This is the first in a series of articles in our Newsletters on pricing and reimbursement in the European Union.

This article deals with the basic principles for pricing of medicinal products in the UK under the:

  • voluntary scheme established by Pharmaceutical Price Regulation Scheme (PPRS); and
  • statutory scheme established by the Health Service Branded Medicines (Control of Prices and Supply of Information) (No.2) Regulations 2008 and the Health Service Medicines (Information Relating to Sales of Branded Medicines etc.) Regulations 2007 as amended by the Health Service Medicines (Control of Prices and Supply of Information) (Amendment) Regulations 2013 (that came into force 1 January 2014) and Health Service Medicines (Control of Prices and Supply of Information) (Amendment) Regulations 2015 (that came into force 9 March 2015) (statutory scheme).

These schemes were established under the National Health Service Act 2006 that gives the UK government power to limit the prices of and profits to be delivered from medicines sold to the UK’s National Health Service (NHS).

This article also briefly deals with the role of The National Institute for Health and Care Excellence (NICE) in relation to the availability and pricing of medicinal products in the UK, pricing arrangements as well as the use of reference pricing in the EU.

PPRS 2014

This is a scheme that was agreed between the UK Government and the Association of the British Pharmaceutical Industry. The scheme is effective from 1 January 2014, is voluntary, applies for five years and controls the prices of branded drugs sold to the NHS.

The main elements of the PPRS are:

  • it applies to licensed and branded medicines (including branded generics supplied to the NHS, but not to medicines supplied on private prescription, unbranded generics and all products sold OTC;
  • it also applies to products supplied by tender;
  • it incorporates value based assessment of medicines;
  • the members of the scheme have agreed to hold the overall expenditure of the NHS to set levels – there is to be no increase for the first two years and then 1.8%, 1.8% and 1.9% increases for the final three years of the scheme;
  • the industry underwrites the cost of medicines over the agreed levels – for the duration of the scheme this is expected to be in the order of GB £4 Billion;
  • the continued availability of flexible pricing and patient access schemes; and
  • an exemption for companies with sales of less than GB £5 Million – these companies are not required to make payments to the NHS.

Statutory Scheme

Companies that are not part of the voluntary scheme are subject to the statutory scheme for sales to the NHS.

The main elements of this scheme are that it:

  • imposes a price cut of 15% on the NHS list price of medicines on sale on 1 December 2013;
  • is subject to revision by the Government;
  • does not include an exemption for companies with sales of less than GB £5 million; and
  • does not include a discount on products launched after December 2013.

On 10 September 2015 the Department of Health announced a consultation on options for changing the discount element of the scheme. The rationale for the consultation was because the statutory scheme does not produce a discount to the same level as the voluntary scheme. The UK Government’s preferred option to address this deficiency is to replace the discount with a percentage rebate.

Role of NICE

NICE assesses and provides guidance on the “clinical and cost effectiveness of health technologies … to ensure that all NHS patients have equitable access to the most clinically – and cost-effective treatments that are viable” (NICE website).

This form of value-based assessment is based on clinical and economic evidence. It takes a Quality Adjusted Life Year (QALY) analysis into consideration. Other factors such as the burden of the illness and the impact on (benefit to) society have been considered and a consultation held in late 2014, but no consensus was reached.

NICE’s assessment is not definitive for NHS funding. However, under the NHS Constitution it is “legally obliged to fund and resource medicines and treatments recommended by NICE’s technology appraisals”.

NICE’s guidance is used by the NHS in England. Wales, Scotland and Northern Ireland each have separate bodies that use or follow NICE’s guidance to some degree.

Flexible Pricing and Patient Access Schemes under the PPRS

Flexible pricing and patient access schemes are increasingly used and are incorporated into the PPRS.

Flexible pricing allows members to apply for variations in the list price to reflect “significant” new evidence about the efficacy of the drug or to account for a “significant” new indication. There are limitations on the ability to vary prices and the variation is subject to a NICE appraisal.

Patient access schemes enable patients to access medicines where NICE’s assessment of value does not enable the manufacturer to charge the list price. Again, there are different arrangements in Scotland and Northern Ireland. The PPRS sets out the principles that will be applied to patient access schemes, the types of schemes that are and are not preferred and the requirements for timing, process, monitoring, review and duration.

Innovative Pricing Arrangements and Value-Based Pricing

There are innovative (aka alternative) pricing arrangements that have been adopted in some countries with varying degrees of success. “Risk-sharing” and other types of mechanisms have been used in Europe for many years, but there are criticisms that they simply amount to discounts and that the flow on effect of the discounts in one country simply extends to discounting in other countries due to the effect of external reference pricing (see below). This is despite arrangements where payments are linked to outcomes verified by clinical or financial information.

Examples of these arrangements include where payments are:

  • linked to efficacy by outcomes assessed either by individual patients or over a patient population;
  • linked to guarantees of efficacy;
  • fixed to certain levels of treatment;
  • limited by penalties for sales over set limits; and
  • limited to where use of the drug is confined within certain patient populations (determined in advance, e.g. by genetic testing).

Obviously, there are the additional administrative burdens involved with these arrangements that affect the manufacturers’ profitability and impose additional burdens on public health services.

In contrast, value-based pricing simply involves balancing the efficacy of a drug with its price, i.e. higher efficacy – higher price, lower efficacy – lower price.

Role of Reference Pricing in the EU

Most countries in Europe apply external reference pricing as either a main or as a supportive criteria in determining the price to pay for medicines. External (aka international) reference pricing is used as a method for containing costs. Where reference pricing is used it is often against a fixed basket of countries and commonly referenced are France, the UK and Germany. In contrast, the UK does not use external reference pricing.