Consultation outcome

Update to the statutory scheme to control the costs of branded health service medicines

Updated 1 June 2022

1. Executive summary

The Department of Health and Social Care (DHSC) proposes to update the payment percentages in the statutory scheme for branded medicine pricing (known as the ‘statutory scheme’). This consultation document seeks views on the proposed update, particularly the views of the pharmaceutical industry and NHS patients.

The statutory scheme is set out in legislation in The Branded Health Service Medicines (Costs) Regulations 2018 (the Regulations). It is one of two schemes, alongside the 2019 Voluntary Scheme for Branded Medicines Pricing and Access (VPAS), that control the prices of branded medicines to the NHS.

The scope of this consultation is the payment percentage rates for 2022 and 2023, and whether they should be amended. Further consultation will likely be held in 2023 representing a wider review of the policy and operation of the statutory scheme to coincide with discussions on the successor to VPAS.

We consider that the payment percentage rates for 2022 and 2023 ought to be updated.

The proposed updates to the payment percentage rates (which are detailed in the ‘Reasons for proposed updates’ section below) are intended to respond to higher than projected sales growth in 2021 and to a subsequent increase in the VPAS payment percentages for 2022 and 2023. Our intention is to review and increase the statutory scheme payment percentages for these years to maintain broad commercial equivalence of the 2 schemes.

We propose to increase the statutory scheme payment percentage for 2022 from 10.9% to 14.3%. As this amendment will not be in force until 1 July 2022, companies who made statutory scheme payments in the first half of 2022 at the lower rate of 10.9% will instead pay a rate of 17.7% from 1 July 2022.

We propose to increase the statutory scheme payment percentage for 2023 from 10.9% to 24.4%.

In proposing these updates, the government is required to consider and consult on a number of specific areas such as The Public Sector Equality Duty and the Secretary of State’s duties as set out in the NHS Act 2006. Our assessment of the proposals in relation to these statutory requirements are set out in the ‘Statutory duties’ section below, with additional information provided in the accompanying impact assessment.

2. Introduction

2.1 Background: statutory scheme for branded medicines pricing

The statutory scheme is one of 2 schemes, alongside VPAS, that control the prices of branded medicines to the NHS. It was established in its current form in 2018 when, following a consultation, it changed from operating as a price cut scheme to operating as a payment scheme.

Any company that supplies licensed branded medicines to the NHS is subject to the statutory scheme unless they opt to join VPAS. It is intended that both schemes work together cohesively and in a complementary fashion to create an environment where medicines are supplied at an affordable price, in a way consistent with supporting both the life sciences sector (including R&D) and the broader economy. To this end, we aim to maintain broad commercial equivalence between the schemes.

The overarching objectives of the statutory scheme are set out in a 2019 review of the Regulations:

• limit the growth in costs of branded health services medicines to safeguard the financial position of the NHS

• ensure medicines are available on reasonable terms, accounting for the costs of R&D

• deliver the above objectives in a way consistent with supporting both the life sciences sector and broader economy

The statutory scheme works by limiting the growth in allowed sales of branded medicines. Since it took its current form in 2018, the allowed growth rate has been 1.1% (nominal) per year. Sales growth is controlled through the application of a payment percentage, a percentage of eligible sales that companies pay back to DHSC. Payment percentages are set in regulations at the level calculated to keep growth within the allowed level each year.

The payment percentages were last updated in 2020. In those updates the payment percentage for 2020 was decreased from 14.7% to 7.4% and the payment percentage in 2021 and subsequent years was decreased from 20.5% to 10.9%. Companies who made statutory scheme payments in Q1 of 2020 at the higher rate of 14.7%, paid at a lower rate of 5% for the rest of 2020.

Payment exemptions apply in some instances. Exemptions apply to:

• small companies with under £5m sales to the NHS each year

• sales of low-cost presentations costing less than £2

• parallel imports

• items of voluntary scheme presentation

Sales made under framework agreements and public contracts which were in effect as of 31 March 2018 are also exempt from payments. Sales made under framework agreements and public contracts which were entered into on or after 1 April 2018 but before 1 January 2019 are subject to a 7.8% payment percentage. All other sales made under framework agreements and public contracts pay the standard rate set in the Regulations.

