Posted: 13 Nov. 2013 7 min. read

Pharmaceutical Pricing Regulatory Scheme (PPRS)

The headlines of the 2014 Pharmaceutical Pricing Regulatory Scheme (PPRS) were published last Wednesday.

This is a voluntary scheme which regulates the prices for branded pharmaceutical medicines across primary and secondary care in the UK, but does not cover generic medicines.  In launching the scheme the Department of Health said that “this breakthrough deal will allow the NHS to increase the availability and use of the best branded medicines and most innovative treatments without risking a spiraling bill for the taxpayer". Furthermore that "pharmaceutical companies will benefit from greater certainty on how much will be spent each year and increased use of new and recently developed medicines.”

The new scheme is significantly different to past arrangements as it is based on an allowed growth rate for the UK medicines bill, rather than a price cut. Any spend on medicines above the allowed growth rate – 0%, 0%, 1.8%, 1.8%, 1.9% from 2014 to 2018 – will need to be repaid by pharmaceutical companies to the Department of Health.  One important difference from the 2009 PPRS is that the 2014 scheme will not include headline price adjustments. It also tackles the risk of continued pharmaceutical spending growth which the UK health departments are struggling to afford in the current financially challenged environment.  Indeed it means that NHS spending on branded drugs –more than £12 billion in 2011/12, will remain flat for two years, followed by small increases of less than 2% in the following three years. This marks a significant saving for the taxpayer when compared to an average growth of 5% in recent years. 

There are some significant exclusions from payments under the scheme including: small companies with revenue under £5m; central tenders including vaccines and pan-flu stockpiling; parallel imports; and new products launched on or after January 2014 (although they are included in the limit on allowed growth).

The industry response, while somewhat more muted, acknowledged the deal as an opportunity to move forward and focus on ensuring NHS patients get access to the medicines they need. In return, industry wants Government to acknowledge that medicines are an investment in patient care and to continue, through initiatives like Innovation Health and Wealth, to address what industry refer to as the historically low patient usage of some innovative medicines in the UK and not to see spending on medicines as simply a cost to be managed.  While the UK does appear to have relatively lower spending per head on pharmaceuticals than some countries, this is mainly due to the fact that the UK spends much less per head as a result of the more competitive generics market than the low levels of prescribing.

A statutory scheme will run in parallel to these voluntary arrangements, for any companies who do not wish to join the voluntary arrangements. These companies will be required to cut prices by 15%. To date, the majority of companies have joined the voluntary scheme and the statutory scheme has mainly been used by smaller companies. The Government considers that the 15 per cent cut is reasonable given the reduced certainty offered by a price cut in limiting growth in the NHS branded medicines bill.  Given this price cut, the expectation is that fewer companies will join the statutory scheme this time around.

Meanwhile patient groups welcomed the fact that the pharmaceutical industry and Government appear to have found a way to work together to address pricing of branded drugs but question whether the Government’s promise of “an equitable system of access to drugs where the price would represent real value for money” will be met by this new scheme. However, alongside the PPRS, the National Institute of Health and Care Excellence (NICE) will continue its work to introduce broader value assessments for medicines covered by value based pricing (VbP). It had been expected that this would be launched at the same time as the new PPRS scheme, but it will now be introduced in Autumn 2014, following a public consultation.  The VbP system is expected to include consideration of wider societal benefit and burden of illness.  The NICE threshold will remain at a level consistent with the current range for the duration of this scheme and NICE will not negotiate publicly set, or indicate prices. Patient Access Schemes will continue.

On balance we believe that this new PPRS scheme is a good outcome for industry, for the Government and for patients. While there is some concern that this agreement might make the UK a less attractive place for investment and could stifle growth or patient access, we consider that this new scheme should actually support growth by improving patients’ access to the products they need while, on balance, being relatively benign for industry.

The repayment approach should remove concerns about the impact of international reference pricing and thus avoid launch delays or non-launches in the UK.  Concerns have been voiced by industry that the small company exemption is not high enough and on the level of price cut in the statutory scheme. However, these are relatively minor issues in the context of the broader scheme. Full details of the scheme will be published in time for the scheme to be implemented on 1 January 2014.

Key contact

Karen Taylor

Karen Taylor

Director

Karen is the Research Director of the Centre for Health Solutions. She supports the Healthcare and Life Sciences practice by driving independent and objective business research and analysis into key industry challenges and associated solutions; generating evidence based insights and points of view on issues from pharmaceuticals and technology innovation to healthcare management and reform. Karen also produces a weekly blog on topical issues facing the healthcare and life science industries.