New legislation currently before the House of Lords will clarify and extend Government powers to regulate pricing and require the industry to disclose more comprehensive pricing information. The legislation will impact companies at all stages of the medicines supply chain.
The legislation: The Health Service Medical Supplies (Costs) Bill 2017 (the “Bill”)
What the Government hopes to achieve – branded medicines
The PPRS is not working as well as the Government had hoped
The current, voluntary Pharmaceutical Price Regulation Scheme (PPRS), which covers about 90% of branded medicines supplied to the NHS, was intended to cap the NHS branded medicines bill at a time of severe financial pressure on the NHS. Controversially, it requires participating life sciences companies to make payments ‘back’ to the NHS if growth in NHS spend on branded medicines exceeds an agreed percentage. This provides a high degree of certainty for the NHS but involves obvious risks for companies. However, it now transpires that the PPRS has not been as successful as the Government had hoped in delivering savings to the NHS. This is partly because some companies have chosen to move out of the PPRS and into the alternative statutory scheme, which does not involve such payments back and which produces lower savings for the NHS.
Closing the gap between the PPRS and the statutory scheme
The Bill will enable the Government to introduce a form of payment ‘back’ into the statutory scheme similar to that in the PPRS. The intention is to discourage companies from moving out of the PPRS. A further potential issue here is that if the PPRS and statutory schemes become very similar then a question inevitably arises about whether it is worth having two schemes at all; statements by the Government during the parliamentary debates have suggested that this issue may be considered later raising the possibility that potentially the PPRS may be phased out in favour of statutory regulation at a future date.
The Government has published draft regulations on an amended statutory scheme and will be consulting on these after the Bill has achieved Royal Assent.
What the Government hopes to achieve – generics
Recent media focus on increases in generic prices
Both the PPRS and the statutory scheme focus on branded medicines. Generic medicines (other than ‘branded generics’) fall outside these schemes and are not currently subject to price regulation as such in the UK. The Government relies on price competition to keep generic prices down, and this has generally worked well. Recently, however, there has been increasing media and Government attention on cases where generic suppliers are alleged to have ‘hiked’ the price of older generic drugs for which there is little competition in the market. A recent headline example of this involved the anti-epilepsy drug phenytoin sodium; in this case the UK Competition and Markets Authority fined Pfizer (£84.2m) and Flynn Pharma (£5.2m) in respect of “unfair and excessive prices” charged for this drug. There have also been suggestions that the price of some generics have been simply been steadily rising over the years without the dramatic ‘hikes’ that characterise such headline cases.
Limiting generic prices through regulation rather than competition
The new legislation will enable the Secretary of State to limit the prices of unbranded generic medicines across the board: this closes a ‘loophole’ in the current arrangements whereby the Government does not have the power to regulate the unbranded generic prices of companies which are members of the voluntary PPRS. Closing this loophole paves the way for the Government to take direct action in relation to excessive price increases in unbranded generics. So far, the Government has said that it intends to use this power only where there is no competition in the market and companies are charging the NHS an unreasonable price. Again, the Government is expected to bring in regulations to achieve this after the Bill has passed.
What the Government hopes to achieve – information requirements
A new, comprehensive power
The Bill will introduce a comprehensive statutory power to require information from manufacturers, distributors and suppliers of both branded and unbranded products at all levels of the supply chain. Currently, some of this information is provided on a voluntary basis and is incomplete. The new power will, among other things, enable better market information about generic pricing to be collected in order to set a more accurate reimbursement price to pharmacies which dispense pursuant to NHS prescriptions and, potentially, to gain information needed to take action on excessive generic price increases.
Detailed and extensive information from all levels of the supply chain
The information which can be required is detailed and extensive including in relation to prices charged and paid, discounts and rebates, revenues and profits. Provision has been made for the protection of commercially sensitive information. Nevertheless, issues have been raised about whether regulations to be enacted pursuant to these provisions may prove overly burdensome and may represent an unjustifiable level of intrusion by Government. Draft regulations have been published, and the Government will be consulting on them after the Bill has received Royal Assent.
The devil in the detail?
In conclusion, the Bill is a short one and has been presented in some quarters merely as a “tidying up” measure. Life sciences companies will, however, wish to follow developments and make their views known to Government on the detail of the regulations to come.
Stevens & Bolton’s Life Sciences team is monitoring developments in relation to the new Bill and the PPRS generally. If you wish to discuss this or any other life sciences issues do please contact Charlotte Tillett, Intellectual Property Partner and Head of Life Sciences or your usual contact at Stevens & Bolton, who will be happy to discuss.