This consultation sets out the updates we are proposing for amending statutory scheme payment percentages for 2022 and 2023 to ensure we continue to control growth at a rate of 1.1% and maintain broad commercial equivalence with VPAS. Wider changes, including to scheme exemptions, are out of scope of this consultation.

3. Reasons for proposed updates

3.1 Increased sales growth

This consultation sets out proposals to update the payment percentages for the statutory scheme for 2022 and 2023, to come into force from 1 July 2022.

One of the overarching aims of both the statutory and voluntary schemes is to ensure growth in sales of branded medicines to the NHS remains within allowable limits (1.1% growth per year in the statutory scheme, 2% growth per year in VPAS), while supporting both the life sciences sector and broader economy.

The payment percentage is currently set at 10.9% for both 2022 and 2023. These figures were set in 2020 and are based on a projection from 2020 of how sales to the NHS of branded medicines would grow in 2020 and 2021. Sales growth in 2021 was higher than projected. This means that the current statutory scheme payment percentages for 2022 and 2023 are set lower than required to control growth at 1.1% per year.

Therefore, given the higher than projected growth in NHS sales of branded health services medicines, we are proposing to update the payment percentages for 2022 and 2023.

3.2 Maintaining broad commercial equivalence with VPAS

Unlike the statutory scheme, the VPAS payment percentage automatically adjusts in response to observed growth. As a result, the calculated VPAS payment percentage increased from 5.1% in 2021 to 19.1% in 2022, although a subsequent scheme amendment brought the 2022 rate down 4.1 percentage points to 15%. The VPAS payment percentage for 2023 is currently projected to increase further to 23.7%, in part because of the effective deferral of 4.1 percentage points of income from 2022 to 2023.

As a result, at current rates the statutory scheme is no longer broadly commercially equivalent with VPAS. The statutory scheme payment percentage is meaningfully lower than VPAS in 2022 and likely substantially lower than VPAS in 2023.

Furthermore, the statutory scheme payment percentage across those 2 years has not been subject to an adjustment equivalent to the VPAS amendment. Failing to maintain broad commercial equivalence presents a particular risk to the stability of the schemes as it would allow VPAS scheme members to benefit from the 4.1 percentage point reduction in 2022 but then leave to join the statutory scheme and so avoid paying back the consequential increase in the VPAS payment percentage in 2023, thereby leaving the NHS financially disadvantaged by the amendment.

3.3 Consultation proposals

To control annual sales growth at 1.1% and to maintain broad commercial equivalence between the schemes, we intend to update the statutory scheme payment percentage in 2022 and in 2023 as set out in the ‘Reasons for proposed updates’ section below. Similarly, we propose to apply equivalent adjustments to the statutory scheme payment percentage in 2022 and in 2023 to those made to the VPAS payment percentages in those years.

We propose that these updates come into force on 1 July 2022 as scheme payments are made on a quarterly basis and this is the earliest date where, allowing time for consultation, the updates can be made on the first day of a new quarter. As the government requires time to consider the responses to this consultation as well as to reflect any updates to the Regulations that result from those responses, we will be running this consultation for 6 weeks, closing at 11:45pm on 25 April 2022.

Given that the updates we are proposing are limited in scope to the payment percentages for 2022 and 2023 only, we are of the view that this gives consultees enough time to review this consultation document and to respond by the deadline set above. Further consultation is likely in 2023 on wider policy questions relating to the statutory scheme.

Question

Do you agree or disagree with the proposal to update the payment percentages?

• agree

• disagree

• I do not know

Explain your answer

4. Proposal on the level of the amended payment percentages

4.1 How the updates to the payment percentages have been calculated

We calculated the proposed payment percentages for the statutory scheme using the growth of measured sales on an industry-wide level (including VPAS measured sales, statutory scheme measured sales and parallel import measured sales). This is largely the same process that is used to calculate the payment percentages for VPAS and the consistency of approach means that appropriate payment percentages are set across both schemes.

The details of the methodology for the calculation are set out in the accompanying impact assessment. We believe it is appropriate to continue to seek to control branded medicines growth at a rate of 1.1% each year as this strikes an appropriate balance between the objectives of supporting the pharmaceutical industry, supporting patients, and controlling costs.

