Alex reminds us that there is political life beyond Trump
You would be forgiven for thinking that, unless a current story references either Brexit or the outcome of the U.S. presidential election, it is unimportant, not newsworthy or entirely irrelevant.
Gradually, however, a new piece of legislation is working its way through the House of Commons and it stands to make a significant impact on the life sciences industry. It doesn’t come with coiffured hair, or a catchy strapline like, ‘Brexit means Brexit’ and it doesn’t even come with a particularly appealing name.
What I’m referring to is the ‘Health Service Medical Supplies (Costs) Bill’. You need to know what it says, because it may well change the nature of the game when it comes to pharma in the UK and – quite possibly – it will arrive sooner than the UK’s departure from the European Union
So why care about this clumsily-titled piece of draft legislation? The Bill – rapidly becoming known as the ‘Costs of Medicines Bill’ – is designed to strengthen the Department of Health’s (DH) powers over the costs of medicines to the NHS.
It is currently being reviewed by a House of Commons committee, where amendments are being proposed. These will ultimately be voted upon, before being passed over to the Lords for further scrutiny.
And we’re not talking ‘Article 50, two-year exit period’ here – this legislation is on track to be passed in the coming months and would likely come into effect by spring 2017.
The idea behind the broad new powers for the DH is to prevent significant price rises for medicines, where a competitive market doesn’t function properly. Although not considered a major problem in the UK, there have been several high-profile news stories in the U.S. recently, where unbranded, generic medicines – supplied by a single manufacturer – experienced significant price hikes. The Government wants to protect the NHS from that situation occurring here, although its new powers go some way beyond what would strictly be necessary.
This Bill will impact throughout all aspects of the life sciences industry that provides medicines to the NHS. Indeed, Keith Ridge, Chief Pharmaceutical Officer for NHS England, has already stated in front of the public bill committee, that provisions of the Bill will set the basis for future PPRS negotiations.
Ultimately, this is a clear indication that while chat rages on about Trump and Brexit, we must not overlook developments happening within our own, often quainter Parliamentary system.
Pill Bill Vol. 1: Key ingredients
The Bill has three vital provisions. Firstly, it introduces a ‘payment mechanism’ for companies whose medicines fall under the statutory pricing scheme, which applies to any manufacturer or supplier of branded medicines that is not a member of the voluntary Pharmaceutical Price Regulation Scheme (PPRS). It works by applying a 15% cut to the list price of medicines – whether branded or generic – and, according to ABPI figures, the statutory scheme covers about 20% of NHS spend on branded medicines, with the remainder covered by the PPRS.
The Bill proposes to replace the blanket 15% price cut with a system that would see companies paying a fee back to the DH, based on a percentage of their net sales. The exact level of this figure has not been disclosed in the Bill, but when the Government ran a consultation on the statutory scheme earlier in 2015, the level of the fee proposed was between 10% and 17% of net sales, including on sales of new products.
The rationale behind the proposed reforms to the statutory scheme are clear – the Government wants it to achieve at least the same level of savings as those delivered by the PPRS.
While the PPRS caps spend on medicines, the statutory scheme has grown over the last two years and the DH wants to balance its books and, in doing so, create some financial headroom for the rest of its stretched funding obligations. A consequence might be a migration of some statutory scheme companies into the PPRS, possibly increasing the level of fees required to be paid by PPRS member companies.
It is worth remembering that the PPRS is a voluntary agreement between Government and industry that places a cap on NHS spend for those branded medicines covered by the scheme. If the cap is exceeded, companies will reimburse the NHS for any additional spend it makes over the cap level. Such an arrangement ensures that the NHS spend on branded medicines is maintained within agreed limits and offers budgetary certainty to Government. The latest PPPRs came in force in 2014 and, since this time, the industry has paid £1.4bn to the DH in the form of a financial rebate.
The second key proposal from the Bill requires companies to provide additional information on how their medicines are priced. The draft legislation gives the DH power to require ‘any party in the medicines supply chain’ to provide profits data on a product-by-product basis. This is designed
to ensure that the reimbursement system and supply chain offers the NHS value for money, while also providing transparency.
It is expected that the Government will run a consultation with the industry on the scope of the information required by the Bill if it is passed into law. Further accompanying regulations will certainly be needed in any case. Companies currently provide data on medicines pricing and discounts to overall profitability, via existing systems, but not typically on a product basis. Supplying this degree of data is quite a step-change and is likely to be considered overly exacting by industry.
Finally, the Bill proposes new powers for the DH to decide upon acceptable prices of medicines where a competitive market is deemed to have broken down, including authorising a limit to the price of an unbranded generic medicine not covered by the PPRS.
Alex Ledger is Deputy Managing Director at Decideum. Go to decideum.com.