Guidance

Health Service Medical Supplies (Costs) Bill factsheet

Updated 8 November 2016

The NHS in England spent £15.2 billion on medicines during the financial year 2015 to 2016: over £11.2 billion was spent on branded medicine and nearly £4 billion on unbranded generic medicines. This is a rise of over 20 per cent since 2010 to 2011 and over 7 per cent last year. With advances in science and our ageing population, these costs can only continue to grow. The measures in this Bill will amend the NHS Act 2006 to enable the government to secure better value for money for the NHS from its spend on medicines.

1. Statutory scheme to control the costs of medicines

The costs of branded medicines are currently controlled – in the main - through a voluntary scheme, the Pharmaceutical Price Regulation Scheme (PPRS). This was agreed between government and the pharmaceutical industry in 2014. However, for those companies which choose not to join the PPRS, the government operates a statutory scheme for branded medicines.

The PPRS is based on a payment mechanism: companies make payments back to the Department of Health based on their sales of branded medicines to the NHS. By contrast the statutory scheme operates on the basis of a cut to the published ‘list’ price of branded medicines.

Since 2014, the statutory scheme has delivered significantly lower savings for the NHS than the PPRS. Companies have also divested individual products – or switched completely – into the statutory scheme which has reduced savings through the PPRS.

The Bill amends the NHS Act 2006 to clarify that the Secretary of State can make a statutory scheme for the purpose of safeguarding the financial position of the NHS by ensuring that the costs of branded health service medicines supplied by companies that decide not to join the PPRS can be controlled by the statutory scheme in a similar manner to the voluntary PPRS.

In the autumn of 2015, the Secretary of State consulted publicly on strengthening the statutory scheme by requiring pharmaceutical companies to make payments to the Secretary of State on their NHS medicines sales. The preferred option was to replace the 15% list price cut imposed by the existing scheme with the payment on sales. The consultation also sought views on how to address the problem of excessively priced unbranded generic medicines.

The government published its response on 15 September. The consultation received 51 formal responses from a variety of organisations including the pharmaceutical companies, patient groups, NHS organisations and charities. Whilst NHS organisations were mainly positive, concerns were raised by the pharmaceutical industry – including as to whether the Secretary of State had the primary powers to impose a payment system.

The government reviewed the legislative powers and concluded that amendments should be made to the primary legislation (the National Health Service Act 2006) to put beyond doubt that the Secretary of State has the power to require a payment mechanism in the statutory scheme to limit the cost of health service medicines. This would save the health services across the UK an estimated £90 million per year.

The total spend covered by the statutory scheme was £942 million in 2015 compared to £8,105 million covered by the PPRS.

1.1 Why is the government amending the primary powers?

The Secretary of State consulted on reforms to the statutory scheme, with the government’s preferred option to introduce a payment mechanism broadly similar to that which exists in the voluntary 2014 PPRS scheme.

The Secretary of State carefully considered the responses and concluded that introducing a payment mechanism would deliver the largest savings for the NHS and better align the way the statutory and voluntary schemes work, whilst moving towards a more level playing field for companies in either scheme.

Industry responses queried whether the Secretary of State had sufficient powers to introduce a statutory payment mechanism and made clear they would challenge this view in the courts. The Secretary of State has reviewed the legislation and concluded that amendments should be made to the primary powers to clarify the matter.

1.2 Why is the government aligning the statutory scheme with the PPRS?

The Secretary of State consulted on reforms to the statutory scheme to better align the way the statutory scheme and voluntary 2014 Pharmaceutical Price Regulation Scheme work, to move towards a more level playing field between companies in the 2 schemes.

Reforming the statutory scheme would also enable the department to put more effective cost and enforcement controls in place, whilst increasing the levels of savings on health service medicines covered by the scheme.

2. High-priced unbranded generic medicines

In its review of legislation the government also considered the powers for unbranded generic medicines. For unbranded generic medicines, the government relies on competition in the market to keep prices down. This generally works well, but where there is no competition there have been cases of large price increases. The Secretary of State has the power to control the price of any medicine; however it cannot currently do so when the manufacturer or supplier is in the voluntary scheme. This means that if companies have a mixed portfolio with both branded medicines and unbranded generic medicines and the company has joined the PPRS, no statutory controls can be applied to their unbranded generic products.

The Bill amends the National Health Service 2006 Act to enable the Secretary of State to require companies to reduce the price of an unbranded generic medicine, or impose other controls on that company’s unbranded generic medicines, even if the company is in the voluntary scheme for their branded medicines. The government intends to use this power to limit the price of unbranded generic medicines where competition in the market fails and companies charge the NHS unreasonably high prices for these products.

2.1 Can the government control prices of unbranded generic medicines now?

Current legislation prevents us from applying certain controls (set out in sections 262 and 263 of the NHS Act 2006) to manufacturers or suppliers who are in the voluntary scheme, the PPRS for branded medicines. This means that if a PPRS member company has a mixed portfolio with both branded and unbranded generic medicines, we cannot apply price controls to their unbranded generic medicines. Today, many companies have such a mixed portfolio and therefore, under the current legislation, we are unable to control the prices in most instances.

2.2 Will the government start setting prices of all unbranded generic medicines?

The government’s intention is to use these new powers where due to a lack of competition in the market, companies charge unreasonably high prices for unbranded generic medicines.

