Pharmaceutical price regulation in the UK

This article summarises the Pharmaceutical Price Regulation Scheme (PPRS) and provides a summary of the main issues which it gives rise to. 

The PPRS is a voluntary agreement between The Department of Health acting on behalf of the UK Government and Northern Ireland and the Association of the British Pharmaceutical Industry (ABPI), which represents the research-based pharmaceutical industry.

The overarching principles and objectives of the PPRS are to:

  • provide stability and predictability;
  • ensure that the branded medicines bill of the NHS stays within affordable limits
  • improve access to innovative medicines;
  • reduce bureaucracy; and
  • support the Government’s growth and innovation agenda.   

The PPRS is agreed on a five year basis, the current PPRS started on 1 January 2014 and regulates the profit that companies can achieve on sales to the NHS rather than regulating prices directly. ABPI membership is not a prerequisite to be a member of the PPRS.  Any manufacturer and supplier that is not part of the PPRS is subject to a statutory scheme of price control and any directions made under sections 282 to 284 of the National Health Service Act 2008.  Those sections do not apply to members of the PPRS.

The products covered by the PPRS are branded, licensed, health service medicines supplied by PPRS members.  A health service medicine is a medicinal product used to any extent for the purposes of the health service.  A branded medicine means any medicinal product for which a marketing authorisation has been granted and to which the proprietor applies a brand name that enables the product to be identified without reference to the generic title.  The scheme does not apply to sales of medicines for supply on private prescription or for over the counter sales. 

The main features of the PPRS are as follows:

  1. The PPRS provides a framework for determining reasonable limits to the profits to be made from the supply of branded medicines to the NHS.  There are two targets; one in respect of return on sales and one in respect of return on capital.
  2. There is a PPRS payment mechanism pursuant to which PPRS members make percentage payments based on the difference between an allowed percentage of growth and the actual percentage growth in NHS expenditure on branded medicines (as measured by scheme members’ sales). Note that members with sales of scheme products of less than five million pounds in the previous calendar year will not be required to make PPRS payments.
  3. PPRS members may not increase the NHS list price of any PPRS product without approval, although there are exceptions to this including the rules on flexible pricing or ability to price modulate. Flexible pricing allows a scheme member to apply for an increase or decrease to a medicine’s original list price in the light of new evidence or a different indication for use being developed. Price modulation allows companies to adjust NHS list prices up or down as long as the overall effect across the company’s whole portfolio is neutral.
    New active substances may be priced at the discretion of the PPRS member on entering the market although it is expected that they will be set at a level that is close to their expected value as assessed by NICE. The uptake of a new medicine should not cause the PPRS member’s allowable return to exceed the margin of tolerance (MOT).
  4. There is a requirement for any PPRS member with home sales of NHS medicines of fifty million pounds or more in its financial year to provide an Annual Financial Return (AFR) of which 20% will be selected for a full independently reviewed AFR.
  5. There is a requirement to notify the NHS if there is a change in overall distribution arrangements during the lifetime of the PPRS.

In relation to issues that have arisen around the PPRS mechanism there is a dispute resolution procedure which has resulted in a number of queries.  For example, in a February 2016 decision Novartis argued that its Ultibro Breezehaler should be classified as a ‘new active substance’ which could be priced at its discretion. The panel, however, decided that Ultibro should be classified as a new fixed dose combination product rather than a new active substance and must be included in the PPRS payments. In a 2015 decision Pfizer was successful in challenging the treatment of certain historic cash overpayments.

The PPRS occasionally crops up in the context of disputes that involve pricing. For example in the landmark competition law case of Napp Pharmaceutical Holdings Limited v Director General of Fair Trading it was argued that constraints on pricing imposed by PPRS would have prevented prices being offered by Napp Pharmaceuticals from being excessive prices in breach of competition law.  The tribunal rejected this contention stating amongst other things that PPRS only analysed overall return on costs and sales and not whether individual prices charged were appropriate or indeed lawful from a competition law perspective.

The PPRS has also been under discussion in relation to a recent case involving the de-branding of phenytoin sodium capsules. In August 2015 the Competition and Markets Authority (CMA) issued a statement of objections to Pfizer and Flynn Pharma alleging abuse of a dominant position by charging excessive and unfair prices in the UK for the anti-epilepsy drug phenytoin. The statement set out that Pfizer had manufactured phenytoin sodium capsules and supplied them to Flynn Pharma, which then distributed them to UK wholesalers and pharmacies. Prior to September 2012 Pfizer manufactured and sold the capsules in the UK under the brand name Epanutin. It then sold the UK distribution rights to Flynn, which de-branded the drug and started selling its version in September 2012. Pfizer continued to manufacture the drug, but sold it to Flynn at prices that were significantly higher than those at which it had previously sold it in the UK. Flynn then sold the drug on to customers at even higher prices – Flynn’s prices were between 25 and 27 times higher than those previously charged by Pfizer in the UK. It appears that Flynn was able to charge these prices because, although it is an established drug used by about 50,000 patients in the UK, there is little competition in the UK in respect of it. Both the PPRS and the statutory price control scheme apply to branded drugs, so that by de-branding a drug a company can bring it outside these price controls. The Government’s assumption has been that prices for non-branded, generic drugs will be effectively controlled by competition in the market.  In this case, however, that competition seems to have been lacking.  No final decision has, however, yet been issued by the CMA. Pfizer has stated that the drug was making losses, so it was obliged to consider whether to continue supplying it at all; selling the distribution rights to Flynn ensured a sustainable supply.

 

If you need further information in relation to the PPRS or its operation, please feel free to contact partner Gustaf Duhs on gustaf.duhs@stevens-bolton.com

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