As reported in our July newsletter, the ABPI and the DoH have been negotiating a revised version of the voluntary agreement regulating the price of licensed branded medicines in the UK, the Pharmaceutical Price Regulation Scheme (PPRS). In July an “outline” agreement was reached and on 19 November a final version of the revised PPRS was announced. The 127 page text of the new agreement is available at the DoH website.  

The new PPRS will start on 1 January 2009 and will run for a minimum of five years. As before, it is non-contractual and voluntary and it will remain the scheme for the Four Nations of the UK. Any manufacturer or supplier may apply to join the scheme (ie not just members of the ABPI) and if it does so any statutory scheme under the National Health Services Act 2006 may not be applied against it.  

Under the new scheme the DoH and the ABPI have committed to a number of specific policy initiatives aimed at encouraging and rewarding innovation and assisting the uptake of cost-effective new medicines. These will include initiatives to:  

  • Establish a single unified horizon scanning process to identify new technologies in development by industry;
  • Address the anomaly whereby the funding direction of the DoH does not apply to National Institute of Clinical Excellence (NICE) technology appraisal recommendations (on purchasing of products) which are subsequently updated in a clinical guideline and update good practice guidance;
  • Pilot the use of prescribing incentive schemes to promote uptake of innovative products;
  • Explore how to optimise use of existing levers such as Payment by Results to further improve uptake; and  
  • Publish metrics on the uptake of clinical and cost effective medicines at local, national and international level.  

There are two new provisions in the 2009 PPRS that will help implement a pricing system that better reflects value to patients:  

  • Flexible pricing: A system of flexible pricing will be introduced. This system will continue to allow a company to set an initial launch price for a new active substance. In addition there will be flexibility for companies to increase or decrease this original list price as either further evidence or new indications change the value that the medicine provides to NHS patients. Flexible pricing will only apply when medicines are subject to NICE appraisal: a review by NICE will be required to determine whether the revised price provides value to the NHS and should receive a positive recommendation for use. NICE will not negotiate or publicly set or indicate prices; and  
  • Patient access schemes: These are schemes agreed between the DoH and a pharmaceutical company for consideration in the context of a NICE appraisal. These schemes are aimed at improving patient access to a medicine which has not initially been assessed as cost or clinically effective by NICE. The new PPRS sets out arrangements for patient access schemes (though subject to certain conditions to ensure that they are implemented sensibly and that the cumulative burden on the NHS is manageable).  

The ABPI and DH have agreed that the experience of the flexible pricing and the patient access schemes should be reviewed by 2011.  

With regard to pricing in general, the new PPRS preserves a company’s ability to set the prices of new active substances. It will also preserve companies' ability to modulate prices (i.e. change the prices of its product portfolio) under conditions that are mutually agreed.  

The new scheme includes provisions for price cuts. These cuts have been re-negotiated since the “outline” agreement announced earlier in the year. The first change relates to measures linking the price of non-patent protected branded drugs to the price of any equivalent generic (also referred to as "the wedge"). These will no longer be introduced following the re-negotiation. The price cuts in NHS primary and secondary care will instead be delivered by the following combined measures:  

  1. A 3.9% price cut will be introduced in February 2009. Members of the scheme may achieve this cut by modulation (ie change the prices of their NHS portfolio so as to equate to this);  
  2. Subject to discussion with affected parties, the DoH will introduce generic substitution (ie pharmacists will be able to dispense a generic drug against a prescription for the branded medicine, unless the GP has ticked a box indicating that only the brand medicine can be dispensed). In addition, certain exemptions from these arrangements on clinical grounds will be agreed, subject to consultation. This measure will not be introduced before January 2010 because of the discussions and system changes required;  
  3. There will be further price adjustments in each year, starting in 2010, aimed at ensuring that the reductions of 5% originally envisaged by the DoH are delivered over the course of the new scheme, as set out in the table below; and  
  4. Companies with sales of £5m or less in 2007 will be exempt from the price adjustments. The first £5m of sales will be exempt for companies of up to £25m sales in 2007.  

As the precise effect of generic substitution is unknown, the expected savings have been modelled, including assumptions about the proportion of prescriptions GPs will tick to exclude substitution. When the assumptions on generic substitution savings are combined with the price cuts in the table, it is thought unlikely that exactly 5% will be delivered. Therefore, the agreement includes a provision by which either the DoH or the ABPI will be able to call for a review to be undertaken of the savings being delivered with a view to adjustments being made to correct any under- or over-delivery of 5% over the term of the new scheme.  

The second change over the “outline” agreement announced earlier this year relates to a potential additional price cut of 2% if the drugs bill growth exceeds 6.7% in 2008 or 2009. This will no longer form part of the new scheme. The DoH and the ABPI have agreed that there will instead be an additional price cut of 1% in January 2010. The additional price cut will not be contingent on growth in the drugs bill.

See table  

As in the 2005 scheme, the new scheme provides a framework for imposing reasonable limits on the profits to be made from the supply of medicines to the NHS, with annual financial returns required from members (AFRs). The new scheme takes account of developments and changes agreed in negotiations, specifically the need to encourage research and development. Accordingly there is an increase in the R&D allowance to a maximum of 30% of NHS sales.