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The UK’s new medicines pricing deal – opportunities and risks for pharma

What pharma needs to know about the new five-year deal


January 2019 saw the introduction of the new Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) in the UK. There are some significant changes, and the complexity of the deal can make it bewildering. So what does it mean for pharma, and what can the sector do to maximise its opportunities and minimise its risks?

The UK government had always set its stock by stability when it comes to agreements on branded medicines pricing: the Pharmaceutical Price Regulation Scheme (PPRS) was first established in 1978, and both the government and, for four decades, the pharma sector valued this continuity and degree of certainty around pricing policies.

This arrangement came to an end in January 2019, with the PPRS being replaced by the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS in industry speak, or VS in the document itself. VPAS is used in this article.)

It’s not just a rebadging of the old agreement – a lot has changed under the bonnet as well. So what are the big differences between the 2014 PPRS and the 2019 VPAS?

Objectives for the scheme

Each of the schemes has set out objectives, and these have changed over time. This time around there are stated objectives in relation to patients, affordability, and finally the economy and innovation. Last time around the objectives were ordered differently, starting with providing stability and predictability, affordability and access, but also reducing bureaucracy and duplication and finally supporting the agenda for life services.

There’s much commonality in the sentiment, but perhaps a difference that might be overlooked lies in the purpose of the scheme, where the 2019 VPAS talks about “engender[ing] improvements over time to health gain relative to expenditure on new medicines across the NHS”.

This is a significant new addition. It signals a push to ensure that the NHS gets a bigger bang for every buck at the level of each medicine, and not just from the overarching scheme (more on that later). This is a key risk for companies under this scheme. It may simply not be enough to be cost- effective: more may be asked of companies if they want to secure uptake of new drugs.

Influence of NHS England

The growing influence of NHS England (NHSE) is very evident from the outset when reading the 2014 PPRS and the 2019 VPAS side by side.

NHSE is listed this time around as a party to the scheme. It is also the only NHS organisation that is name-checked as having an opportunity – alongside the Department of Health and Social Care (DHSC) and the Association of the British Pharmaceutical Industry (ABPI) – to raise any issues with the management and operation of the scheme.

NHSE has sought a far stronger role when it comes to medicines pricing and access since it formally began its work in 2013. NHSE involvement in negotiating VPAS builds on its success in taking on the tendering role and bringing the Commercial Medicines Unit (CMU) in-house, as well as being the gatekeeper for Patient Access Schemes (PAS), both of which were previously the domain of the DHSC. PAS allows companies to table proposals which can help secure a positive appraisal from the National Institute of Health and Care Excellence (NICE). PAS come from previous PPRS schemes and is still available under VPAS.

Staffing at NHSE reflects its greater role and influence on medicines pricing and access, adding new roles for negotiating with companies as well as bringing in former industry executives including Blake Dark, formerly at Sanofi, at the end of 2018. Dark will be working with the DHSC’s Steve Oldfield, also coming from industry and who, as Commercial Commercial Officer, was instrumental in agreeing VPAS.

Getting medicines to patients

Like its predecessor, the 2019 VPAS directly addresses medicines access to patients, with the relevant chapters entitled Access, Uptake and Outcomes. It covers horizon scanning to uptake.

Horizon scanning

This time around the horizon scanning approach will be ‘enhanced’. There are ambitions set for what amounts to better engagement from companies and the use of UK Pharmascan by the NHS. Companies should embrace this opportunity; if they demonstrate that they can and do share what the NHS needs to help forward plan for the arrival of new drugs, that stops the other side from arguing that they are not properly informed.

Whether enhanced horizon scanning really helps uptake remains to be seen; but it’s important for companies to ensure they have done their bit by sharing information.


Engagement is a new focus for the 2019 VPAS. The aim is for strategic engagement between NHSE and NICE and industry to be aligned with existing arrangements, including the Life Sciences Council, the NICE Implementation Collaborative (NICE) and the Accelerated Access Collaborative (AAC).

It’s also about working together to find the most appropriate route for technology evaluation and commercial discussions for individual drugs; in essence a case management approach with a single point of contact for companies too. However, this is going to be focused on the most clinically- and cost-effective products, with a substantial health gain for patients.