Calculation of the 2022 payment percentage is made using data up to Q3 2021 and then adjusted downwards by 4.1% points. This is to ensure broad commercial equivalence with VPAS, the payment percentage for which was calculated to be 19.1% on the basis of data up to Q3 2021 and subsequently adjusted downwards by 4.1 percentage points to 15%.

Calculation of the 2023 payment percentage is made using data up to Q4 2021, the latest data available at the time of publication of this consultation. The impact of having lowered the 2022 payment percentage by 4.1 percentage points will be accounted for in this calculation so that forgone revenue is in effect deferred from 2022 to 2023. This is to ensure broad commercial equivalence with VPAS, as the VPAS payment percentage for 2023 will be calculated in broadly the same way. Calculation of the 2023 payment percentage will also account for having set the 2022 payment percentage using data up to Q3 2021 rather than Q4 2021.   

We do not propose to adjust the calculation to account for modelled over or underpayments from prior years. This is because the substantial majority of statutory scheme payment companies from previous years have since left the scheme, and so any adjustments would have an impact on the remaining companies that would be disproportionate to their original modelled over or underpayment.

4.2 Proposed payment percentage

The tables below set out our proposed payment percentages.

The payment percentage for 2022 will not take effect until 1 July 2022. As a result, we will set an adjusted payment percentage for any company that has made a payment in the first half of the year at the lower rate, which aims to ensure that across the whole year all companies are paying an average rate needed to control allowed sales growth at 1.1%.

The payment percentage for Q3 to Q4 2022 will be 17.7% for companies that have made a payment in the first half of the year at a rate of 10.9% or 14.3% for all other companies.

The proposed scenarios are illustrated below.

Table 1: by way of a comparison, the payment percentages for 2022 and 2023 in the VPAS

Year	Percentage
2022	15%
2023	23.7% projected

Table 2: payment percentages for 2022 in the statutory scheme

Quarter	Companies that make scheme payments in Q1 or Q2 2022 at 10.9%	Companies that make scheme payments after Q2 2022
Q1 to Q2 2022	10.9%	Not applicable
Q2 to Q4 2022	17.7%	14.3%

Table 3: proposed payment percentage for 2023 in the statutory scheme

Year	Payment percentage
2023	24.4%

The payment percentage for 2022 would have been set at 18.4% had it not been adjusted downwards by 4.1 percentage points to maintain broad commercial equivalence with VPAS. The payment percentage for 2023 would have been set at 20.6% had the calculation not accounted for the 4.1 percentage point adjustment made in 2022.

Payment percentages at these rates result in the good functioning of the scheme by controlling allowed sales growth at 1.1%, while having regard for the objectives of the scheme around the impact on industry, the economy, and patients. It also ensures broad commercial equivalence between the schemes.

In contrast, a ‘do nothing’ scenario in which the payment percentage remains unamended would not be in line with our commitment to broad commercial equivalence or to the objective of the scheme of controlling NHS spending on branded medicines. A lower payment percentage of 10.9% would allow sales to grow above 1.1% and would destabilise VPAS in 2023 by allowing companies to benefit from the 4.1 percent decrease in 2022 but avoid payment of the consequent increase in 2023, resulting in substantial lost revenue for the NHS.

As set out above, the payment percentages proposed are based on Voluntary Scheme and Statutory Scheme sales projections for 2022 and 2023. Additional information may become available during the consultation period, for example due to the current state of flux during the COVID-19 pandemic or due to revisions to submitted company sales reports. If that materially impacts upon our data or projections, the payment percentage for 2023 could be changed by up to 4 percentage points in either direction. Any change would be to maintain the principle of broad commercial equivalence between the voluntary and statutory schemes and to ensure Statutory Scheme payment percentages are set in line with sales growth controlled at 1.1% a year. We welcome comments in relation to this within responses to the question below.

We are likely to review the statutory scheme and consult again in 2023 to ensure it remains fit for purpose and to consider wider policy questions out of scope of this consultation.

4.3 Impact of the proposed payment percentages

The impact assessment published alongside this consultation sets out that the application of a higher payment percentage in 2022 and 2023 will help to ensure the continued effectiveness of the statutory scheme and VPAS.

