My Lords, I thank noble Lords for their amendments. The noble Lord, Lord Hunt, skipped over the first part of Amendment 3. For the sake of completeness, I shall dwell on it briefly. The amendment would circumvent an important part of the checks and balances around prescribing systems. It would basically do away with the NICE process by going straight from licence to availability with clinicians, which we do not think is the right approach.
The second part of Amendment 3 would link the payment mechanisms for the statutory and voluntary schemes, and Amendment 5 would require us to secure equivalent terms for both schemes. The Government’s intention is for the two schemes to deliver a broadly equivalent—I emphasise “broadly”—level of savings as a proportion of the total sales covered by each scheme. However, to require the terms of each scheme to be the same, which is what the amendments denote, would be inappropriate and would severely restrict the scope for the two schemes to operate in a complementary manner. The idea of equivalence is too strong and would involve there being similar processes, whereas the alignment approach outlined in the Bill would allow for similar outcomes, which is ultimately what we are driving at and would not undermine the complementarity of the two approaches.
The voluntary scheme is a matter for negotiation with industry. As such, there is scope to include a range of measures that reflect the priorities of both sides. To give an example, the current voluntary scheme, the PPRS, includes a range of provisions developed through negotiation with industry that sit alongside the payment mechanism. They include price modulation, which enables companies to put prices up and down as long as the overall effect across their portfolio is neutral. This has commercial value to companies, who may be willing to accept a higher payment percentage as a result.
To give another example, while new medicines in the PPRS are excluded from the PPRS payments, the PPRS payment percentage level is set to achieve the agreed level of savings across both old and new medicines. This means that each company’s share of the income due to the Government will vary depending on the balance of new and old products in their portfolio, with companies which have mainly new products paying less than companies with mainly old products—there is obviously value in that for encouraging innovation.
However, it would be very challenging to replicate this model in the statutory scheme, as many fewer companies are affected by the statutory scheme regulations than are members of the PPRS. As a result, there is a smaller pool of companies with older products. To achieve the same level of savings overall from the statutory scheme as from the PPRS while exempting new products would require an extremely high payment percentage—I think that my noble friend Lord Lansley conceded that point. This provides an example of
where minor differences in terms may be required to deliver an equivalent level of savings across the two schemes overall. The detail of how a future statutory scheme would work will be subject to further consultation that will take place this year.
The freedom to be able to negotiate the voluntary scheme has been valued greatly by both industry and government. We would intend that any future voluntary scheme is established through negotiation in this way, but linking the payment mechanisms as described in the amendments would inevitably place a restriction on that freedom.
Amendment 6 would mean that the Secretary of State’s powers to operate a statutory scheme would be permitted only while a voluntary scheme was in operation—a point that has already been raised. It is clear that the noble Lord, Lord Warner, is keen to retain a voluntary scheme in future and we know that industry values the agreement, which began 60 years ago in 1957 and has been of benefit to both government and the life sciences sector over that time.
The current scheme, the 2014 PPRS, and its predecessors show how government and industry can work together to develop solutions on a voluntary basis for the benefit of patients. Like the noble Lord, I am keen to continue the collaborative and productive relationship that the Government currently have with the pharmaceutical and life sciences industries. With the life sciences industrial strategy coming up, and reflecting on the debates that we have had, it is clear that there is a lot more we can do to enhance that relationship.
However, the amendment would have the effect of giving industry no incentive to agree a voluntary scheme, as there would be no fallback to a statutory scheme in the event of failing to agree a voluntary scheme. Without a voluntary scheme in operation, there would be no scheme to control the cost of medicines—so it would in effect tie one hand behind our back in any negotiations.
The statutory scheme and the PPRS both include provisions for controlling the maximum price of medicines, and these prices are the starting point for negotiation of supply contracts between the NHS and suppliers of medicines. As I think all noble Lords would recognise, removal of both schemes would risk significant price rises.
I am sympathetic to the noble Lord’s intention in tabling this amendment and welcome the opportunity to reassure him and other noble Lords that the Government are committed to continuing a collaborative approach to future medicines pricing arrangements. We firmly believe that it is beneficial to collaborate with industry to develop the successor arrangements to the 2014 PPRS. This legislation should provide the widest possible range of options in order that the best arrangements, whether voluntary or statutory, can be put in place for the benefit of NHS patients.
However, the amendment would have the opposite effect by removing a key incentive for industry to collaborate, and would bring significant risks to the control of the cost of medicines. I ask noble Lords not to press their amendments.