Engagement is a key opportunity, as it may shape the appraisal route, and also help to ensure system readiness such as the availability of diagnostics or other infrastructure needed for the appropriate use of new drugs. Yet there is a question of just how many companies and how many drugs this can really be offered to, given the limited capacity at NHSE. And that is aside from the question of the definition and thresholds that will be used to decide what represents the ‘most clinically and cost-effective products with substantial health gain’.

Value assessment and managing uncertainty

Value assessment was in the 2014 PPRS, and it remains in the 2019 VPAS. What is new is that NICE will assess all new active substances (NAS), in their first indication and if they subsequently get a significant new indication. This means all new drugs will get ‘NICE’d’, plugging a gap that has been there since NICE started its work. Whether this represents an opportunity or a risk depends on the drug; sometimes it’s better to avoid a nationwide ‘no’ and secure some access in the absence of NICE. And it won’t happen if there are good reasons for it not to, such as if it’s not a ‘significant’ new indication (although what represents significant has not been defined).

NICE assessment will be accelerated for non- cancer drugs, to bring them up to the speed of cancer appraisals. This is a clear opportunity for companies; they will need to ensure that they are ready for a faster NICE approach, but if they secure a NICE ‘yes’, not only could they see faster uptake in the NHS, they could also leverage that NICE recommendation in other countries too.

NICE will also scope out a review of the methods for Technology Appraisals (TAs) but this will be undertaken only if appropriate by NICE. Industry, plus everyone else, will get a say in the review, if it’s held. This may be touted as a key opportunity by some, but there is a reality check here. NICE has faced questions about its work ever since it was set up in 1999. NICE is adept at navigating criticism, although that doesn’t mean it is averse to change. NICE has evolved over time, for example by including clarification meetings during the appraisal, just one of the many changes introduced over the last 20 years.

While politically it’ll be difficult for NICE not to do a review, it’s going to be hard for industry to convince NICE to make major, if any, changes.

Related to this is the commitment by NICE to clarify its approach to managing uncertainty when appraising new technologies. This includes briefing committees on the types of uncertainty and those that have the most significant impact on cost-effectiveness. This is a key opportunity as individual companies could refine their submissions to highlight the uncertainties for their drugs using NICE terminology. That should resonate more with Appraisal Committees. Of course, it may not solve the basic problem; NICE is – quite rightly – risk-averse. The real opportunity is less about ensuring that Appraisal Committees know about different types of uncertainty and more about NICE (and NHSE) being open to how best to resolve uncertainty, and not just saying no.

NICE’s QALY threshold unchanged

The standard cost-effectiveness threshold used by NICE at £20,000 to £30,000 cost per Quality Adjusted Life Year (QALY) has remained unchanged. The choice of the threshold has always been controversial; some say it should be higher because it hasn’t kept pace with general inflation, let alone the typically higher inflation seen in healthcare systems. Others say it should be lower because there’s empirical evidence that the NHS can get a QALY for far less. This debate wasn’t new for this negotiation, but was a bone of contention once again.

Commentators have made it clear that industry felt that the government was using threats to cut the threshold as a bargaining tool in the negotiations for VPAS. The implications were clear; fewer drugs would be given the NICE stamp of approval.

The question then was how each side could play the communications game to lay blame on the other; would ministers really want to try to win that debate? In the end it was clear that they didn’t have the appetite for that.

Even keeping the threshold the same is seen as a win by industry.

Commercial arrangements

The 2019 VPAS continues with an evolution towards more ‘bespoke’ commercial arrangements that can apply to individual drugs. It’s clear that for the DHSC and NHSE the preference is for a single confidential discount to allow a drug to hit the NICE threshold.

Other options could be available in the future with NHSE, with input from NICE, developing a Commercial Framework. Work must be well underway on this document, and there may yet be a public consultation on it.

Until that is in place, companies will still be able to use PAS, a way to lower the price of a drug, and this time around PAS is open to companies who are not members of the Voluntary Scheme. This is a change; previously companies in the Statutory Scheme couldn’t use PAS (but they could do a deal, just not call it PAS). This is an opportunity for companies outside the Voluntary Scheme to promote their offers to the NHS using consistent terminology. Speaking the same language as your customer is always helpful.

