of a statutory scheme with broadly similar terms to VPAS should instead have been used. 

Several respondents criticised the IA in relation to its treatment of the LCA proposals. They argued that a wider scope of evaluation was required to assess the LCA proposals since they were globally novel, and criticised the absence of an assessment of how companies were likely to respond to the LCA and its potential impact on pharmaceutical innovation. For example, respondents argued that an assessment of the likely scope and scale of de-branding or on more specialised products should have been included.

Finally, several respondents argued that the IA should be the subject of scrutiny by the Regulatory Policy Committee.  

Government response

The government does not agree with the criticisms of the IA made by respondents.

With regard to criticism of the assumptions, the IA assumes that supply of products remains economically viable following application of these payment percentages given the options available relating to list and net price increase applications to mitigate supply issues.

With regard to responses that argued that the existing mitigations are insufficient, the rules on price increases in the scheme are designed to ensure that companies can make sufficient profits on their sales of medicines to the NHS to ensure viability of supply.

Moreover, the proposed changes would result in a more favourable scheme for industry compared with the existing statutory scheme arrangements, including lower payment percentages. The government notes that several respondents provided evidence about products they considered would no longer be viable under the proposals, but notes many of these examples discussed the viability of older products under the LCA, which we are not proposing to implement in its current form.

With regard to impacts on investment, the government remains of the view that the available evidence indicates that factors such as availability of expert scientific labour and favourable tax conditions are of greatest significance in decisions about where to locate R&D activity. These are all areas in which the UK performs strongly. 

The UK accounts for a small fraction of global medicine sales – less than 5%. Pharmaceutical investments are globally mobile, with the outputs of UK R&D and manufacturing sold worldwide. This means that investment decisions are made based on assessment of anticipated global returns, of which the UK share of sales is a fraction. It is not therefore clear that there is a close relationship between the price paid for finished medicines and the level of investment in the UK. 

However, the government understands the influence of sentiment, and that price regulation schemes may be a consideration in the decision to locate some investments. To this end, we are pleased to have reached a heads of agreement on the 2024 VPAG, and that the 2024 VPAG will include explicit support for investment.

With regard to the claims that the benefits of higher medicine spending have been ignored in the consultation and IA, we use the same formulaic approach to estimate the potential impact of the change in payment percentages vs the counterfactual on UK investment as in previous IAs. This reflects the methodology set out for central government appraisal and evaluation in the Green Book^{[footnote 1]}.

With regard to wider criticism that the government has not broadly reflected or considered the benefits of medicine spending in the consultation, the government does not agree that simply spending more on medicines will result in net benefits to patients, particularly if this were to come at the expense of other NHS services. Furthermore, as the majority of the returns generated by the R&D accrue to global pharmaceutical companies and global shareholders, it is not clear that any benefits of such spending would necessarily be retained in the UK. Moreover, the heads of agreement for the 2024 VPAG have been reached following extensive negotiation with industry towards mutually agreed objectives of a scheme that supports the sustainability of NHS spend on branded medicines, better patient outcomes and a strong UK life sciences industry. The statutory scheme is intended to work alongside such a scheme, or as a standalone in the absence of this.

The government does not agree that the IA was not carried out in accordance with the Green Book. The options considered are those available within the scope of the funding envelope available for the statutory scheme.

The allowed growth proposed (2% per annum) represents almost double (an 80% rise in) allowed growth compared with the 1.1% per annum that applied in the statutory scheme from 2019 to 2023.

The government also considers that the choice of appraisal period is appropriate given the lifetime of the proposals and expectation of further review. HM Treasury guidance does not insist on a 10-year timeline in all cases.

With regard to the criticisms of the choice of the counterfactual scenario, the government has followed the approach set out by HM Treasury’s Green Book, which clearly sets out the appropriate counterfactual to use is:

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.

10. Statutory duties

This section concerns our assessment of the implications for the statutory duties of the Secretary of State for Health and Social Care.

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

Summary of responses

Just over half (54%) of respondents disagreed with the assessment of the impact of the proposals on the statutory duties of the Secretary of State, with around a quarter (28%) saying they didn’t know.

Several respondents developed their criticisms that the consultation proposals would result in a poor commercial environment for medicines, resulting in negative impacts on pharmaceutical investment, and reduced supply and launches of medicines in the UK. They argued that these would have negative impacts on the duties of the Secretary of State.