Question

Do you agree or disagree with the levels at which we propose to set the statutory scheme payment percentages?

• agree

• disagree

• I do not know

Explain your answer

Question

Do you have any comments on the proposed methodology used in determining the payment percentages (as set out in the impact assessment)?

Give reasons and provide any evidence or analysis that would support any refinement you think the government should make.

4.4 Specific consultation requirements in the NHS Act

The statutory scheme was established using powers under section 263(1) of the NHS Act 2006. The Health Service Medical Supplies (Costs) Act 2017 amended the NHS Act 2006 to include requirements that consultation about the exercise of powers in section 263(1) must include consultation about the:

• economic consequences for the life sciences industry in the United Kingdom
• consequences for the economy of the United Kingdom
• consequences for patients to whom any health service medicines are to be supplied and for other health service patients

An assessment of the likely impact of the proposals, including on the above areas, is set out in the impact assessment which accompanies this consultation. However, a summary of the assessment relating to those areas outlined in the NHS Act 2006 is detailed below.

Our proposal to update the payment percentages for the statutory scheme will have impacts on the NHS patients, the life sciences industry, and the UK economy.

For patients and the NHS, the updates will help ensure the continued effectiveness of the statutory scheme and VPAS in the controlling NHS spending on branded medicines. This will ensure that NHS spending on medicines continues to be affordable, allowing continued NHS investment in uptake of the most clinically and cost-effective medicines to the benefit of patients as well as investment in other patient services.

For pharmaceutical companies and their shareholders there will be decreased revenues compared to the counterfactual where no update is made. However, the update to the Regulations is made in response to higher than projected sales growth, which had positive impacts for pharmaceutical companies. The chosen rate of allowed growth of 1.1%, and therefore the payment percentages set, ought to be in line with the expectations of the pharmaceutical industry. The average payment percentage being proposed across 2022 and 2023 (19.4%) is lower than the payment percentage set for those 2 years (20.5%) when the statutory scheme was first established as payment scheme in 2018. This again suggests the payment percentage levels should be within the range of reasonable expectations of pharmaceutical companies and shareholders.

Impact on the wider economy is hard to quantify. If reduced pharmaceutical revenues are sustained in the long term this may lead to some reduction in global R&D investment of which a small proportion would be felt in the UK. DHSC considers that R&D investments leads to ‘spillover’ effects – for example, through the generation of knowledge and human capital – which generate net societal benefits, compared to companies spending their capital on other things. However, NHS spending on non-medicines services may have a greater economic benefit than NHS spending on medicines services, because non-medicines economic production is more likely to occur within the UK.

See detailed calculations on additional benefits to the UK economy in the impact assessment.

Question

Do you agree or disagree with the analysis in the impact assessment of our proposals, including impacts on those areas where the NHS Act 2006 requires we consult?

• agree

• disagree

• I do not know

Explain your answer and provide evidence to support further development of our analysis.

5. Statutory duties

There are some specific duties that must be considered when proposing updates to the statutory scheme. These include consideration of the Secretary of State’s duties under the NHS Act 2006, the Public Sector Equality Duty under the Equality Act 2010 and the family test.

5.1 Duties under the NHS Act 2006

1. To promote a comprehensive health service (section 1 NHS Act 2006)

The Secretary of State is required to continue the promotion in England of a comprehensive health service designed to secure improvement:

• in the physical and mental health of the people of England

• the prevention, diagnosis and treatment for physical and mental illness

The proposed approach to amend the payment percentages for 2022 and 2023 will ensure growth continues to be controlled at a rate of 1.1% per year and that the statutory scheme remains broadly commercially equivalent to VPAS. This will ensure the ongoing affordability of medicines to the NHS, thus enhancing the sustainability of NHS medicines spending and supporting the ability of the NHS to continue investing in patient access to medicines.

Under the revised payment percentages, DHSC will receive higher statutory scheme payments than currently set out in the Regulations and future VPAS revenues will be protected. Payments will be apportioned to the NHS across the UK and can be used in in the best interest of patients.

Furthermore, the updates to the payment percentages will ensure the continued stability of the schemes. This is critical to ensuring that both schemes can continue to fulfil their broader objectives of controlling costs while supporting the life sciences sector, patient access and the wider economy.

