New cost controls and information requirements for medicines and medical products

May 2017

Introduction

The Health Service Medical Supplies (Costs) Act 2017 ("HSMS(C) Act 2017") was given Royal Assent on 27 April 2017. It makes a number of amendments to the National Health Service Act 2006 (the "NHS Act") on matters relating to the control of prices of medicines and other medical supplies, the collection of pricing and other information by manufacturers, distributors and suppliers, and the disclosure of such information for connected purposes.

Control of prices of medicines and medical supplies

There are two regimes that regulate the prices of branded medicines supplied to the National Health Service ("NHS"):

  • the Pharmaceutical Price Regulation Scheme ("PPRS"), which is a voluntary agreement renegotiated between the Department of Health and the branded pharmaceutical industry, represented by the Association of the British Pharmaceutical Industry ("ABPI"), around every five years. Under the PPRS, companies make payments back to the Department of Health based on their sales of branded medicines to the NHS; and
  • a statutory scheme, established by regulatory provisions pursuant to the NHS Act, which allows companies to sell medicines to the NHS at a mark-down to their published ‘list’ prices.

Manufacturers and suppliers to the NHS of branded medicine have had the choice to either sign up to the PPRS voluntarily, or to automatically fall under the control of the statutory scheme. However, while the statutory scheme has been the most widely used of the two, it has delivered significantly lower savings to the NHS than predicted. The Government has also been concerned companies have made commercial decisions to divest individual products from the PPRS to the statutory scheme – further reducing the savings to the NHS – and concluded that the two schemes should be better aligned.

Unbranded generic medicines manufactured by companies that participate in the PPRS in relation to their branded medicines fall outside the statutory scheme, and pricing of unbranded generic medicines has, until now, not been subject to control where the manufacturer or supplier is in the voluntary PPRS scheme. Instead the Government has relied upon market competition to control prices and deliver value for money, with any potential price abuses being a matter for the Competition and Markets Authority ("CMA"). However, the Government has been concerned that in some cases a lack of competition has led to excessive prices being charged for many unbranded generics, with a number of single source unbranded generic medicine manufacturers able to significantly increase the prices of 32 drugs to over 1000% over a five year period. The Times 2016 Report conducted an investigation into companies that it found to be exploiting a loophole relating to off-patent medicines. The Report estimated that the price of a number of unbranded generic drugs had increased to such a point that the NHS was paying an extra £262 million a year.

Aims of the HSMS(C) Act 2017

The aims of the HSMS(C) Act 2017 are to secure better value for money for the NHS from its spend on medicines through providing the Secretary of State for Health the powers to: (i) amend the statutory scheme to align it with the PPRS; (ii) control the prices of unbranded generic medicines; and (iii) require all medicines manufacturers and suppliers to provide information relating to prices.

1. Alignment of PPRS and the statutory scheme

It is intended that the provisions should align the existing statutory and voluntary cost control mechanisms by introducing a similar payment mechanism under the statutory scheme as that under the PPRS regime, to remove the incentives for companies to switch between schemes and to make benefits for NHS irrespective of the scheme chosen by the company. They are also designed to close the parallel import loophole that has arisen as a result of PPRS, in which companies under the single market rules have been permitted to import products initially purchased using European subsidies.