With regard to the supply and launch of medicines, several respondents argued that the proposed payment percentages would have a negative impact on the supply and launch of medicines. They argued that proposals would mean companies would withdraw the supply of unprofitable medicines or hold off launching new medicines, reducing patients’ access to medicines and therefore patient outcomes. This would, in turn, result in a less comprehensive health service and damage the objectives of securing improvements in physical and mental health, and prevention, diagnosis and treatment.

A small number of respondents also noted that companies funded services that supported access to, and uptake of, medicines by patients. They argued that, as a result of the poor commercial environment for medicines created by the proposals, companies would no longer fund these services, resulting in further reduction in access and impacting on the duties of the Secretary of State to provide a comprehensive health service, as well as the second objective of the scheme.

Several respondents noted that poorer patient outcomes are often linked to health inequalities, with some arguing on this basis that the proposals would also have negative impacts on the Secretary of State’s duty to have regard to the need to reduce health inequalities, and parts of the NHS constitution that relate to equity of access to medicines. They also argued that proposals would reduce access to medicines through the NHS, meaning gaps in access would emerge between poorer patients, who were more reliant on the NHS for access medicines, and more affluent patients, who could access medicines through private healthcare. Some also considered that the greater use of medicines would help to address health inequalities.

Some respondents also considered that the proposals for LCA were likely to have negative impacts on some groups who made use of such specific groups of products affected by the proposal. For example, consultation responses identified that the LCA, in the form proposed, could reduce incentives to supply versions of products formulated for children or individuals who might be unable to take regular forms of medicines for reasons related to health conditions or disabilities, with some voicing concern about the possible impacts on the Secretary of State’s duties around a comprehensive health service, health inequalities and equality duties.

Respondents who argued that the proposals would negatively impact pharmaceutical R&D investment in the UK also argued that this would have an impact on access. They noted that many patients access new treatments through clinical trials, but predicted that fewer trials would take place in the UK as a result of (in their view) the poor commercial environment for medicines, which would itself result from the low level of allowed growth.

Several respondents also argued that the negative impact on pharmaceutical R&D in the UK they anticipated from the proposals would also negatively affect the Secretary of State’s duties to promote research on matters relevant to the NHS and the use in the NHS of evidence obtained from research. Some respondents argued that the NHS would experience delays in, or lose out entirely on, benefits from pharmaceutical R&D.

A few respondents also noted that companies often funded aspects of clinician education, usually connected with disease areas in which they supplied treatments. Respondents argued that, as a result of the poor commercial environment for medicines created by the proposals, companies would no longer fund this activity, negatively impacting on the Secretary of State’s duties in respect of education and training for NHS staff.

Government response

The government remains confident that the consultation proposals advance the Secretary of State’s statutory duties, including the duties to:

• promote a comprehensive health service
• have regard to the need to reduce health inequalities
• promote research

A full assessment is provided in ‘Annex A: statutory duties’ below.

Most respondents who anticipated negative impacts on the duties of the Secretary of State did so on the basis that they expected the proposals to result in reduced supply and launch of medicines to the UK.

We have set out in our response to the questions above that we do not expect a negative impact on the supply of medicines in the UK as a result of the proposed changes, and that effective mitigations are already in place should individual medicines become uneconomical to supply without such mitigations. Moreover, several of the proposals for exemptions are intended to improve patients’ access to medicines and vaccines when compared with leaving the scheme unchanged.

Some respondents identified potential unintended impacts from the LCA proposals on groups sharing protected characteristics. For the reasons set out in this consultation response, the government no longer intends to proceed with LCA and will consider the potential impacts of any future policies designed to achieve similar aims to the LCA at future consultations.

The consultation proposals’ aim to ensure the continued sustainability of NHS medicines spending is intended to support the equality duties in relation to the scheme, since it ensures the continued availability of medicines and enables the NHS to use revenues, including those from the statutory scheme, in the best interests of patients, including those with protected characteristics. The government believes the changes are also likely to benefit those specific groups that make greatest use of prescription products, including older people and those in the most deprived 20% of the population.

Respondents also argued that the payment percentages proposed would have a negative impact on pharmaceutical R&D investment in the UK. While our view remains that, on balance, supply side factors are likely to be of greatest impact in decisions about such investments, we note in this context that price control schemes in general are more likely to impact decisions about the location of late-stage than early-stage trials, as the location of late-stage trials may be more influenced by commercial considerations about where to launch a new medicine.

