Just before Christmas last year, the Government published a consultation paper on a new “value-based” pricing (VBP) system for pharmaceuticals which will replace the Pharmaceutical Price Regulation Scheme (PPRS) currently in operation and due to expire at the end of 2013. The Government's response to the consultation has now been published.

The present PPRS caps the profit pharmaceutical companies can make from sales to the NHS at 29.4 per cent. Under VBP, drug companies would set the initial price. Once the drug had been in use for a period of time, the price would be reviewed in the light of its therapeutic benefit and the drug’s cost effectiveness determined. The NHS or the industry would then be reimbursed the difference. The objective of VBP is to improve patient outcomes through the more appropriate use of medicines, to stimulate development and innovation, to have a more transparent system of assessment and to secure better value for money for the NHS.

The new model for pricing branded drugs would replace the existing cost effectiveness formula (where one year of good quality life for a patient, a “QALY” is deemed to be worth £20,000 to £30,000) with a system of variable effectiveness thresholds. A higher cost effectiveness threshold might be deemed appropriate for drugs that treat especially severe conditions or those where there is currently a dearth of treatments, in an attempt to stimulate research and development in these areas.

VBP will apply to new active substances placed on the market from 1 January 2014, excluding (at least initially) new indications for and significant developments of existing active substances. The vast majority of branded medicines already on the market before 2014 will be covered by successor arrangements to the current PPRS. The Government has not ruled out creating separate arrangements for drugs for very rare conditions, should this prove to be necessary.

Although the Government intends to maintain the effect of the NICE TAG funding direction in the VBP arrangement, to ensure patients continue to have a legal right to appropriate cost effective drugs in order to minimise any postcode lotteries that might otherwise arise, no decision has yet been taken on what arrangements will be put in place for general access to drugs previously funded under the Cancer Drugs Fund.

The Government anticipates that, like the PPRS, VBP would be a voluntary scheme agreed between the Department and the branded pharmaceutical industry. They expect negotiations to begin next year.

In the interim, there will be further engagement with stakeholders to refine the detail of the new model.