2.3 How will the government determine when a price is unreasonably high?

The department will work with the industry representative body and the Competition and Markets Authority to determine when a price is ‘unreasonably high’.

2.4 What instrument will the government use to set prices of unbranded generic medicines?

The NHS Act 2006 enables the Secretary of State to limit prices of medicines by giving directions to a specific company or by making regulations or a statutory scheme applying more broadly. For unbranded generic medicines without competition that are priced unreasonably high, the government is likely to give directions to a specific company after consultation with the industry body. The government will need to keep under review whether this is the most effective way of addressing this issue, or whether in the future, regulations may be more appropriate.

3. Information powers

The government collects information on sales and purchases of medicines from various parts of the health service medicines supply chain under a range of different arrangements and for a number of specific purposes. The plethora of arrangements means that the government has different levels of information about products, does not have a full set of data about all products and is restricted as to how it can use the information. For example, generic manufacturers and wholesalers provide sales and volume data under voluntary arrangements which the government uses to set reimbursement prices for community pharmacies. Because these are voluntary arrangements, the information that is collected is limited to those who have signed up to these voluntary arrangements and therefore, does not cover all products or all companies which limits the robustness of the reimbursement price setting mechanism.

The Bill amends the NHS Act 2006 to bring together the existing information requirements for service medicines and medical supplies in one place in the NHS Act. It also enables the Secretary of State to make regulations to obtain information on sales and purchases of health service medicines and other medical supplies from all parts of the supply chain, from manufacturer to pharmacy, for defined purposes.

The Bill would also amend the NHS Act 2006 to strengthen and expand the statutory footing for existing data collections, which would enable the Secretary of State to access data on more products and from more parts of the supply chain which would improve the data which informs the reimbursement arrangements for community pharmacy and GP practices. The Bill would also amend the NHS Act 2006 to enable the Secretary of State to obtain information on sales and purchases from across the supply chain for health service medicines and medical supplies to evaluate whether the supply chain as a whole, a specific sector, or specific product groups provide value-for-money to the NHS.

3.1 Will you collect data on all medical products and from all actors in the supply chain - from manufacturer to pharmacy?

The amendments made by the Bill will enable the Secretary of State to require all those involved in the manufacture, distribution or supply of health service medicines, medical supplies and other related products to keep, record and supply information. The regulations implementing the information power will detail who will be required to keep, record and supply data and of which products. Subject to consultation, the Secretary of State intends to collect information on a routine basis for the purpose of reimbursement of community pharmacists but for other purposes collections are expected to be non-routine.

The government will share illustrative regulations during the passage of the Bill to further inform scrutiny of the Bill.

3.2 How will the government collect the data?

Under current arrangements the government collects spreadsheets and invoices depending on the arrangement. The government is exploring more automated data collections.

3.3 Will the government ask for profits and revenue information on a routine basis?

The Secretary of State is not intending to ask for information on profits and revenues on a routine basis. The Secretary of State intends to use this power only when there are concerns about whether a product or the supply chain provide value-for-money, for example when a company appears to be charging an unreasonably high price for an unbranded generic where there is no competition in the market to keep the price down and the Secretary of State is considering setting the price.

There is no link between the provisions in the Bill on information collection and the current negotiations on community pharmacy funding. Any decision on community pharmacy funding is not reliant on the provisions in the Bill.

The provisions in the Bill are intended to give the Secretary of State more robust and comprehensive information on the cost of medicines from the supplier to the pharmacy – with the objective of giving Secretary of State greater confidence that it is paying pharmacies fairly for the medicines they purchase and dispense, whilst continuing to provide them with a strong incentive to push down medicines prices.

3.5 Why are these powers extending to medical supplies manufacturers?

Section 260 of the NHS Act 2006 also already provides the Secretary of State with the power to require the medical supplies industry to keep and provide information on any aspects of their business relating to medical supplies. The Bill does not change this or introduce additional requirements on the medical supplies industry in the Act.

The Bill aligns the existing enforcement provisions for the medical supplies industry with those for medicines and makes them much more proportionate. Under existing legislation, sanctions include imprisonment.

The regulations implementing the information power will detail who will be required to keep, record and supply data and of which products. This will enable the Secretary of State to evaluate whether the supply chain as a whole, a specific sector, or specific product groups provide value-for-money to the NHS.

3.6 Is the requirement on the supply chain to keep, record and provide information on costs?

Companies are already required to keep information on sales and income for tax purposes for 6 years and therefore, the requirement to keep and record similar information under the information power should not create an additional burden. Additional burdens would be placed on companies where the government would ask for information to be provided – either routinely or on an ad-hoc basis. The experience with existing data provision under current arrangements is that the burden of providing data is relatively small. The government is exploring more automated data provision to make it easier for companies to provide data.

4. Draft regulations

The government intends to publish draft regulations for the information power and statutory scheme during the Bill’s passage through Parliament to further aid consideration and scrutiny of the Bill.

5. Engagement and consultation

The government has consulted and engaged on the cost of medicines and high-price unbranded generic provisions in the Bill. The government has also commenced engagements with stakeholders seeking views to further develop the information powers. The government has also worked closely with the devolved administrations throughout this process. This engagement will continue throughout the passage of the Bill through Parliament.

Subject to the passage of the Bill through Parliament, the government intends to seek further views from stakeholders on the statutory scheme and information requirements after the Bill comes into force. We are currently anticipating these consultations to take place over spring/summer 2017.