We therefore consider the risk to access to be slightly elevated for patients who access new medicines through clinical trials. However, the inclusion of commercial incentives to launch new medicines may offset this to a degree, and the greater impact on clinical trial activity will come from considerations related to the agreement of the 2024 VPAG, which includes specific support for clinical trials. We also consider that, on balance, the overall objective of ensuring sustainable NHS spending on medicines will benefit patients.

With regard to the Secretary of State’s duties on research, we remain of the view that supply side factors, such as availability of scientific labour, are of greatest significance in the decision to locate R&D activity. We therefore do not agree that the updates are likely to result in significant impacts to R&D investment in the UK.

The government acknowledges that respondents largely disagreed and posited a much closer link between sentiment about the commercial environment for medicines and investment decisions. Government’s view is set out above and in our impact assessment – however, it is also likely that the greater impact on investment will come from considerations related to the agreement of the 2024 VPAG, which has been positively welcomed by the majority of the pharmaceutical industry.

The government 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.

Annex A: statutory duties

In considering this matter, ministers must comply with their duties under the National Health Service Act 2006, Public sector equality duty, Family Test and Environmental principles policy statement.

Duties under the National Health Service Act 2006

1. To promote a comprehensive health service (Section 1 of the NHS Act 2006)

The Secretary of State for Health and Social Care is required to continue the promotion in England of a comprehensive health service designed to secure improvement in:

• the physical and mental health of the people of England
• the prevention, diagnosis and treatment for physical and mental illness

Under the revised statutory scheme, growth will be controlled at a rate of 2% per year, ensuring the ongoing affordability of NHS medicines spending and supporting the ability of the NHS to continue investing in patient access to medicines. This will also ensure the objectives of the scheme continue to be met alongside the 2024 VPAG.

The effective operation of the statutory scheme means that DHSC can continue to receive an appropriate amount in payments from industry, and that the scheme can continue to fulfil its broader objectives of supporting the life sciences sector and the wider economy.

In contrast, if DHSC was to proceed with the ‘do nothing’ approach of rolling over a payment percentage that was set for 2023 only, and that includes within its calculation a one-off adjustment of 4.1 percentage points to account for a 2022 scheme amendment, this would be perceived as manifestly unfair. We consider that, as a result, the statutory scheme may not be perceived as a viable alternative to any voluntary scheme. This could impact upon the stability of the statutory scheme and in turn the perceived rationality of the UK as a market for the pharmaceutical industry.

We note that several respondents argued that the proposed payment percentages would result in companies withdrawing supply of unprofitable medicines or holding off launching new medicines, reducing patients’ access to medicines and impacting negatively on this duty. However, we do not expect supply issues given the mitigations available in the scheme for price increase requests should individual medicines become unprofitable. These are expected to be effective in maintaining patients’ access to medicines and therefore a comprehensive health service.

We also consider that the proposals in the consultation support this duty: the introduction of the CPV exemption supports the supply of, and access to, vaccines, further ensuring a comprehensive health service. Similarly, the introduction of an exemption for ECPs will support the government to meet this duty under emergency circumstances.

We therefore consider that the proposed changes are in line with the Secretary of State’s duty to promote a comprehensive health service and support the relationship between the Secretary of State and industry, ensuring that the statutory scheme has the confidence of all parties involved.

Updating the scheme will therefore help to ensure the effective running of the scheme and thus supports the Secretary of State’s duty to promote a comprehensive health service.

2. To act with a view to securing continuous improvement in the quality of services (Section 1A of the NHS Act 2006)

The Secretary of State is required to exercise their NHS functions with a view to securing continuous improvement in the quality of services provided to individuals.

Taking steps to ensure the scheme can continue to meet its objectives from 2024 onwards will ensure continued effective operation of and confidence in the statutory scheme.

This will help to ensure sales growth continues to be controlled, allowing the NHS to budget effectively and make decisions in the best interest of patients about the provision of services, including ensuring a quality service.

We are committed to an ongoing review process in order to update the regulations to ensure they continue to align with the overarching policy objectives of the statutory scheme.

In discharging this duty, the Secretary of State must have regard to the NICE quality standards, which define quality and quality improvement for particular kinds of care and treatment.

As set out above, a decision to update the payment percentage helps to ensure the effective operation of the schemes and ensures NHS costs are controlled, supporting the Secretary of State to meet duties in securing continuous improvement in quality of services.

