Brendan Shaw
“I will honour Christmas in my heart and try to keep it all the year. I will live in the Past, the Present, and the Future. The Spirits of all Three shall strive within me. I will not shut out the lessons that they teach.”
- Ebenezer Scrooge, A Christmas Carol, by Charles Dickens, 1843
The Christmas cheer was a little muted in England as the British government and the pharmaceutical industry announced a new medicines pricing system for the NHS. The question is whether the government has played Santa or Scrooge with the pharma industry and learned any lessons in the lead-up to an election year.
The new VPAG – the Future
On 20 November, the British government announced a new Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) that it negotiated with the Association of the British Pharmaceutical Industry (ABPI).
The VPAG replaces the current Voluntary Scheme for Branded Medicines Pricing and Access (VPAS), which came into force in 2019 and expires on 31 December 2023.
In what’s been called a ‘landmark’ deal between the UK government, NHS England and the ABPI, the long, and at times torturous, British tradition of industry-government agreements on medicine pricing continues.
The VPAG, due to commence on 1 January 2024 and to run through to 31 December 2028, includes:
Increases to the existing system-wide cap on growth in NHS pharmaceutical spending from 2% to up to 4% per annum
Introduces a new affordability mechanism that requires older medicines that have not experienced price reductions to incur top-up, or catch-up, price reductions of up to 25% in addition to the standard base reduction of 10%. This mechanism introduces a differential payment system between newer and older medicines on the NHS
Secures an additional GBP 400 million investment by the pharmaceutical industry over 5 years through a Life Sciences Investment Program to support clinical trials, manufacturing capability and innovative health technology assessments
A saving to the NHS of GBP 14 billion over the 5-year agreement
Measures to improve the UK PharmaScan platform which is the country’s horizon scanning system for new medical technologies, and better connect regulatory and health technology assessment systems, and
Agreements to introduce new processes for managing the evaluation of combination therapies and advanced therapy medicinal products (ATMPs).
Allowed growth rates NHS medicines spending under VPAG, 2024 – 2028
Year | 2024 | 2025 | 2026 | 2027 | 2028 |
Allowed growth rate | 2% | 3.75% | 3.75% | 4% | 4% |
Source: UK Department of Health and Social Care. 2023. “2024 voluntary scheme for branded medicines pricing, access and growth: summary of the heads of agreement”, Policy Paper, 20 November, https://www.gov.uk/government/publications/2024-voluntary-scheme-for-branded-medicines-pricing-access-and-growth-summary-of-the-heads-of-agreement/2024-voluntary-scheme-for-branded-medicines-pricing-access-and-growth-summary-of-the-heads-of-agreement, accessed 6/12/2023.
After negotiations through 2023 described as ‘tough’, Westminster welcomed the deal. The Chancellor, Jeremy Hunt, said the deal would seal “Britain’s position as the largest life sciences hub in Europe and support a sector so critical to our country’s health, wealth and resilience”.
The ABPI said the deal itself was ‘tough’. APBI Chief Executive, Richard Torbett said “The industry supports this agreement, despite its restrictions, as it provides important support for patients and the NHS and commits to giving them access to the transformative treatments they need.”
In the new VPAG, the government will supposedly use the savings from expanded price cuts and rebates to fund new innovative medicines and make them available to patients quicker.
However, not all of the British pharmaceutical industry was supportive, with the British Generic Manufacturers Association (BGMA) saying the new deal could increase the risk of medicine shortages due to the price cut mechanisms being introduced.
VPAS – the Present
The current VPAS, which expires in a few weeks, encountered a few thorny issues since its inception in 2019, in part due to a little thing called the Covid-19 pandemic which occurred in the middle of it.
The old VPAS lifted the annual spending growth cap to 2% from 2019, up from 0% under the last of the former Pharmaceutical Price Regulation Schemes (PPRS) which ended in 2019.
Shawview Consulting Chart. Data sources: UK Department of Health and Social Care. 2023. “2024 voluntary scheme for branded medicines pricing, access and growth: summary of the heads of agreement”, Policy Paper, 20 November, https://www.gov.uk/government/publications/2024-voluntary-scheme-for-branded-medicines-pricing-access-and-growth-summary-of-the-heads-of-agreement/2024-voluntary-scheme-for-branded-medicines-pricing-access-and-growth-summary-of-the-heads-of-agreement, accessed 6/12/2023; UK Department of Health and Social Care. 2019. "The 2019 Voluntary Scheme for
Branded Medicines Pricing and Access - Chapters and Glossary", https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/761834/voluntary-scheme-for-branded-medicines-pricing-and-access-chapters-and-glossary.pdf, accessed 7/12/2023; Tillet, C. 2017. "The Pharmaceutical Price Regulation Scheme", Stevens & Bolton, 3 March, https://www.stevens-bolton.com/site/insights/articles/focus-on-pharmaceutical-pricing-regulation, accessed 7/12/2023.
However, where the VPAS broke down was that no one had anticipated the aftereffects of the Covid pandemic, where healthcare spending was under pressure and, as the pandemic progressed, spending on medicines surged.
