My Lords, this is a short and focused Bill, which is vital not only for the NHS but for patients. The Bill’s provisions have received robust debate and scrutiny in the other place, but also, I am pleased to report, broad support for their aims, objectives and measures from all sides of the House.
NHS spending on medicines is second only to staffing costs. The Health and Social Care Information Centre estimated that the NHS in England spent more than £15.2 billion on medicines in 2015-16—a rise of nearly 20% since 2010-11. With advances in science and our ageing population, these costs can only continue to grow. This is true across the world.
Of course, medicines are a vital part of patient care in the NHS, both in hospitals and the community. Thanks to the research and development efforts of the life sciences industry—an industry which contributes £56 billion and tens of thousands of jobs to the UK economy every year—our understanding of diseases and the best way to treat them has improved dramatically over the past 20 years. I have got to know many businesses in the life sciences industry over the past six months. They include some of the finest companies in the world—from Japan, the USA, Europe, Israel and other countries, as well as the UK. My message to
them is clear: “You are part of the solution, not part of the problem. Your new innovative products can both provide better care and help the NHS deliver care at an affordable, sustainable cost”.
We recognise that we have a diffusion problem in the NHS—diffusion more than innovation. I would characterise this as a treacle problem. For a whole host of reasons—not just financial, by any means—we in the NHS are slow at uptake. This problem has been addressed in the Accelerated Access Review, chaired by Sir Hugh Taylor and Professor Sir John Bell, and it will be a key part of our life science strategy as we move forward. Our ambition is for the UK to be the best place in the world for life sciences: for research, development, innovation and manufacture and for use by our patients. Nothing in the Bill stands in the way of that. I would argue that the structure of the NHS—the biggest single-payer health system in the world—our access to patient outcome data and our exceptional discovery and translational research base should mean that we are well placed to have our cake and eat it, with new innovative medicines and devices at an affordable cost. To pursue that rather weak culinary metaphor, the treacle can become the icing on the cake.
The purpose of the Bill is to clarify and modernise provisions to control the cost of health service medicines and to ensure that necessary sales and purchase information can be appropriately collected and disclosed. These provisions will align the statutory and voluntary cost-control mechanisms currently in existence, allow the Government to control the cost of excessively priced unbranded generic medicines and ensure that we have comprehensive and accurate data with which to reimburse people who dispense medicines. Taken together, these measures will secure better value for money for the NHS from its spend on medicines.
The first element of the Bill relates to controls on the cost of branded medicines. For many years, the Government have had both statutory and voluntary arrangements in place with the pharmaceutical industry to limit the overall cost of medicines to the NHS. Companies can choose to join either the voluntary scheme or the statutory scheme. The current voluntary scheme is the 2014 pharmaceutical price regulation scheme, known as the PPRS. The objectives of the 2014 PPRS include keeping the branded health service medicines bill within affordable limits, while supporting the availability and use of effective and innovative medicines. For industry, the PPRS provides companies with the certainty and backing they need to flourish in the UK and in global markets. The current PPRS operates by requiring participating companies to make a payment to the Department of Health of a percentage of their NHS sales revenue when total sales exceed an agreed amount. So far, the PPRS has resulted in £1.45 billion of payments, all of which have been reinvested into the health service for the benefit of patients.
For those companies not in the PPRS, the Government operate a statutory scheme, which—until the current PPRS—was broadly financially aligned with previous voluntary schemes. The current statutory scheme is based on a cut to the published list price of products, rather than a payment mechanism on company sales.
The difference between the two schemes has led to some companies making commercial decisions to divest products from the PPRS to the statutory scheme. This pricing misalignment of the two schemes makes no sense.
Last year, the Government consulted on options to reform the statutory medicines pricing scheme by introducing a payment mechanism broadly similar to that which exists in the PPRS. Our intentions were to put in place both a voluntary and a statutory scheme which were broadly comparable in the savings they achieve. Companies have freedom to decide which scheme to join and may move from one to the other, depending on the other benefits they offer, but it is the Government’s position that the savings to the NHS offered by each scheme should be broadly the same. In response, while NHS respondents supported our position, the pharmaceutical industry queried whether the Government had the powers to introduce a statutory payment scheme.
The Bill will clarify the existing provisions in the National Health Service Act 2006 to put beyond doubt that the Government can introduce a payment mechanism in the statutory scheme. The Bill would also amend the NHS Act 2006 so that the existing provisions for enforcement action would apply to the new powers. Payments due under either a future voluntary or statutory scheme would be recoverable through the courts, if necessary.
The powers to control the cost of medicines proposed in the Bill are a modest addition to the powers already provided for in the 2006 Act to control the price of, and profit associated with, medicines used by the health service. However, these additions are necessary to ensure that government have the scope and flexibility to respond to changes in the commercial environment. The intended application of the powers will be set out in regulations, on which we intend to consult as soon as we are able to do so. The Government have already published illustrative regulations to demonstrate how the powers will be exercised in a fair and proportionate way.