3. To have regard to the NHS Constitution for England

Regard must be given to the values, principles, pledges and rights in the NHS Constitution for England.

The NHS constitution has been taken into account when considering the outcome of this consultation. In particular, this has included considering the following principles:

• principle 1: the NHS provides a comprehensive health service available to all
• principle 4: the patient will be at the heart of everything the NHS does
• principle 6: the NHS is committed to providing the best value for taxpayers’ money

We have also considered these proposals in the context of the constitution’s pledges to, and the rights of, NHS patients. In particular, this has included consideration of the rights in relation to nationally approved treatments, drugs and programmes, which set out patients’ rights to:

• drugs and treatments that have been recommended by NICE for use in the NHS, where the patient’s doctor says they are clinically appropriate
• receive the vaccinations that the JCVI recommends that patients should receive under an NHS-provided national immunisation programme

Some respondents predicted supply issues as a result of the changes, which they considered would have a negative impact on this duty in respect of providing a comprehensive health service available to all.

However, as set out above, a decision to make changes to the statutory scheme (which include increasing the allowed growth rate and thereby reducing the payment percentages, and revising which sales of branded medicines are exempt from scheme payments) help to ensure the effective operation of the statutory scheme, which is to the benefit of the NHS and industry, and means that appropriate payments are made to the health service. This supports the NHS to provide a more comprehensive health service by allowing the NHS to continue to invest in innovative pharmaceutical products and non-pharmaceutical services. It also ensures access to medicines recommended by NICE as clinically and cost-effective for patients, and therefore value for money to the NHS and taxpayers.

Furthermore, higher growth has been agreed for VPAG, and government intends to consult in early 2024 on further amendments to the statutory scheme in order to maintain broad commercial equivalence with the final version of VPAG.

Our proposals to exclude CPVs from the scheme are also designed to ensure that patients continue to have access to vaccinations that form part of programmes recommended or advised by the JCVI.

4. To have regard to the need to reduce health inequalities (Section 1C of the NHS Act 2006)

With their functions in relation to the NHS, the Secretary of State must have regard to reducing inequalities between the people of England with respect to the benefits that they can obtain from the NHS.

Consultation responses argued that the proposals would result in reduced access to medicines, with corollary negative impacts on patient outcomes. Many respondents who took this view noted that negative impacts on patient outcomes were often associated with worsening health inequalities, and some directly argued that the proposals would widen inequalities between those who could afford to access medicines privately and those who could not. However, the government has set out its reasons why it does not agree that the proposals are likely to result in reduced access to medicines.

The government notes that certain groups are more likely to be affected by medicine pricing and access issues, and that these are linked to existing health and other inequalities. For example, the most deprived 20% of the national population – as identified by the national Index of Multiple Deprivation (IMD) – generally receives more prescription items than the rest of the population and prescribing peaks at an earlier age in this group. These groups may also be greater users of other NHS services, such as A&E.

The proposals aim to ensure the continued sustainability of medicines spending, so that the NHS can continue to invest in both innovative pharmaceutical products and non-pharmaceutical services. Ensuring sustainable investment in these services is likely to benefit the least affluent groups.

We therefore do not envisage any negative impacts on health inequalities as a result of the proposal. Ensuring the continued sustainability of NHS medicines spending is critical to enabling the NHS to provide widespread access to medicines and respond to health inequalities.

5. To promote research (Section 1E of the NHS Act 2006)

In exercising their functions in relation to the NHS, the Secretary of State must promote:

• research on matters relevant to the NHS
• the use in the NHS of evidence obtained from research

The proposed approach will ensure the long-term sustainability of NHS medicines spend and the use of medicines in the UK. Sustainable growth in sales allows the NHS to invest in innovative products, clinical research and process innovation. Some elements of the original proposal – namely the inclusion of the NAS exemption and LCA – were designed to allow the NHS to invest in and reward innovative products through lower payments for newer and innovative medicines.

While the government is no longer proceeding with the implementation of the LCA, it will continue to consider options for how the statutory scheme payment percentages are set in the future to distinguish between medicines at different stages in the product life cycle and support the innovation paradigm.

R&D investment could lead to improved medicines in the future that would be of benefit to patients and the health service. In addition, DHSC considers that R&D investments lead to ‘spillover’ effects – for example, through the generation of knowledge and human capital – which generate net societal benefits, compared with other companies spending their capital on other things.