Under the VPAS, any annual spending growth above 2% from 2019 to 2023 was due to be paid back to the government through an agreed formula. However, as happened in many countries, the pandemic triggered a surge in medicine spending. This, in turn, triggered panic attacks in Whitehall, shouting matches in corporate headquarters, and higher rebates for companies much greater than anyone ever expected.
The result was that while in some years forecast repayments were supposed to be around 5% to 6%, by 2023 the forecast repayment rate for companies reached 26%, high by historical standards. However, this was capped at 15% after an amendment agreed between the government and the industry.
Source: Macauly, R. 2022. “Sustainability of Healthcare Systems in the Wake of COVID-19: The UK VPAS Case Study”, Value in Health, 25(12), December, S248, https://www.sciencedirect.com/science/article/pii/S1098301522034210#sec2, accessed 6/12/2023.
*- Modified after agreement between DHSC and ABPI, 20 January 2022, https://www.gov.uk/government/publications/voluntary-scheme-for-branded-medicines-payment-percentage-for-2022, accessed 6/12/2023.
As might be expected, these higher-than-expected rebates caused more than a few heart palpitations in industry. Pharmaceutical companies Abbvie and Eli Lilly withdrew from the VPAS at the beginning of 2023, citing commercial pressures from the VPAS rebates (although noting their withdrawal meant they were subject to the alternative statutory price reductions that were, arguably, higher - see below).
Meanwhile, the industry argued that the size of the rebates, resulting in billions of pounds in savings, threatened the UK economy and fiscal policy.
With such high rebates being paid by the industry to the NHS, the UK government has effectively required industry to partially subsidise the funding of public health schemes, relying on pharmaceutical companies to help fund the NHS.
The shadows of Brexits past – the Past
While it has negotiated a new ‘tough’ agreement with the innovative pharma industry, the British government's keenness to position the UK as “the largest life sciences hub in Europe” in the aftermath of Brexit can be seen in the new VPAG.
As well as a change in title, the new agreement puts more emphasis on access for patients, building the health system and industry, promoting the UK as a global location for research and investment, and securing substantial investment commitments from industry.
With the growing realisation that Brexit hasn’t magically delivered the Christmas pudding of economic growth and the billions of pounds for the NHS that its original proponents had promised, the government has been keen to balance budget responsibility with providing an attractive investment environment for the pharmaceutical industry. Time will tell whether this has worked. Brexit has been blamed for a range of problems plaguing the UK pharmaceutical market including regulatory issues and drug shortages.
Hot on the heels of the VPAG announcement, three days later in its Autumn Statement, the government announced GBP 520 million investments in life sciences funding, changes to R&D tax credits and clinical trial accelerator schemes. Other measures included a One Health Future initiative containing additional funding for the NHS to recruit patients for clinical trials, promote genomics research to map the genotype of 1 million Brits, and funding for government-owned Genomics England to generate evidence on pathways for new individualised therapeutics for children with ultra-rare diseases.
In part, this is designed to overcome the handbrake effect of Brexit on the industry and the NHS.
Were statutory scheme changes the UK government’s Christmas Scrooge?
Barely two weeks after lauding the launch of the voluntary VPAG program, the government published details of the updated statutory scheme for those companies that choose not to be part of the VPAG program. Companies that don't join the VPAG are subject to the statutory scheme.
The statutory rebates have been retained, where companies will pay a rebate on the sales of branded medicines to the NHS of 21.9% in 2024, 24.0% in 2025 and 26.8% in 2026 if they are not part of the VPAG. These rebates are still at historically high levels, although the government did abandon earlier plans for a life cycle adjustment mechanism that the industry argued was unworkable.
In criticising the statutory scheme, especially so soon after agreeing the terms of the voluntary VPAG, the ABPI argued that the changes “sends a very confusing message to global life science investors”.
Coming so soon after the government was promoting its credentials in working with industry on a new VPAG and innovation packages, the Ebenezer Scrooge side of government appeared.
Cynics might wonder whether the government was simply playing Santa, with a list of companies in the industry who were ‘naughty’ or ‘nice’ and rewarding each with gifts appropriately. It also leaves those companies who choose not to be part of the new VPAG thinking about their options over the Christmas break.
A Christmas wish - bit of cheer and goodwill to all
While probably too early to tell, the changes being introduced in the UK represent a worldwide pattern where governments and payers are readjusting their pricing systems to cope with post-Covid budgetary pressures, ensuring patients get timely access to medicines, and to integrate the life sciences industry as part of the solution to reforming healthcare in the future.
Other countries like Australia, Canada, China, the EU, Japan, Korea, New Zealand and the United States are also all looking out how get this balance right.
In the case of the UK, it will be important to see how much of the ‘Christmas Spirit’ lingers into 2024 and beyond as both the industry and the government settle in to make the various policies and agreements work for the betterment of patients and the country.
As in most countries, constructive relations between industry and government - a dose of goodwill - can go a long way to learning the lessons of the past.
Season's greetings to all and best wishes for 2024.
