PPRS evolution and what does it mean for pharma?

IV drip in a hospital setting. PPRS evolution

How has the Pharmaceutical Price Regulation Scheme (PPRS) evolved since its inception in the 1950s, and what does its latest iteration mean for pharma?

Price control for medicines in the UK has a long history. The Voluntary Price Regulation Scheme was first introduced in the 1950s and mutated over the years into the PPRS. The original principles were to provide a ‘light touch’ form of regulation, to allow freedom of pricing for new products, and to focus on the control of the profits that pharmaceutical companies made from their sales to the NHS, rather than the prices of individual medicines.

While these principles can still be seen, at least in vestigial form, in the new ‘2019 Voluntary Scheme for Branded Medicines Pricing and Access’, the changes embodied in the new scheme, building on those in the 2014 PPRS, have produced a very different kind of regime.

From profit control to affordability

It would be hard to describe the new Voluntary Scheme as light touch. What in the 1950s was just a couple of pages has now become nearly 200 pages, including annexes. The regular information requirements for company submissions, on a quarterly basis, are now extensive and could not unreasonably be described as intrusive.

However, one positive from the new scheme is that the Annual Financial Returns (AFRs), which have been a feature of the scheme for over half a century, are no longer routinely required. While the Department of Health and Social Care (DHSC) may request them from individual companies and assess them to check against ‘excessive’ profits on a return on capital or return on sales basis, it seems unlikely that this will be used often. Despite the bold claim that ‘the Voluntary Scheme remains a portfolio-wide profit control scheme’ it has in fact become an ‘affordability’ scheme.

By far the most important element of the Voluntary Scheme is the ‘affordability mechanism’ by which scheme members make a ‘financial contribution’ to DHSC for sales of branded NHS medicines above the agreed growth rate. In essence, scheme members will make a payment to DHSC of a percentage of their sales of branded medicines. That percentage is derived from the difference between the ‘allowed growth rate’ and the ‘forecast growth rate’. For 2019, the percentage payment will be 9.6%.

Thus, although prices remain unchanged, the net cost to the NHS and the net revenue to companies will be nearly 10% below what the prices might imply. In the final quarter of each year there will be a review and reconciliation, and the percentage payment for the following year will be determined. Given the upward pressures on the drugs bill, the financial pressures on the NHS, and the direct involvement of NHS England in the process, it seems unlikely that percentage payments will go down during the duration of the scheme.

Freedom of pricing

Freedom of pricing for new products remains in principle but is heavily qualified. Firstly, freedom of pricing applies only to new active substances, as defined by the relevant licensing authority. Secondly, all new products will be subject to assessment by the National Institute for Health and Care Excellence (NICE). This formalises the practice that has already been established for oncology products, as part of the Cancer Drugs Fund process, and extends it to all other products. In effect this acknowledges what was becoming normal practice. Already by 2015 most new products which theoretically qualified for freedom of pricing were forced to supply the NHS at less than the list price, either through confidential discounts following a NICE assessment or through tendering, for example for HIV products.

More importantly, companies are asked to confirm their intention to price new products at a level consistent with securing a positive NICE appraisal. This can be done by proposing a list price which achieves that or by proposing a confidential discount or other commercial arrangement agreed with NHS England. The advantage for companies is that they remain free to set a list price which can be consistent with, and referenced by, other countries in Europe and elsewhere, while selling to the NHS at a lower, but confidential, price. This works if the authorities in other markets are content to reference the list price, but already some, such as Germany, are asking companies to give them the net price in the UK rather than the list price. And while there is a section of the scheme which refers to transparency, it only addresses transparency between the four parts of the UK. Otherwise the pricing provisions remain fundamentally non-transparent, and freedom of pricing is a myth.

Price control

The most effective component of price control has always been the controls on price increases. Over recent years, price increases for ‘scheme products’ have been rare, although it is hard to be precise since the DHSC has apparently stopped producing annual reports on the PPRS.

The new scheme removes the one ‘safety valve’ of price modulation, where a company could increase the price of one product while simultaneously reducing the price of another to the corresponding value; and introduces a disincentive for applying for a price increase. Companies wishing to do so will need to support that with a full Annual Financial Return for the current and future years showing that they are unprofitable. So, price increases will continue to be rare to non-existent.

Jim Furniss is Director of Jim Furniss Consulting Ltd. Go to www.jimfurniss.co.uk