Firms penalised by statutory price restrictions on branded medicines could receive compensation, says UK government

Out-Law News | 07 Nov 2014 | 11:27 am | 3 min. read

Certain pharmaceutical companies covered by the statutory pricing scheme that lost out when the UK government cut prices of their branded medicines at the end of last year could be entitled to compensation, the Department of Health (DoH) has announced.

The announcement applies to manufacturers in the statutory scheme where a higher price was agreed between that manufacturer and the NHS before the changes to the statutory scheme came into force on 31 December 2013; either through a framework agreement governed by the 2006 Public Contract Regulations or as part of a tender process which closed on or before that date. It follows a judicial review challenge to the new price caps brought by biotechnology company Gilead, which was settled out of court by the UK government.

Many companies joined the 2014 voluntary Pharmaceutical Price Regulation Scheme (PPRS) under which member companies are required to repay are required to absorb the costs of NHS spending on branded drugs above a maximum capped amount. The agreement stipulates no growth in NHS expenditure on medicines in 2014 and 2015, capping the total cost to the NHS at £12 billion a year. The predicted growth for the whole of 2014 was 3.87% but actual growth for the first half of 2014 alone was 5.5%. The current PPRS is intended to last for five years. For 2015 the growth is predicted to be 7.13% and some commentators are estimating that the eventual figure will be around 9.5%.

The statutory price control mechanism, which is set out in the Health Service Branded Medicines (Control of Prices and Supply of Information) Regulations, applies to those companies that choose not to join the PPRS.

Changes to this statutory scheme, which came into force at the end of last year, cut the maximum price payable by the NHS to pharmaceutical companies by 15% of the price charged as of 1 December 2013 so as to put statutory scheme members in no better a position than PPRS members who were assessed to have been disadvantaged. At the same time, the government reserved the right to make further changes to the framework to bring it more closely into line with the PPRS.

Now with the predicted rebates under the PPRS increasing and with the Department keen to ensure that the statutory scheme is not overly attractive the Department of Health has now entered into a consultation on whether maximum prices under the statutory scheme should be reduced by a further 10%. The consultation has just closed.

Paul Ranson, a pharmaceutical industry specialist at Pinsent Masons suggested that "with the forecast of substantial annual rebates under the PPRS, the principle agreed with Gilead could presumably be applied repeatedly to statutory scheme companies which have entered into framework agreements or tenders before any future round of price reductions".

Christian Hill of the pricing and reimbursement consultancy MAP Biopharma notes that "Many companies are currently extremely worried about trust in relation to the Government’s track record on the statutory regulations. They chose the relative stability of the statutory regulations, despite the 15% price cut, only to be faced with  renewed demands from the Department as they seek to make the voluntary PPRS the more attractive ‘lesser’ of the two evils."

Ranson said that a complicating factor is the fact that a response by the Department of Health and NHS England to a Freedom of Information Act request revealed little clarity about where the PPRS payments were going except to say that they were treated as Department of Health income.

Leslie Galloway, the chairman of EMIG, the trade association for small and medium sized pharmaceutical, biotech and medtech companies, said that the consultation itself will increase the perception that the UK is a difficult place to do business even for products that reflect a low cost to the NHS. He said that if implemented, the proposals will cause an adverse effect on global reference pricing which will adversely affect companies and have little or no benefit on UK cost savings as well as an exacerbation of medicine shortages in the UK.

Companies that opted to be governed by the statutory regulations recognised that a 15% price cut – compared to the estimated 8%+ effective price cut over the term of the PPRS – was much more challenging, he said. However, they chose to do so because the statutory regulations offered a degree of stability and predictability compared to the PPRS and this consultation considerably undermines the confidence of companies considering future investment. Galloway also called for the introduction of a ‘taper’ - that had been removed from the PPRS this year. The ‘taper’ would involve companies with UK sales to the NHS of up to £25m being able to claim exemption from the price cut for the first £5m of their sales. He said "this would incentivise SMEs to invest in the UK and send out a very positive message about doing business in the UK".