The price at which the NHS purchases branded medicines in the UK is controlled by two schemes: the 2019 Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) and the statutory scheme set out in The Branded Health Service Medicines (Costs) Regulations 2018 (the Statutory Scheme).

The fundamental difference between the two schemes is clear from their names. VPAS is voluntary and manufacturers or suppliers of branded medicines can choose to sign up. If a manufacturer or supplier elects not to sign up to VPAS (or are kicked out of VPAS) then it will be subject to the Statutory Scheme. In general, the majority of manufacturers and suppliers elect to participate in VPAS as it offers a number of incentives not provided in the Statutory Scheme. Despite the differences between the two schemes, the Department of Health and Social Care (DHSC) state that it aims to maintain broad commercial equivalence between the schemes.

Repayment mechanism

As we have set out in a previous article on VPAS, a key function of these schemes is to keep NHS finances in check through a UK-wide affordability mechanism under which manufacturers and suppliers pay rebates to the DHSC for sales of branded medicines above an agreed allowed growth rate.

The fundamental difference between the repayment mechanisms set out in the two schemes is that VPAS allows a growth rate of 2% per year, whereas the Statutory Scheme allows 1.1%. In addition, VPAS contains an algorithm for calculating the payment percentage for each calendar year based on the previous year’s sales while the Statutory Scheme percentages are baked into the legislative text.

Changes announced

As reported in our previous article, due to exceptional growth in the sale of branded medicines in 2021, stemming in part from demand related to the COVID-19 pandemic, the 2022 VPAS rebate was predicted to jump dramatically to 19.1%. To address this, the DHSC and ABPI announced a one-off amendment to VPAS earlier this year to address the huge expected jump in the rebate and the knock-on impact on scheme members. The rebate for 2022 is now capped at 15%, but according to DHSC’s predictions may rise to a whopping 26% in 2023, the final year of VPAS, to allow the NHS to recoup the amount foregone by the 2022 reduction.

This amendment to the VPAS rebate is not without consequences and on 15 March 2022, the DHSC announced a complimentary update to the Statutory Scheme. The update proposes to increase the Statutory Scheme rebate for 2022 and 2023 to 14.3% (from 10.9%) and 24.4% (from 10.9%) respectively. The update explains that these increases are necessary for two reasons. Firstly, to account for the unexpected increased sales growth in 2021 the payment rates must be increased to stick to the allowed growth rate of the NHS bill for branded medicines of 1.1%. Secondly, since the DHSC realised that there was potential for manufacturers and suppliers to game the system by remaining in VPAS during 2022, benefitting from the reduction in the repayment rate announced in January, and then switching to the Statutory Scheme to avoid the huge estimated hike in the repayment rate that is coming up in 2023.

The update reiterates that the schemes should be commercially equivalent and that failing to maintain this could risk the stability of the system and result in the NHS being financially disadvantaged.

Conclusion

This latest update from DHSC ends the hopes of any manufacturer or supplier of branded medicines of avoiding the huge repayment to the NHS around the corner in 2023.