A single UK deal, an end to flexible pricing

Different from the 2014 PPRS is the requirement for companies to offer the same deal – whether agreed in England, Scotland, Wales or Northern Ireland – across all nations. This is both an opportunity and a risk. It could mean that companies just focus on striking one deal in England and then leveraging that across the devolved nations, saving them time and supporting faster uptake. At the same time, they may have to give bigger discounts to all, instead of just to some.

Simon Stevens

Data infrastructure and measuring uptake

There is a commitment to build on the UK’s data infrastructure, such as e-prescribing. The ambition is for more ‘real-world evidence’, which could be included on an indication-specific basis. That’s the closest the VPAS goes towards indication-based pricing, preferring instead to keep uniform prices. This means that the VPAS doesn’t offer the realistic opportunity of indication-based pricing. There is the opportunity to build data that could support indication-based pricing in the future, since data availability can make or break practical implementation of indication-based pricing.

The 2019 VPAS also includes measuring uptake and goes further, to measuring impact on patient outcomes. This could be very significant for all sides, certainly in the long term. This translates to a commitment to work together to improve the Innovation Scorecard. The opportunity for industry is for more data to help hold the DHSC and NHSE to account on keeping their side of the VPAS deal; improving access. The trouble is that a lot of time could be used just on agreeing what to measure, let alone actually measuring it.

There is still the not-so-small issue that just knowing uptake isn’t enough; you really need to compare it to what it should be to draw conclusions about whether there is a problem or not. Overuse is a problem, just like underuse.

Measurement is also going to be needed if there is to be an assessment of the ambition to reach the upper quartile of uptake when compared to comparator countries of the ‘five highest health gain categories’ by the end of the 2019 VPAS, as well as better understanding of variation in uptake and whether it’s warranted or not.

There’s no definition, however, of just what the five highest health gain categories are. The definition matters as this will include, or exclude, individual companies’ portfolios within the efforts. In turn this will limit which companies can use the results to lobby in future.

What is missing, however, is a reference to the comparisons to other countries on medicines use that was in the 2014 PPRS. International comparisons have always been useful for lobbying purposes.

Gone too are reference indicators on the industry more generally, that were called the Pharmaceutical Industry Competitiveness Task Force indications, and which in practice have been picked up by the Office of Life Sciences (OLS) in their annual Life Sciences Competitiveness Indicators. There is the opportunity for industry to link VPAS and the life sciences strategy as VPAS itself doesn’t really do this, as long as the OLS maintains its indicator work.

Affordability mechanism

Introduced in the 2014 PPRS, and included in the new deal, are payments by VPAS members to the DHSC. Payments are worked out based on by how much above agreed growth in branded medicines spend real spend is and shared out across companies. Under the 2019 VPAS at the top line at least, it’s a little simpler with each year having an allowed growth rate of 2%. Under the 2014 PPRS it varied from 0-1.9%.

Unlike the 2014 PPRS, the estimated payment percentages that apply to individual member companies sales are only set out for the first two years of the scheme. This time they’ve been set at 9.6% in 2019 and estimated to be 14.2% in 2020 (this may change as the numbers come in and calculations are run). Previously forecasts were published for the length of the scheme, but they have changed considerably over time, which reflects the government’s greater caution with the new deal.

Of course the reality is a complex set of calculations that is informed by companies delivering key data to the DHSC. There are differences this time around, with the calculations including sales in the VPAS, the statutory scheme, and parallel imports.

There are also exemptions in what gets considered, including exceptional central procurements, vaccines, small company sales and low value sales. The opportunity is therefore for small companies to benefit more this time around, which should be relatively automatic as companies should be able to demonstrate that they meet the exemptions fairly easily.


The 2019 VPAS formalises the budget impact test (BIT), not only by including it in discussions on commercial flexibilities, but also by formalising the requirement to alert the DHSC if forecast sales of new active substances are expected to go over £20m. The BIT was introduced outside the 2014 PPRS and is, in essence, a way to allow NHSE to negotiate with a company if a drug is going to cost more than £20m in any of the first three years after launch. This is further evidence of the influence of NHSE.

New incentives to greater cost-effectiveness

There’s a golden thread running through the 2019 VPAS that wasn’t in the 2014 PPRS, and that is the incentives for companies to set prices at a level where their drugs will be even more cost-effective than the standard cost-effectiveness threshold, in line with the principle section of the 2019 VPAS.