I would also like to reassure noble Lords and those companies in the statutory scheme that we will consult further on the implementation of a payment mechanism in the statutory scheme, including the level of the payment mechanism, before any regulations come into force. We estimate that 17 companies will be affected by the introduction of a payment mechanism, with the 166 companies that are currently members of the PPRS not affected. Small companies will continue to be exempt from payments. Our proposals will save the health services across the UK an estimated £90 million per annum.
I now turn to the second key element of this Bill, which amends the National Health Service Act 2006 to strengthen the Government’s powers to set prices of medicines where companies charge unreasonably high prices for unbranded generic medicines. We rely on competition in the market to keep the prices of these drugs down. This generally works well and has, in combination with high levels of generic prescribing, led to very significant savings. However, we are aware of some instances where there is no competition to
keep prices down and companies have raised their prices to what look like unreasonable and unjustifiable levels. This was also highlighted by the Times earlier this year.
We cannot allow this practice to continue unchallenged. My department has been working closely with the Competition and Markets Authority to alert it to any cases where there may be market abuse and to provide evidence to support this. Earlier this month, the Competition and Markets Authority issued its highest fine ever of £90 million against Pfizer and Flynn Pharma after finding that each broke competition law by charging excessive and unfair prices for anti-epilepsy drugs in the UK, and only last week the CMA issued a statement of objections alleging that Actavis UK has breached UK and EU competition law by charging excessive and unfair prices in relation to the supply of hydrocortisone in the UK. Those CMA findings are provisional, and no conclusion should be drawn at this stage that there has in fact been any breach of competition law. We also know that Concordia International, one of the companies that featured in the Times investigation, is under investigation by the CMA. It announced this itself.
We also need to be able tackle this practice within our own framework for controlling the cost of medicines. While the Government’s existing powers allow us to control the price of any health service medicine, the current powers do not allow controls to be placed when companies are members of the voluntary PPRS scheme. Today, most companies have a mixed portfolio of branded medicines and unbranded generic medicines, and therefore we are currently unable to act. I have to stress that this is not a widespread practice in the industry. This Bill amends the National Health Service Act 2006 to allow the Government to control prices of these medicines, even when the manufacturer is a member of the voluntary PPRS scheme. We intend to use the power where there is no competition in the market and companies are charging the NHS an unreasonably high price. We will engage with the industry representative body, which is also keen to address this practice, on how we will exercise this power.
The final element of the Bill will strengthen the Government’s powers to collect information on the costs of medicines, medical supplies and other related products from across the supply chain from factory gate to those who supply medicines to patients. We currently collect information on the sale and purchases of medicines from various parts of the supply chain under a range of different arrangements and for a range of specific purposes. Some of these arrangements are voluntary while others are statutory.
The Bill will streamline and expand the existing information requirements in the National Health Service Act 2006. The Bill will enable the Government to make regulations requiring all those involved in the manufacture, distribution or supply of health service medicines, medical supplies or other related products to record, keep and provide at request information on sales and purchases. The requirement to provide this information would be for defined purposes: reimbursement of community pharmacies and GPs; determining whether value-for-money is being achieved from the supply
chain or products; and controlling the cost of medicines. This will put the current voluntary arrangements for data provision with manufacturers and wholesalers of unbranded generic medicines and manufactured specials on a statutory footing.
Because the arrangements are voluntary, they do not cover all products and companies, limiting the robustness of the reimbursement mechanism. The information power would also enable the Government to obtain information from across the supply chain to assure themselves that the supply chain is delivering value for money, something that we cannot do with our existing, fragmented data. The new power will provide insight into where profit is made and how much. This is important because, although the Government are generally not the buyer of these products, they pay for all products used in the health service.
The 2006 Act already provides powers for government to control the prices of medical supplies. We are not using those powers at the moment, nor do we currently see any reason to start using them, but we want to keep open the possibility, and in the Bill we are updating the powers in line with those for medicines. The term medical supplies, as defined in the 2006 Act, is capable of covering a wide range of medical supplies from bandages to MRI scanners. Many of these products are bought following competitive tendering, and a scheme that controls prices would therefore not bring any benefits.
I also reassure the House about the application of this information power to the medical technology industry. Over 99% of the companies supplying medical technologies to the NHS are SMEs. We have no interest in placing large additional burdens on these companies. The 2006 Act also already requires suppliers of medical technologies to provide information on almost any aspect of their business. We are not putting any new requirements on them but merely streamlining existing requirements.
I thank the devolved Administrations for their constructive input and engagement with my department with respect to the Bill provisions. The Bill reflects the agreement between the Government and the devolved Administrations that information from wholesalers and manufacturers will be collected by the Government for the whole of the UK and shared with the devolved Administrations, while information from pharmacies and GP practices will be collected by each nation. This avoids the burden created by each country collecting the same information.
The Bill will ensure there is a more level playing field between our medicine pricing schemes, while ensuring the decisions made by the Government are based on more accurate and robust information about medicine costs. I believe this legislation will establish a framework that is fairer for industry, pharmacies and the NHS, while also being fairer for patients and taxpayers. I beg to move.
11.52 am