  • Section 3 of the HSMS(C) Act 2017 amends section 261 of the NHS Act, and extends the Secretary of State for Health powers in relation to the voluntary schemes to include a third type of scheme, added under subsection 1, which requires manufacturers and suppliers to pay a certain amount in relation to the sales or estimated sales of any health service medicines. The result of which is that the powers under section 261 will apply to any scheme which requires control of price or profit, or has a requirement to make payments. Should a manufacturer or supplier fail to make such a payment in line with the scheme, subsection 4 provides the Secretary of State power to make regulations to require a manufacturer or supplier to make a payment within a specified time. Where a manufacturer or supplier leaves the voluntary scheme, they will remain liable to make any payments owed from the time during which the medicine is covered by the scheme.
  • Section 4 of the HSMS(C) Act 2017 amends section 262 of the NHS Act, which provides the Secretary of State with the powers to make regulations to limit the prices of medicines and require that any amount paid to manufacturers/suppliers in excess of the set price be paid to the Secretary of State. Currently, these powers cannot be exercised against any manufacturer covered by a voluntary scheme. However, under section 4, irrespective of whether a company has medicines controlled under the voluntary scheme, all medicines produced by a manufacturer that are not subject to the PPRS, can be controlled through the statutory scheme (subject to existing exemptions).
  • It is already possible for the prices of unbranded generic medicines to be controlled by through the statutory scheme. The amendment under section 4 means that the prices of unbranded generic medicines produced by members of the PPRS could also be controlled.
  • Section 5 of the HSMS(C) Act 2017 extends the power of the Secretary of State under 263 of the NHS Act to limit medicine prices and the profits received in relation to the sale and manufacture of a medicine. The new rules require any manufacturer/supplier to pay a certain amount (calculated by reference to sales or estimated sales of those medicines) to the Secretary of State within a certain time period. Thus allowing for the Government to introduce a statutory scheme to control over all spend. Where a medicine is controlled under a voluntary scheme, the statutory scheme will only not apply in relation to that medicine, rather than to all medicines owned by a company.
  • Section 6 of the HSMS(C) Act 2017 relates to enforcement and amends sections 265 and 266 of the NHS Act, to ensure that the enforcement provisions with the Act apply to the new provisions. The Government can apply the penalties in circumstances of non-compliance with a single penalty not exceeding £100,000 or a daily fine not exceeding £10,000 for every day on which the contravention occurs or continues.

2. Control of pricing of unbranded generic medicines

The Act aims to control the prices of generic medicines where there is insufficient competition to regulate prices. It amends section 260 of the NHS Act, to extend the Secretary of States powers to make orders to control the maximum price of medical supplies, and extends some enforcement powers within section 265 of the NHS Act. The provisions in relation to section 260 are contained within Schedule 22 of the NHS Act, they include the power for the Secretary of State to make an order to be furnished with any information considered necessary to facilitate the introduction of a scheme of control and the power to prohibit the doing of anything regulated by the order, except where under the authority of a license granted by such authority. However, before making such an order, the Secretary of State must consult any body which appears to the Secretary of State appropriate to represent persons who manufacture, distribute or supply medical supplies.

3. Pricing information requirements

The HSMS(C) Act 2017 also seeks to streamline the existing information requirements of the NHS Act relating to the cost of healthcare products. Section 8 of the Act inserts a number of new sections into the NHS Act that provide the Secretary of State with powers to require all manufacturers, distributors and suppliers of medicines and medical supplies to provide information on pricing, including:

  • Section 264A, which requires any manufacturer, distributor or supplier of medicines or medical supplies to provide information to the Secretary of State within a certain timeframe including, but not limited to, information on pricing, discounts and profits;
  • Section 264A, which provides that such information can only be used for certain purposes, such as controlling the cost of health services in the UK;
  • Section 264B, which allows the Secretary of State to disclose such information under certain circumstances to certain health service bodies, Government departments and ministers, as well as with bodies that represent the pharmaceutical industry; and
  • Section 264C, which provides that the Sectary of State must consult with representatives of the pharmaceutical industry before making regulations under sections 264A and B.

Details of these new powers will be provided in a separate regulation, and will be subject to further consultation.

Conclusion

The changes to the NHS Act brought in by the HSMS(C) Act 2017 focus upon controlling the cost of health service medicines and other medical supplies, the data recorded by manufacturers, distributors and suppliers relating to pricing and other information for medicines and related products, and the disclosure of that information for connected purposes. During its journey through Parliament, the Bill was the subject of notable discussion and debate, illustrating the complex nature of pricing medicines for the NHS and the difficulty in balancing the interests of the pharmaceutical industry against the need to secure value for money for the NHS.

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New cost controls and information requirements for medicines and medical products

Jemma Emmerson


Jemma is a paralegal in the Patents group based in London.

"It is already possible for the prices of unbranded generic medicines to be controlled by through the statutory scheme. The amendment under section 4 means that the prices of unbranded generic medicines produced by members of the PPRS could also be controlled."