Companies that bring to market the ‘most clinically- and cost-effective medicines’ may get:

  • A single point of contact with NHSE and NICE offering greater consistency and clarity of advice
  • Support from NHSE through enhanced commercial arrangements
  • Complex confidential commercial arrangements, particularly where the drugs have value propositions at or below the lower end of the standard NICE cost-effectiveness range
  • Proactive support for uptake with tailored uptake and implementation support for drugs offering exceptional value and significant health gain, which could involve using NHS RightCare and Getting It Right First Time (GIRFT), commercial flexibilities, or financial or other incentives.

The 2019 VPAS includes the proviso that future changes to NICE methods and processes need to be ‘consistent with improving the health gain achieved by spending on new innovative medicines and support faster adoption of the most clinically- and cost-effective medicines’.

There is an opportunity for companies that are open and willing to offer even better deals to the NHS to be rewarded. The difficulty is in knowing whether NHSE can really deliver its side of the bargain; can it corral the diverse NHS across England to prescribe in line with the volumes that companies will want to see in order to offer big discounts?

To join or not to join?

The alternative to the 2019 VPAS is the Statutory Scheme, in which companies must pay rebates based on a percentage of their total UK revenues. Changes to that scheme were consulted on during the negotiations for the VPAS, with the government proposing raising the charges from 7.8% to 9.9% in 2019, then up again to 15.8% in 2020 and finally reaching 21.7% in 2021.

The ABPI reacted strongly to this steep rise in charges, calling them “punitive” at the consultation stage last August. The DHSC didn’t cover itself in glory, having to issue a clarification note that provided further explanation for how its numbers came about. The note also stated that some details were ‘misstated’ although that didn’t change its numbers. The new Statutory Scheme is now live and rates are set at 9.9% this year, rising to 14.7% next year and then 20.5% in 2021.

Industry saw these changes as a way to make the Statutory Scheme a poor alternative to the VPAS. Some even said it was like holding a shotgun to industry during the negotiation of VPAS.

DHSC membership data shows that 172 companies have chosen to go with the VPAS; the same number of companies that were members of the 2014 PPRS back in February 2018. That suggests little shift between the voluntary schemes and the Statutory Scheme even with their differences, particularly the time-limited exemption to make payments to the DHSC on NAS available in the Voluntary Scheme but not in the Statutory Scheme. Overall VPAS covers more than 85% of all NHS spend on branded drugs.

Still to come

There are provisions in the 2019 VPAS that amount to a future work plan including:

  • Plans for regular review of the approach to horizon scanning with operation details being developed by NHSE, NICE and others, as well as industry
  • Development and publication of the Commercial Framework
  • Agreement on success factors for the VPAS which will be agreed at the first operational review of the 2019 VPAS and then reviewed every year thereafter.

This work plan could present further opportunities for industry. The ABPI can table issues that affect its membership, so companies should be ready with evidence if there are early teething problems with VPAS.

The Commercial Framework is probably the biggest potential opportunity, but NHSE is unlikely to want to open the door to too many drugs no matter what the real price is. After all, NHSE doesn’t know what the next deal will be after the 2019 VPAS runs out and it’s hard to take away drugs once they are available

on the NHS. This means that there is a risk that individual companies and industry as a whole achieve small tweaks. Access may be skewed towards cost-neutral drugs, whether through being priced at the same level as their comparator(s) or through a convincing case of cost offsets to the NHS.

The success factors yet to be agreed may also be an opportunity for industry to try to develop a balanced scorecard to help hold the government to account. Even though the 2019 VPAS has just started, it’s never too soon to plan for the data and evidence that will be needed to support the industry in the negotiation for the next deal. Negotiation will come around quickly as everyone will be distracted by all things Brexit in the interim.

Just as it was under the 2014 PPRS, there is certainty that the DHSC – and the NHS as the recipient of the monies – will get payments, less certain is just what the industry will get in return. The 2019 VPAS may be proved to have been more of an opportunity for NHSE than for industry overall.

By Leela Barham, an independent health economist and policy expert who has worked with stakeholders across the healthcare system, both in the UK and internationally

10th May 2019

By Leela Barham, an independent health economist and policy expert who has worked with stakeholders across the healthcare system, both in the UK and internationally

10th May 2019

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