In contrast, if DHSC was to proceed with the ‘do nothing’ option and the statutory scheme had a payment percentage of 10.9 % in 2022 and 2023, we consider that this would destabilise the schemes by allowing growth to exceed 1.1% within the statutory scheme and allowing VPAS companies to avoid making payments on their 2023 commitments.

Updating the payment percentages will therefore help ensure the effective running of the scheme and therefore supports the Secretary of State’s duty to promote a comprehensive health service.

2. To act with a view to securing continuous improvement in the quality of services (section 1A of the NHS Act 2006)

The Secretary of State is required to exercise his NHS functions with a view to securing continuous improvement in the quality of services provided to individuals.

As above, following the recommended option of updating the payment percentages will ensure continued effective operation of and confidence in the schemes.

This will help to ensure sales growth continues to be controlled, allowing the NHS to budget effectively and make decisions in the best interest of patients about the provision of services, including ensuring a quality service.

In discharging this duty the Secretary of State must have regard to the National Institute for Health and Care Excellence (NICE) quality standards which define quality and quality improvement for particular kinds of care and treatment. As set out above, a decision to update the payment percentage helps to ensure the effective operation of the schemes and ensures NHS costs are controlled.  This supports Secretary of State to meet duties in securing continuous improvement in quality of services, in line with the NICE quality standards.

3. To have regard to the NHS Constitution (section 1B NHS Act 2006)

Regard must be given to the values, principles, pledges and rights in the NHS Constitution. We have considered this duty and believe that it is not negatively affected by the proposed approach.

In particular, we have considered:

• principle 1: to provide a comprehensive health service available to all

• principle 4: relating to the role of patients

• principle 6: value for money in so far as this relates to the government and NHS spend on branded medicines.

As set out above, a decision to update the payment percentage helps to ensure the effective operation of the schemes and ensures NHS costs are controlled. This supports the Secretary of State to deliver on the duty to promote a more comprehensive health service, supports the NHS in providing services to patients, and ensures continued value for money on branded medicines spend.

4. To have regard to the need to reduce health inequalities (section 1C NHS Act 2006)

The Secretary of State must have regard to reducing inequalities between the people of England with respect to the benefits that they can obtain from the NHS.

It is important to emphasise that this duty is separate from Public Sector Equality Duty. Socio-economic impacts need therefore to be considered in terms of other socio-economic factors such as income, social deprivation and rural isolation.

We do not envisage any negative impacts on health inequalities as a result of the proposal. Ensuring the continued sustainability of NHS medicines spending is critical to enabling the NHS to provide widespread access to medicines and respond to health inequalities.

5. To promote autonomy (section 1D NHS Act 2006)

The Secretary of State must have regard to securing, so far as is consistent with the interests of the NHS:

• that any other person exercising NHS functions or providing services for its purpose is free to exercise those functions or provide those services in the manner that it considers most appropriate

• that unnecessary burdens are not imposed on any such person

The proposed updates to the statutory scheme do not impact on the freedom of NHS bodies or providers to provide NHS services as they see fit.

6. To promote research (section 1E NHS Act 2006)

In exercising his functions in relation to the NHS, the Secretary of State must promote:

• research on matters relevant to the NHS

• the use in the NHS of evidence obtained from research

If reduced pharmaceutical revenues are sustained in the long term this may lead to some reduction in global R&D investment of which a small proportion would be felt in the UK. DHSC considers that research an development investments leads to ‘spillover’ effects – for example, through the generation of knowledge and human capital – which generate net societal benefits, compared to other companies spending their capital on other things. In addition, R&D investment could lead to improved medicines in the future that would be of benefit to patients and the health service.

However, by updating the scheme to keep NHS spending on medicines at 1.1% per year we are ensuring the long-term sustainability of NHS medicines spend and the use of medicines in the UK. Sustainable growth in sales allows the NHS to invest in innovative products, in clinical research and in process innovation.

We consider that growth of 1.1% per year in the Statutory Scheme and 2% in the Voluntary Scheme strikes an appropriate balance between the scheme objectives of supporting the pharmaceutical industry, supporting patients, and controlling costs.

7. To secure education and training (section 1F NHS Act 2006)

The Secretary of State must exercise his NHS (and other) functions to secure an effective system for the planning and delivery of education and training for the persons employed, or considering becoming employed, in the NHS or connected activities.

