The UK National Health Service Act 2006 provides the statutory basis for controlling the prices of health service medicines.
The prices of branded health service medicines (originator products, branded generics and biosimilars) are controlled under the 2019 Voluntary Scheme for branded medicines Pricing and Access (VPAS) or the parallel Statutory Scheme. In addition to these measures, the prices of medicines are controlled through public procurement procedures and control of reimbursement.
The VPAS is a voluntary scheme, not binding under the laws of contract, negotiated between the Department of Health and the ABPI.
The VPAS controls prices of branded medicines indirectly, by limiting the profits that may be made by manufacturers and suppliers on such products on their NHS business, by reference to a target rate of return on NHS sales, based either on total sales or capital. A margin of tolerance (MOT) of 50 per cent is permitted around the target level of profit. However, if a company exceeds the profit limit by more than the MOT, it will be required to do one or more of the following:
- repay excess profits over and above the MOT;
- reduce prices charged to the NHS to bring profits down to an acceptable level based on available forecasts; or
- delay or restrict agreed price increases.
The VPAS also establishes a budget cap on total expenditure by the NHS on branded medicines, with scheme members required to make scheme payments to the Department of Health (calculated as a percentage of eligible net sales) in respect of excess expenditure. The payment percentage for 2019 is set at 9.6 per cent.
New branded health service medicines introduced by VPAS member companies following the grant of an EU or UK new active substance MA are generally subject to free pricing, as are new products based on the same active substance that are line extensions, launched within 36 months of authorisation of the initial indication in the UK. The Department of Health must be notified of the proposed price prior to launch and will confirm whether the product may be priced freely. The maximum price or NHS List Price of new branded health service medicines supplied by VPAS member companies that do not contain a new active substance must be approved by the Department of Health prior to launch. In reaching its decision, the Department may take into account factors including:
- clinical need;
- the price of other presentations of the same medicine or comparable products;
- the price and operational costs in the EEA and other markets;
- the date of patent expiry;
- estimated quantity of product to be supplied and sales income over five years;
- estimated costs to the scheme member;
- the price at which reasonable costs are met with a reasonable profit earned; and
- the scheme member’s profits over the previous five years.
No VPAS member may increase the NHS List Price of a relevant medicinal product without the Department of Health’s prior approval. Where a company wishes to increase the price, it should provide at least eight weeks’ notice, stating the amount of the proposed increase and the reasons in sufficient detail to satisfy the Department of Health that the increase is justified. A price increase will only be agreed if the scheme member’s estimated and forecast profits for the current and following financial years are below 50 per cent of the target level. No scheme member will be awarded a price increase within 12 months of a previous agreed increase.
If a company is not a member of the Pharmaceutical Price Regulation Scheme (around 10 per cent of companies), it is regulated by the parallel Statutory Scheme, currently set out in the Branded Health Service Medicines (Costs) Regulations 2018 (as amended). The Statutory Scheme is applicable only to branded health service prescription-only medicines. Since 1 April 2018, it has involved a payment scheme, calculated as a percentage of net sales, similar to the scheme payments required under the VPAS. Payments are made on a quarterly basis and for 2019, the payment percentage is 9.9 per cent.
The maximum or NHS List Price of new branded medicines supplied by Statutory Scheme members is directed by the Secretary of State, taking into account factors similar to those under the VPAS, including whether the product includes a new active substance.
A Statutory Scheme member company may apply to the Secretary of State to increase the maximum price of a medicine. Any such application by a manufacturer or supplier must be in writing and must specify the presentations to which it relates, the reasons justifying the increase and the proposed new price.
There is no formal system of international reference pricing in the UK, although the cost of the presentation in other markets is specifically mentioned as a factor for consideration under both the VPAS and the Statutory Scheme.
Unbranded generic medicines
Unbranded generic medicines may be priced at the discretion of the manufacturer, with the expectation that prices will be controlled by competition. Where the price charged for a specific unbranded medicine is viewed as excessive, the Secretary of State has power under the National Health Service Act 2006 to issue a specific direction in relation to the price of that product.
There is no formal reimbursement step or ‘decision’ that has to be undertaken in the UK. Once the price of a medicine has been notified to or agreed by the Department of Health, the product is, in principle, available to be prescribed and reimbursed, unless it is listed in Schedules 1 or 2 to the National Health Service (General Medical Services Contracts) (Prescription of Drugs etc) Regulations 2004, which provide that certain medicines may not be prescribed using NHS prescriptions and others may be prescribed only for certain conditions (the ‘black’ and ‘grey’ lists). In practice, however, reimbursement is controlled through local formularies and national commissioning policies.
