Skip to content

This site uses cookies

By clicking "Accept", you agree to the storing of cookies on your device to enhance site navigation, analyze site usage and enhance user experience. Learn more

Blog

Everyone’s a winner? How patients, the NHS and industry fare from this week’s VPAG deal

Author Georgia Hunt
Published 22 Nov 2023
gettyimages-1248493102.jpg
Share:

Other related content

Healthcare Communication

World AIDS Day: A Reflection on the Power of Patient Engagement

Healthcare Communication

The role of pharma in breaking through the backlog

Healthcare Communication

Action on Antimicrobial Resistance: will the UK rise to the challenge?

Monday 20th November saw the culmination of more than a year’s worth of work across government, the NHS and the pharmaceutical industry. The new Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) announced this week will set the size of the NHS medicines budget for the next 5 years. Negotiations were tense – we heard from both sides that the prospect of not agreeing a deal had never been so real – so it’s positive to see a settlement has been reached.

A version of VPAG has existed for the past 70 years, in an attempt to control the NHS medicines budget, provide predictability and stability to the NHS, government and industry, incentivise investment in the UK and most importantly, ensure UK patients are able to access cutting-edge medicines. The new deal is set to save the NHS £14bn over the next 5 years.

Against the backdrop of an increasingly tight fiscal environment and rebate rates under the previous deal climbing from 5% of revenue in 2021 to 26.5% in 2023, a lot was riding on the new settlement. Industry has argued that the existing rates are punitive and will lead to disinvestment and potential supply shortages in the UK, while government has been reticent to commit more cash with modest economic growth forecasts, an election coming up and ongoing budget and operational pressures in the NHS.

Monday’s announcement only summarised the Heads of Agreement. We won’t have the full detail for a few weeks, but there are already some interesting details emerging.

What’s in the deal?

Probably the biggest win for industry is the doubling of the allowable growth rate from 2 to 4%, and the introduction of an allowed sales baseline adjustment, which will enable a significant increase in the medicines budget of about 6% over the 5-year period. This should see industry returning to more internationally competitive repayment rates by the third year of the deal, which they’ve argued is crucial to be able to continue to invest in the UK and prioritise the country for new medicines launches.

The introduction of an allowed sales baseline adjustment will enable an increase in the medicine budget of approximately 6% over the 5-year period.

New to this scheme is the differentiated payment mechanisms for older and newer medicines. ‘Older’ medicines will be subject to much higher rebate rates than newer medicines, which will be adjusted depending on observed price decline of those medicines. This could be up to 35% of eligible sales. Government argues that this will encourage competition in the market and incentivise innovation, but it could have a massive impact on branded generics manufacturers in particular. Some see this policy to reduce prices of older, but still on-patent medicines as a challenge to intellectual property and the value of these products.

As with most recent voluntary schemes, it’s not just about the money. ‘Wrap around’ commitments are particularly important when the fiscal environment is so tight, because they represent pledges from both sides to improve the wider ecosystem and ensure patients are able to access new, innovative medicines. Recent data has shown that the UK is falling down the league tables in terms of clinical trials, [i] foreign direct investment (FDI), [ii] access to medicines and patient outcomes, [iii] so progress was needed on this front.

The new VPAG makes some other interesting commitments, including a £400m investment facility – funded by industry to boost clinical trials, health technology assessment and manufacturing capabilities.

Pledges around more equitable uptake of NICE-approved medicines will also be welcome, although the deal is lacking in specific commitments around improving access to medicines (i.e. whether medicines are approved by NICE in the first place). Industry was unable to secure significant changes to NICE’s methodologies – particularly the discount rate – which may lead to continued restricted patient access to medicines. Better tracking of variation in uptake of medicines has real potential to shine a better light on the inequalities that exist within the UK, but must be underpinned by proper data collection and analysis to have a meaningful impact, as well as action to address any problem areas identified, of course.

The new VPAG makes commitments to boost clinical trials, helath technology assessment and manufacturing capabilities.

Commitments around increased commercial flexibility will be welcome to industry. This follows a decision from the Competition and Markets Authority (CMA) on 17th November to relax rules on combination therapies. NHS England has committed to consulting on updates to the commercial framework within the first 18 months of the scheme, innovative payment model pilots for ATMPs to explore outcomes-based pricing, and a review to raise the ceiling of the Budget Impact Test (BIT). Industry has long been calling for more commercial flexibility, including indication and outcomes-based pricing – these forthcoming consultations should provide an opportunity to make progress on these issues.  

So overall, what does the deal tell us?

It’s clear that both sides have made concessions. Within the current fiscal environment and an upcoming general election, this might have been the best deal industry could get.

However, the deal is much more complex than in previous years. The older product adjustment means that payment rates will be complicated, and winners and losers in this negotiation will be more pronounced than before. This will mean the deal is likely to divide industry – we’ve already seen it criticised by generics manufacturers.

 2024 is a transition year for the deal and most of the funding from government is backloaded to later in the period – a time when the Conservatives may no longer be in government. With a general election looming and Labour leading by a large margin in the polls, there’s a high likelihood that a Labour Government will find itself having to deliver on a 5-year scheme for one of its priority growth sectors, negotiated by a Conservative Government.

What’s next?

Those in and around the sector will be watching closely for the full details of the deal, to be published in the next few weeks. This should provide more detail on the financial mechanisms, and the other commitments agreed to by government and industry. At the moment, a lot of questions remain around the headline commitments, including detail, timeframes, accountability and success metrics.

Companies will then have until the end of the year to decide whether they want to be members of the voluntary or statutory scheme – the latter of which essentially acts as a (deliberately unattractive) backstop alternative to the voluntary deal.

Once the dust settles, industry will need to hold government to account for delivery. They can hardly be blamed if they are suspicious; government delivery of the commitments in previous voluntary schemes have fallen short of industry expectations. The review of NICE’s methods and processes under the current 2019 scheme is a prime example.

It's important to remember the overall objective of the deal is ultimately to ensure growth of a key industry so that UK patients are among the first in line for the best medicines – helping to improve health outcomes. Time will tell whether this deal delivers that.

 
[i] ABPI. 2023. Getting back on track: Restoring the UK’s global position in industry clinical trials

[ii] OLS. 2023. Life sciences competitiveness indicators

[iii] Kings Fund. 2023. How does the NHS compare to the health and care systems of other countries

© Hanover Communications 2024, an AVENIR GLOBAL company. All rights reserved.

Search

Subscribe