Press release

Government agrees breakthrough drug pricing deal with pharmaceutical firms

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Government and pharmaceutical companies have agreed a new five-year, multi-billion pricing deal that will introduce a fixed limit on NHS spend on branded medicines for the first time ever with all additional expenditure above this level paid for by industry.

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The breakthrough deal will allow the NHS to increase the availability and use of the best branded medicines and most innovative treatments without risking a spiralling bill for the taxpayer.

At the same time, pharmaceutical companies will benefit from greater certainty on how much will be spent each year and increased use of new and recently developed medicines. This will strengthen Britain’s life science sector and its ability to compete globally.

NHS spending on branded medicines – more than £12bn in 2011/12 – will remain flat for two years, followed by small increases of less than two per cent in the following three years. This marks a significant saving for the taxpayer when compared to an average growth of five per cent in previous years.

The agreement follows many months of negotiation between the Government and industry and signals a shared objective focused on giving patients access to the best medicines, increasing the use of innovative medicines in the UK and balancing the books in a tough economic environment.

The previous agreement generated savings through an agreed price cut on branded medicines sold to the NHS but with no upper limit on overall cost. The bill for branded medicines will now grow at an agreed level, the NHS will spend up to the agreed amount and any cost above that level will be absorbed by the industry.

The demand for medicines has grown steadily in the UK and is expected to increase further as more people live longer, and so the new arrangements will allow the NHS to make better use of its precious resources.

Jeremy Hunt, Health Secretary said:

This agreement ensures NHS patients will receive the best and most advanced medicines in the world while managing the cost.

UK pharmaceutical companies have responded to the challenges we face as a country, both in terms of the increased demand for medicines and pressure on public spending. I hope in return we have given them the certainty and backing they need to flourish as a sector both here and in the global market.

The new pricing deal was reached through negotiations between the Department of Health and the Association of the British Pharmaceutical Industry (ABPI) on the Pharmaceutical Price Regulation Scheme (PPRS). This is a voluntary scheme which is usually negotiated every five years.

This scheme applies to all licensed prescription medicines which the manufacturer has applied a brand name. For unbranded generic medicines, greater competition normally drives prices down and these medicines are not covered by the PPRS.

The current voluntary pricing scheme, the 2009 PPRS, comes to an end on 31 December 2013 and the new arrangements will be introduced from 1 January 2014.

Changes have also been made to strengthen the statutory scheme, which covers those companies who choose not to take part in the voluntary scheme. This includes introducing a 15 per cent price cut to make sure that there are always safeguards in place for the NHS around the prices it pays for medicines.

Alongside these arrangements, NICE will continue its work to introduce broader value assessment for new medicines covered by value-based pricing, which will now be introduced in Autumn 2014 following public consultation.

In September, cancer patients in England also received extra reassurance about medicines funding when we pledged a further £400 million which guarantees the Cancer Drugs Fund for a further two years.

Commenting on the announcement, ABPI President, Deepak Khanna, said:

This has been a very challenging and long negotiation and it should not be underestimated how tough this deal is for the industry. However, we have agreed to play our part in recognising the financial challenges facing the NHS whilst focusing on the key issue of ensuring that patients in the UK get access to the medicines they need.

The Government and the NHS need to recognise that medicines are not a cost but an investment in patient care and do their part to ensure that patients have access to new and innovative medicines that will improve the quality of their lives

Notes to editors:

For more information about this press release, contact the Department of Health press office on 0207 210 5197. Link to the heads of agreement here

Published 6 November 2013