I thank my noble friend for his amendment and am very happy to show sympathy with it, as other noble Lords have done. I will start by stating that the Government’s view is clearly that competition and market forces are the best way of delivering value. Wherever possible, we should ensure that competition is there, that it works and that it involves as many participants as possible. In many instances, that is the way to drive better value. That being the case, my first priority is to look at ways of improving how markets operate, before reaching for the lever of regulation. That principle is guiding our work on the pricing and cost control of medicines and medical supplies.
For that reason, I understand the sentiment behind the amendment. The underlying assumption here is that if the NHS tenders for a product in a competitive market, the tender should always secure the NHS the best possible deal, and that there should be no need for further government intervention. However, while that is the case sometimes, it is not always the case. I will give a couple of examples. The department or the NHS may conduct tenders for a number of reasons, including security of supply. Furthermore, EU procurement rules —of course, that may change in future—which have been implemented into domestic legislation pursuant to the Public Contracts Regulations 2015 mean that, for contracts for products over a certain value, the NHS has to tender such contract opportunities in accordance with the requirements specified in the procurement rules.
Where there is a sole supplier of a particular product, or other factors such as supply or specificity of products apply, a tender exercise in itself is unlikely to result in significantly lower prices. For example, the department has run competitive processes for von Willebrand factor.
This is used to treat patients with a genetic deficiency in the quality or quantity of this protein, which causes problems with blood clotting. Although there are six or seven products that may meet our tender specification, they all have a different concentration of von Willebrand factor, so they are not easily interchangeable. This means that, in practice, the suppliers of such products do not compete on price, knowing that clinicians need access to all the products to select on clinical need and that the department will make awards on this basis.
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For unbranded generic medicines, the Government’s view is that, for the vast majority of medicines, competition in the market works effectively to keep prices down. We have therefore been very clear—and I am happy to repeat those assurances today, as I have done already—that it is our intention only to set maximum prices when companies charge the NHS unwarranted prices because there is no effective competition to keep prices down. Indeed, I have given examples of what some thresholds might look like for the application of such a power.
For branded medicines, the situation is different. It has long been established that an effective competitive market does not generally operate for branded medicines. For the majority of branded medicines, the existence of patent protection—a crucial part of rewarding companies for their innovations—means that no competitor will be available when a tender process is run. For the limited number of branded medicines where there may be alternative branded competitors—for example, biosimilars—products are not easily interchangeable and the level of price reductions does not therefore compare to the price reductions seen in the unbranded generics market. For that reason, it has long been the case that voluntary and statutory pricing schemes do not exclude products that may have been subject to a tender exercise.
The Government acknowledge that, just as is the case for the current statutory scheme, new statutory regulations for branded medicines should not apply to products already under a contract or framework agreement. It is currently the Government’s intention that under the new statutory scheme, products procured under framework agreements that were entered into prior to the regulations coming into force would be exempt from the pricing controls and payment mechanism in the statutory scheme. However, branded products procured after the regulations come into force would be subject to the pricing controls and payment mechanism. Like any other cost, companies would be able to take this into account when proposing a price in response to a new tender. The regulations will, of course, be subject to consultation.
It is worth noting that the 2014 PPRS is a voluntary agreement with the industry, in which the industry voluntarily agreed that products that have been the subject of competitive tenders should not be exempt from the provisions of the PPRS. Companies have chosen to be members of the PPRS despite—or perhaps because of—that feature, as opposed to entering the current statutory scheme.
I say to both my noble friend Lord Lansley and the noble Baroness, Lady Finlay, that I have great sympathy for the intention of their amendments in this group
and the previous group. I would be very happy to meet them individually to discuss the substance of their proposed amendments to see what more could be done, not necessarily through the Bill, but through any other kind of intervention that might be possible, to deliver something that has come up again and is in constant tension with the other thing that we care about, which is access and keeping prices down—something that we all want to achieve. On that basis, I ask my noble friend to withdraw his amendment.