Any additional revenues accruing to the pharmaceutical industry when compared with the counterfactual are assumed to be invested in the same proportion as companies typically invest in areas such as R&D in the UK. Given this, and the small size of the additional revenues expected to accrue to the pharmaceutical industry as a result of these changes, we expect only limited positive impacts on R&D investment and associated spillovers when compared with the counterfactual.

Furthermore, as the changes would maintain similar commercial terms to the 2019 VPAS, which currently applies to the vast majority of pharmaceutical companies, we do not expect additional benefits when compared with the current voluntary scheme, of which most companies are members.

The government has considered evidence about the relationship between the commercial environment and inward investment above. By updating the scheme, including the inclusion of commercial incentives for innovative new medicines, we are ensuring the long-term sustainability of NHS medicines spend and the use of medicines in the UK. Sustainable growth in sales allows the NHS to invest in innovative products, clinical research and process innovation.

6. To secure education and training (Section 1F of the NHS Act 2006)

The Secretary of State must exercise their NHS (and other) functions to secure an effective system for the planning and delivery of education and training for the persons employed, or considering becoming employed, in the NHS or connected activities.

While some respondents argued that the proposals would impact this duty as a result of pharmaceutical companies withdrawing funding from clinician education, 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.

We have therefore considered this duty in relation to our proposals and do not consider that they would affect education and training.

7. To review treatment of providers (Section 1G of the NHS Act 2006)

The Secretary of State is required to keep under review any matter that might affect the ability of healthcare providers to provide NHS services or the reward available to them for doing so.

We do not consider the proposals would affect the ability of healthcare providers to provide NHS services or the reward available to them for doing so.

8. To report on workforce systems (Section 1GA of the NHS Act 2006)

The Secretary of State must, at least once every 5 years, publish a report describing the system in place for assessing and meeting the workforce needs of the health service in England.

We do not consider this duty to be affected by the changes.

Public sector equality duty

This duty comprises 3 equality objectives, each of which needs to be considered separately. Ministers have regard to the need to:

• eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or under the Equality Act 2010
• advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it
• foster good relations between persons who share a relevant protected characteristic and persons who do not share it

The protected characteristics covered by this duty are:

• age
• disability
• gender reassignment
• marriage and civil partnership
• pregnancy and maternity
• race
• religion or belief
• sex
• sexual orientation

We believe that, overall, our proposals will have a broadly positive impact on the 3 equality objectives. This is because, by updating the statutory scheme, we are ensuring that the statutory scheme continues to function as a viable scheme, and can meet its objectives in relation to safeguarding the NHS budget and ensuring medicines are available, while supporting the life sciences sector. We consider that meeting these objectives is in the interest of all patients and therefore likely to benefit those who share protected characteristics.

The proposed changes are designed to protect patient’s access to clinically and cost-effective medicines, including innovative new medicines that may benefit individuals with specific protected characteristics, such as older people and those with long-term health conditions. NHS data also indicates that the most deprived 20% of the national population – as identified by the national IMD – generally receives more prescription items than the rest of the population, and that prescribing peaks at an earlier age in this group.

Our assessment remains, overall, that ensuring the sustainability of the medicines pricing system and securing access to medicines is likely to benefit all patients in the NHS, including those with protected characteristics. It is also likely to benefit those specific groups that make greatest use of prescription products, including older people and those in the most deprived 20% of the population as set out above.

Consultation responses raised issues that related directly or indirectly to issues of equality of opportunity and relationships between different groups. Some argued that the proposed payment percentages would disincentivise supply of some products and anticipated the withdrawal of unviable products, considering that this would result in the widening of health disparities, and noted that such inequalities were disproportionately associated with some groups sharing protected characteristics.

Discussions about the impacts of the payment percentages proposed on supply are set out above. Our assessment remains that we do not expect impacts on the supply of medicines given the available mitigations in the scheme. The government notes that the groups who make highest use of prescription medicines, such as those from the most deprived backgrounds, may also make high use of other NHS services, such as A&E. The government therefore considers that ensuring the sustainability of the medicines pricing system and access to medicines is likely to be in the interest of all patients who share protected characteristics, since it helps to ensure the sustainability of spending on both pharmaceutical and non-pharmaceutical services that benefit patients.