We have considered this duty in relation to the measures and do not consider it to be affected.

8. To review treatment of providers (section 1G of the NHS Act 2006)

The Secretary of State is required to keep under review any matter, which might affect the ability of healthcare providers to provide NHS services or the reward available to them for doing so.

We do not consider this duty to be affected.

5.2 Public Sector Equality Duty

This duty comprises 3 equality objectives, each of which needs to be considered separately. Ministers have regard to the need to:

• eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or under the Equality Act 2010

• advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it

• foster good relations between persons who share a relevant protected characteristic and persons who do not share it

The protected characteristics covered by this duty are age, disability, gender reassignment, pregnancy and maternity, race, religion or belief, sex and sexual orientation.

We do not believe there will be any disproportionate negative impact on the 3 objectives by the proposals to amend the payment percentages.

This is because, by updating the payment percentages, we are ensuring the good operation of the schemes, so NHS medicines spend within the statutory scheme continues to be maintained at 1.1% per year and VPAS continues to be effective. This means the NHS will continue to use those funds in the best interest of patients, including those with protected characteristics. It also avoids indirect impacts on persons who share protected characteristics should loss of income under the scheme result in reduced spending elsewhere in the NHS.

5.3 The family test

The Secretary of State must consider, where sensible and proportionate, apply the family test, when making policy. The family test questions are:

• a: What kind of impact might the policy have on family formation?

• b: What kind of impact will the policy have on families going through key transitions such as becoming parents, getting married, fostering or adopting, bereavement, redundancy, new caring responsibilities or the onset of a long-term health condition?

• c: What impacts will the policy have on all family members’ ability to play a full role in family life, including with respect to parenting and other caring responsibilities?

• d: How does the policy impact families before, during and after couple separation?

• e: How does the policy impact on those families most at risk of deterioration of relationship quality and breakdown?

We have considered the family test and believe the recommended updates will not have a negative impact in relation to any of the relevant questions.

Amending the payment percentages will ensure that the statutory scheme continues to function, and control allowed sales growth at 1.1%, with payments received allocated to the NHS. This will help support family members who require medicines and their carers to play a full role in family life through access to medicines and any services required through the NHS.

5.4 Conclusion on statutory duties

Consequently, we think that our proposal to amend the payment percentages for the statutory scheme will result in a positive impact on the Secretary of State’s ability to deliver on the relevant statutory duties.

In particular, making these amendments will help to ensure the Secretary of State continues to promote a comprehensive health service as the statutory scheme will continue to operate effectively ensuring long term sustainability in NHS spending on medicines that allows effective allocation of resources across the health service.

As detailed above, we believe that a number of duties are unaffected by the proposal, in particular reviewing treatment of providers, promoting autonomy and securing education and training.

Question

Do you agree or disagree with our initial conclusions about the impacts that the proposed updates to the statutory payment percentages will have on the statutory duties of the Secretary of State?

• agree

• disagree

• I do not know

Explain your answer and provide evidence to support further development of our analysis.

6. How to respond

The consultation will run from 14 March 2022 to 26 April 2022. We welcome responses from any interested person, business or organisation.

You can respond to this consultation by 26 April 2022 using the online form.

Or you can send your response to:

Statutory scheme consultation
Medicines Directorate
4th floor
39 Victoria Street
London SW1H 0EU

Note that although hard copy responses will be accepted, electronic responses via the online form are preferred. We ask that hard copies are only submitted by those unable to use the online form.

6.1 Confidentiality of information

We manage the information you provide in response to this consultation in accordance with DHSC’s personal information charter, which includes DHSC’s privacy notice.

The information we receive, including personal information, may be published or disclosed in accordance with the access to information regimes (primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 2018 (DPA) and the Environmental Information Regulations 2004).

If you want the information that you provide to be treated as confidential, be aware that under the FOIA there is a statutory code of practice with which public authorities must comply and which deals, among other things, with obligations of confidence.

In view of this, it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive request for disclosure of the information, we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on DHSC.

DHSC will process your personal data in accordance with the DPA and in most circumstances, this will mean that your personal data will not be disclosed to third parties.