Proposed changes to the Statutory Scheme for branded medicines will likely deter investment in developing, researching and launching new medicines in the UK, limiting patients’ access to treatment and clinical trials, according to new analysis.
The review by NERA Economic Consulting [1], commissioned by the Association of the British Pharmaceutical Industry (ABPI), raises serious concerns about the analysis, assumptions and approach taken by the Department of Health and Social Care (DHSC) in its consultation on proposed changes to the Statutory Scheme [2].
Both the Statutory Scheme and the Voluntary Scheme (VPAS) require companies to pay back a percentage of their NHS-branded medicines sales each year to DHSC [3]. These payments are on top of NICE’s assessment of value for money, separately negotiated discounts with the NHS and other business taxes.
A NERA team led by Senior Managing Director George Anstey found the DHSC Statutory Scheme proposals to be solely focused on just one of its three stated objectives – constraining the costs of branded medicines. This narrow focus critically undermines the other key objectives, which include: ensuring that medicines are available and on reasonable terms that account for the costs of research and development; and the need to support the UK life sciences sector and the broader economy.
The NERA team determined that the proposals are likely to deter investment in developing and launching new medicines in the UK, and could result in low-margin medicines being withdrawn from the UK market, limiting NHS patients’ access to medicines.
It suggested that companies may also not locate clinical trials in the UK if they perceive it to be unsupportive of innovation, further limiting patients’ access to cutting-edge treatments which are often accessed through such trials.
The report was critical of how the DHSC valued and offset the potential impact of its proposals on investment in UK research and development (R&D), relying on overly simplistic assumptions about how R&D investment would be affected by the proposals and failing to account for the long-term health benefits of developing new medicines.
The NERA team also found the DHSC’s impact assessment to have a systematic bias toward inflating the health and economic value of industry payments to the NHS over and above any wider health and economic impacts their proposals might have.
Richard Torbett, Chief Executive, ABPI, said: “NERA’s analysis raises serious questions about the quality, underlying assumptions, and objectives of the Statutory Scheme proposals, and these must be fully addressed before any final decisions are taken.
“While we recognise the very acute financial constraints the government faces, left unchanged these proposals will do serious harm to the UK’s reputation as a global centre for life sciences.”
The NERA team’s analysis suggests the DHSC proposals to be overwhelmingly driven by the single overriding objective of constraining the growth of branded medicines sales to the NHS to a two per cent annual growth cap.
DHSC offers no justification for the specific two per cent cap. It is not explicitly linked to any information about NHS budgetary pressures, and nor is it assessed against existing seven per cent inflation expectations or the demographic pressures from an ageing population that are likely to drive changes in the volume of NHS demand for branded medicines [4].
The NERA team concluded that the proposed two per cent cap needed to be higher to account for the quality and extension of life benefits that medicines bring to UK patients, while also accounting for the upward inflationary and demand pressures on total sales. The cap was therefore likely to deter investment in the development and launch of new medicines in the UK market.
Finally, the report was critical of DHSC proposals for a new mechanism called the Life Cycle Adjustment, which aims to implement even higher rebates in parts of the medicines market deemed by the DHSC to be insufficiently ‘competitive’.
The NERA team found that the DHSC definition of competition was highly inconsistent with the existing precedent set by the Competition and Markets Authority (CMA). The impact assessment for the Life Cycle Adjustment failed to account for inefficiencies arising from its proposals, miscalculated the likely costs and benefits, and appeared not to have followed the government’s ‘Green Book’ guidance on policy selection.
Such fundamental failures in the consultation and impact assessment may make any changes to statutory terms vulnerable to future legal challenges unless significant changes are made. This consultation and all subsequent statutory scheme consultations should be reviewed by the Better Regulation Executive (BRE) to ensure proper independent scrutiny of such a materially significant scheme.
George Anstey, Senior Managing Director, NERA Economic Consulting, said: “The ability to make informed policy choices relies on an accurate picture of the cost and benefits of any decision. The findings set out in our report suggest that this consultation falls well short of this goal. These proposals will likely lead to clawback payments worth billions of pounds from industry to the DHSC without a true assessment of the wider costs and benefits to the UK economy. On this basis, DHSC should be held to a higher standard and be subject to greater independent scrutiny than is currently the case.”