Respondents also argued that some elements of the LCA proposals in the consultation would have a negative impact on the supply of certain older medicines under the LCA, with resulting impacts on specific groups who made use of such products. These arguments touched on concerns related to equality of access and potential unintended discrimination. For example, consultation responses argued that the LCA, in the form proposed, could reduce incentives to supply versions of products formulated for children or for individuals who might be less able to take regular forms of medicines as a result of health conditions or disabilities. Following consideration of consultation responses, we no longer plan to introduce the LCA in the statutory scheme.

The additional exemptions included in the scheme, which are designed to facilitate access to medicines compared with the counterfactual, are also likely to promote access to medicines for specific groups sharing protected characteristics. The groups that stand to benefit will vary on a case-by-case basis, but the exemptions, for example, facilitate access to vaccines, which benefit younger people and children or those who are vulnerable to certain illnesses, for which these vaccines provide protection.

Similarly, the inclusion of new commercial incentives for the rapid launch of innovative products is likely to benefit patients with particular conditions, which tend to be most targeted for NAS launches. This includes areas such as oncology, neurology and immunology, which have seen rising shares of new launches in recent years.

Moreover, the changes are designed to ensure the long-term sustainability and viability of the UK medicines pricing schemes. The proposals would ensure that growth continues to be controlled (at 2% each year in the statutory scheme and at a higher rate under VPAG), allowing the NHS to invest in both pharmaceutical and other services that benefit patients. We consider that, as described above, this is likely to promote a comprehensive health service, which itself is likely to foster good relationships between groups.

The Family Test

The Secretary of State must consider, where sensible and proportionate, whether to apply the Family Test when making policy. The Family Test questions are:

• what kind of impact might the policy have on family formation?
• what kind of impact will the policy have on families going through key transitions such as becoming parents, getting married, fostering or adopting, bereavement, redundancy, new caring responsibilities or the onset of a long-term health condition?
• what impacts will the policy have on all family members’ ability to play a full role in family life, including with respect to parenting and other caring responsibilities?
• how does the policy impact families before, during and after couple separation?
• how does the policy impact on those families most at risk of deterioration of relationship quality and breakdown?

We have considered the Family Test and believe the proposals will not have a negative impact in relation to any of the relevant questions.

Our proposals ensure the sustainability of the statutory scheme, and that the costs of medicines to the NHS are controlled to affordable levels and patients continue to have access to medicines. This will help support family members who require medicines and their carers to play a full role in family life through access to medicines and any services required through the NHS.

Environmental principles policy statement

The Environment Act 2021 requires ministers of the Crown, and those making policy on their behalf, to have ‘due regard’ to the Environmental principles policy statement when making policy.

Ministers must identify the potential environmental effects (positive and negative) of the proposed policy and consider the 5 environmental principles, and incorporate the relevant principles in a proportionate manner:

• integration principle
• prevention principle
• rectification at source principle
• polluter pays principle
• precautionary principle

This duty was not in force at the time of the consultation and was not considered in the original consultation. However, following the commencement of this duty on 1 November 2023, the government has additionally considered the impact of this policy against the environmental principles policy statement alongside other legal duties.

Following consideration of this duty and the 5 principles, we do not consider that there will be any disproportionate environmental impacts as a result of these changes.

We consider that the use of medicines in the NHS may have some negative secondary (indirect) environmental effects. These include indirect greenhouse gas emissions, and contamination of the environment from the production and freight of medicines procured by the NHS. However, the changes to regulations will have no material additional impact on the production or freight of medicines procured by the NHS in comparison with the counterfactual (where the regulations are not updated). We therefore do not consider the changes to the statutory scheme will result in environmental impacts from changes in patient use of medicines in NHS.

With regard to the broader environmental impacts from the use of medicines in the NHS, environmental considerations have been integrated throughout the way the NHS purchases medicines. For example, the NHS England Public Board has approved a roadmap to help suppliers align with the net zero ambition between now and 2030. This approach builds on UK government procurement policy (Procurement Policy Note 06/20 and Procurement Policy Note 06/21), and other policies that aim to address the environmental impacts of medicine use are in place across the UK.

We therefore do not consider that it would not be proportionate to include further measures within the statutory scheme to meet this duty, given the associated economic and social benefits to society of the policy’s primary objectives, and that impacts are being addressed through more proportionate means.

1. Specifically that:

   “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.”

   “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”.

   See HM Treasury’s The Green Book: appraisal and evaluation in central government. ↩