The Association of the British Pharmaceutical Industry (ABPI) has published a report (the Report) setting out its members' concerns regarding the operation of the 2024 Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG).
VPAG is an agreement between the Department of Health and Social Care (DHSC), NHS England and ABPI, which came into effect on 1 January 2024. It is the latest in a series of voluntary schemes, intended to manage NHS expenditure on branded health service medicines and operates by controlling prices, limiting profits and, importantly, by imposing a requirement for scheme members to make repayments to Government, reflecting NHS expenditure on medicines in excess of permitted growth and calculated as a percentage of eligible sales. A key driver for changes introduced in VPAG was recognition that the level of repayments under the previous scheme had become unsustainably high (21.2% in 2023). Therefore, while industry accepted what is described in the Report as an "exceptionally tough deal" this was in the expectation that the new scheme would, over time, bring repayment rates for newer medicines down to below 10%, consistent with the position up until 2021. However, while the repayment rate for newer medicines was set at 15.1% in the first year of VPAG, the rate for 2025 is 22.9% (with an additional 0.6% payable under an investment programme). The Report describes rates of this magnitude as "unsustainable".
The Report analyses the reasons that repayment rates for newer medicines have ended up so much higher than predicted under VPAG, and calls for the Government to work with industry on its proposed solutions. It also sets out the consequences of requiring industry to pay such high repayments rates, including worse access to medicines for UK patients and lower investment by industry in the UK.
Background
The 2014 Pharmaceutical Price Regulation Scheme (2014 PPRS) was the first voluntary scheme to introduce the concept of repayments by scheme members to cover NHS expenditure on branded medicines in excess of permitted growth, measured against a defined baseline. The 2019 Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) also included a repayment model, and VPAG, the latest voluntary scheme, continued this pattern. VPAG however incorporated substantial modifications to the repayment arrangements under VPAS, which were intended to rectify some of the problems which had arisen with the previous scheme.
It was intended, in particular, that VPAG would avoid the high repayment percentages that were experienced under VPAS. Certain features were built into the scheme to achieve this objective, including higher projected growth rates over the course of the scheme and the introduction of differential repayments rates for "newer" and "older" medicines. Newer medicines are subject to a dynamic repayment rate calculated each year by reference to an allowed growth rate, whereas older medicines are subject to rates between 10% and 35%, determined by reference to the amount of price erosion since a reference date.
However, in December 2024 industry's hopes that VPAG would avoid high repayment rates were dashed when the DHSC announced that the headline repayment rate for newer medicines in 2025 (i.e. the first full year where the repayment rate would be set by reference to the dynamic system in the scheme) would be 22.9%. This was significantly higher than predicted by both Government and industry and is described in the Report as "the highest in the history of the capped Voluntary Schemes".
Any pharmaceutical company that supplies branded medicines to the NHS who is not a member of VPAG will be subject to the broadly equivalent (and in some ways less favourable) statutory scheme. The Government recently published a consultation proposing to amend the legislation setting out the statutory scheme, to increase the headline repayment rate levied on newer medicines in 2025 from 15.5% to 23.8%. To account for a lower rate payable in the first half of 2025, a rate of 32.2% would be applied for the second half of 2025 to companies that paid that lower rate in the first half-year.
What are the reasons for the current high repayment rate?
The Report identifies that a key driver is that the caps in the increase in the spend in medicines under VPAG and its predecessors have been set at figures far below the increase in the NHS's needs for medicines. According to the report, after accounting for inflation, over the last decade of the operation of the caps and repayment mechanism, the market growth of NHS branded medicines has declined by 11%. In the same period, the NHS budget has increased by 33% in real terms.
Work between the ABPI and the DHSC is underway to understand the reasons for the unexpectedly high increase in the repayment rate in the initial years of VPAG. However, early analysis indicates this is due to a range of factors, including increased use of monoclonal antibodies in the hospital setting, increased use of diabetes medicines and challenges predicting how the scheme would operate in relation to "newer" and "older" medicines due to imperfect data available at the time of the negotiations.
The Report also identifies that shifts in policy under the new Labour Government have meant the assumptions on spending and payments used during the negotiations of VPAG under the previous Conservative administration are now out of date. In particular, it identifies that:
- The NHS has received more funding than expected which has led to increased activity to address waiting lists. This has resulted in a higher use of medicines.
- The new Government's NHS 10 Year Plan will require additional front-line care and investment in medicines.
- The new Government has more focus on leveraging health as a driver of economic growth.
The implications of high repayment rates
The Report sets out the severe consequences of high repayment rates together with other adverse market factors, on the availability and use of new medicines in the UK, ultimately translating into worse health outcomes in the UK, including:
- The UK is out of line with comparator countries, with medicines accounting for just 9% of the UK's healthcare spend, compared with 17% (Germany and Italy) and 15% (France).
- The UK has dropped from being first among European countries for the availability of new medicines, to ninth; around 20% of NICE's work programme has been terminated because technologies will not be able to demonstrate cost-effectiveness under NICE's methods; and one year after launch, use of new medicines in the UK is only 52% of the average of comparator countries.
- Between 2017 and 2021, the UK fell from fourth to tenth place in the global rankings for the number of phase III trials it hosts.
- Beyond the short-term budget issues, caused by an unexpected increase in payments, companies have made it clear that the high repayment rates make the UK un-investable from a global perspective and will, if unchanged, also damage new medicines launches.
- The effect of making the UK an unattractive place for investment, including in R&D, is inconsistent with the Government's plans for the life sciences industry being a high growth industry in the UK.
Case studies taken from member companies highlight the practical consequences of a high repayment rate on corporate investment decisions, such as companies deciding it is not worth launching a new medicine in the UK, as well as undertaking hiring freezes in the UK.
The Report contrasts the 2025 VPAG repayment rate of 22.9% (23.5% if the investment payment is included) with similar countries to highlight that the UK is significantly out of line with comparator countries, such as France (5.7%), Germany (7%) and Ireland (9%).
What solutions are suggested in the Report?
The Report calls on the Government to start discussions on how the repayment rate can be brought into line with international comparators, as a matter of urgency. The ABPI invites the Government to explore the following potential solutions:
- Ensure medicines are able to receive the same proportional increase funding as the NHS budget overall. This would sever the link between increased NHS activity and consequent increased use of medicines on the one hand and an unsustainable repayment rate for pharmaceutical companies on the other.
- Move away from a hard-cap on the allowed growth rate, towards a risk-sharing arrangement. The ABPI suggests that such risk-sharing arrangements could include equal-sharing of growth increases above defined thresholds or dynamic allowed growth rates.
The Government is yet to respond publicly to the ABPI's proposals. The implications of high repayment rates identified in the Report have been flagged before, including in responses to a previous consultation on revision of the statutory scheme. On each occasion previous Governments have dismissed the concerns raised. However, in circumstances where the current Government has identified the life sciences industry as one of the potential key drivers of growth in the UK, and given the stark effects on corporate investment set out in the Report, the current Government may be amenable to considering how it can improve industry investment in the UK.
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