In England, most new medicines (and new indications for existing products) undergo health technology appraisal or highly specialised technology evaluation by the National Institute for Health and Care Excellence (NICE), which assesses their clinical effectiveness and cost effectiveness compared with standard care in the UK, and issues guidance to the NHS on use of the new product or indication. NHS bodies in England have a legal obligation to make funding available for treatments recommended by NICE following such assessments, usually within three months of guidance being published. NHS England conducts a prioritisation assessment that determines which specialised services (medicines, medical devices and other health interventions), which have not been assessed by NICE, will be funded on an annual basis. Other medicines, which are not specialised services and have not been assessed by NICE, undergo assessments at local level. Similar assessments to those carried out by NICE are undertaken by designated bodies in Scotland and Wales. Medicines that have not been recommended following an appropriate assessment are unlikely to be routinely available for patient treatment.
Medicines supplied in hospitals are not subject to any co-payment arrangements. However, for products supplied in primary care in England, patients must pay a fixed price for each NHS prescription dispensed, unless they fall within one of the exempt categories (eg, children, the elderly and persons suffering from certain chronic diseases) or the prescription is exempt (eg, certain contraceptives). The overwhelming majority of prescriptions are dispensed free of charge to persons in an exempt category. The current prescription charge is set at £9.00, which, in some cases, exceeds the price of the medicine dispensed. Prescription charges are not levied in Scotland, Wales or Northern Ireland.
Community pharmacies purchase medicinal products from wholesale distributors or directly from manufacturers. They are reimbursed by the NHS Business Services Authority for the products they dispense in the course of providing pharmaceutical services for the NHS, in accordance with the amounts set out in the Drug Tariff, published monthly in England in accordance with the National Health Service (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013/349. Similar regulations provide for equivalent drug tariffs in Scotland and Northern Ireland. Where medicinal products are not listed in the Drug Tariff (most medicines that are still subject to patent protection) or are prescribed by brand, the pharmacy contractor will generally be reimbursed at the manufacturer’s NHS List Price.
Medical devices and in vitro diagnostic tests may be priced at the discretion of the manufacturer. However, as with medicines, prices may be controlled through public procurement procedures and control of reimbursement.
The reimbursement of a medical device depends on the context in which it is used. Many medical devices used in hospitals are reimbursed under tariff systems where the price paid to the hospital by the relevant CCG for the overall treatment includes the cost of the device, which may in turn be purchased under public procurement tenders.
Medical devices may undergo health technology assessment under one of NICE’s parallel programmes, either on the application of the manufacturer or following referral by NHS bodies or clinicians. These will all involve assessment of the clinical use of the medical device and some will also include consideration of economic evidence. In general, the content of NICE’s recommendations and briefings on use of medical devices is advisory only, although intended to avoid the need for repetitive assessment at local level. However a NICE recommendation for use of a medical device following technology appraisal carries with it the requirement for NHS bodies to provide funding for the device to be available as an option for patients, as described above.
Alternatively, medical devices used in specialised services may be assessed by NHS England under its prioritisation procedure, involving consideration of both benefits and costs and comparison with a range of other health technologies, to determine which should be prioritised for NHS commissioning. In some cases, where the clinical data are viewed as inadequate to reach a conclusion on NHS use, a commissioning through evaluation approach is adopted, where use of the device in a limited number of patients over a specified period of time (usually two years) is funded by the NHS and data are collected for the purposes of a final commissioning decision at the conclusion of the process. High cost medical devices may be purchased through NHS Supply Chain, which negotiates with manufacturers on behalf of all NHS purchasers collectively.
In primary care, medical devices, such as appliances and dressings, incontinence appliances, stoma appliances and chemical reagents, are routinely dispensed through the NHS if a reimbursement price, agreed with the NHS Business Services Authority, is listed in the Drug Tariff. The reimbursement price is principally determined by comparing the device with the prices of similar products on the market. If there are no comparable devices or the applicant submits evidence to support a different price, the reimbursement price will be determined by negotiation between the parties. Applications must meet three criteria, supported by evidence: the products are safe and of good quality (generally assumed for all CE-marked products); they are appropriate for GPs and, if relevant, non-medical prescribing; and they are cost effective (eg, as determined by NICE).
The pricing and reimbursement of medicinal products and medical devices are matters of national competence and Brexit (including in the possibility of a no-deal scenario) is unlikely to make a material difference to UK procedures.
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