My Lords, I thank noble Lords for their many amendments in this group. They cover two very important aspects of the Bill and I am grateful for the opportunity to provide further clarification.
I will look first at the issue of small and medium-sized enterprises. As noble Lords will understand, the medicines sector is very diverse, with companies ranging from the largest global enterprises with multiple interests to very small companies that manufacture specials on a bespoke basis. The Government have no intention to put unnecessary burdens on companies, and especially not on SMEs. The information that we would require them to keep, record and provide would not be more than companies are currently required to keep for tax purposes. For routine collections, we know that they are not an excessive burden on companies. We heard the director-general of the British Generic Manufacturers Association say at the evidence session for the Bill in the Commons that:
“Providing those data is not a big issue for the majority of our members because it is run from their invoicing system”.—[Official Report, Commons, Health Service Medical Supplies (Costs) Bill Committee, 8/11/16; col. 7.]
For non-routine collections, the illustrative regulations specifically make provision for SMEs, defined here as companies with a UK turnover of less than £5 million,
which can provide information in the form of pre-existing information such as invoices. This is the method by which we currently collect information from pharmacies, and we know that the process places barely any burden on them. We will consult the industry on the definition of an SME and will look also at the different definitions—I am aware that multiple definitions are being used across government. We would rely on the information provisions in the Bill to be able to obtain information to operate any price and cost control schemes. This definition of an SME would make it impossible to obtain information from certain companies and, therefore, it would be much harder effectively to operate our voluntary and statutory schemes. The amendment has the effect, therefore, of limiting applications of pricing controls set out in this Bill to large companies only.
We have considered carefully the application of the statutory scheme to small companies. Our consultation last year proposed that the exemption threshold for the new statutory scheme should be set at £5 million of branded health service medicines sales. This maintains the current statutory scheme arrangement and aligns, as we are trying to do throughout the Bill, with the current PPRS. Most industry responses agreed with this proposal, and the illustrative regulations published to aid discussion of the Bill show how it would be incorporated into the operation of the scheme.
It is also important to note that this bespoke definition is focused on the level of sales rather than company turnover, ensuring that only those businesses that make branded health services medicines sales of more than £5 million a year to the NHS will be included in the schemes. On that basis, any company, including those which fall within the EU definition of an SME, will be included in the scheme only if their sales reach this threshold. Not only does this align with the current PPRS and the Government’s broader aims to support SMEs but this bespoke definition ensures that the focus is kept on sales of branded medicines to the NHS. More details are set out in the illustrative regulations for the statutory scheme that have been published alongside the Bill.
There would, however, as a result of this amendment, be additional impacts to the reimbursement of community pharmacies and GP practices, which is one of the core purposes of the Bill and of the collection of information. Community pharmacies purchase the medicines they supply against NHS prescriptions. The drug tariff sets out a reimbursement price that they will be paid for the majority of medicines. The Government have voluntary agreements in place with manufacturers and wholesalers of unbranded generic medicines and specials. They provide us with information on their prices and volumes, which informs our reimbursement prices. As a consequence of these arrangements, the Government have been able to reimburse community pharmacies more robustly for the products covered by the arrangement.
If SMEs, whether defined as set out in the amendment or under any other definition, were excluded from the requirement to provide information, then not all manufacturers and wholesalers would be included. Reimbursement would be based on large company data alone, with the risk that the prices being
paid by small and medium-sized enterprises would not be reflected in the reimbursement prices, to their disbenefit.
In order for the reimbursement system to work effectively, appropriate data are needed from all parts of the supply chain, both large and small companies. If the prices charged by larger companies were generally lower, and these would be the only prices used to inform reimbursement prices, we would be systematically underfunding community pharmacies. This in turn could drive them to purchase products from the large companies only. The effect of this could be that small companies go out of business leading to less competition.
The third purpose for collection of information is for the Government to be assured that adequate supplies of healthcare products are available and on terms which represent value for money. We recognise that this non-routine provision of information is somewhat different from that associated with reimbursement and running our price and cost control schemes, and this is exactly why we have made provisions for SMEs.
I hope that I have assured noble Lords that the burden on SMEs has been considered carefully. We have provided bespoke definitions for both the price control schemes and the information provisions, in order that requirements are placed only on relevant companies for essential information. Broader definitions would risk both the price control schemes and critically the reimbursement mechanisms failing to work as well as they do now, let alone how they could work in the future.
I turn now to the other effect of the amendment, which is to limit application of the information-gathering powers to medicines and remove medical supplies or other related products from the scope of the clause. In response to the noble Lord, Lord Warner, I will look at the use of language and definitions subsequent to our debate today and provide reassurance that that is being done in the appropriate way and not to create confusion.
The 2006 Act gives the Government powers to control the price of medical supplies, as we have discussed at length, to collect information on medical supplies and to take enforcement action in the event of non-compliance. The Bill changes the 2006 Act in relation to medical supplies by reducing the enforcement penalties from criminal to civil, and aligns medical supplies provisions with those for medicines.
Clause 6 of the Bill brings together in one place all of the information requirements underpinning the provisions within this Bill. Without that information the provisions cannot apply to those companies. Removing medical supplies and other related products from this clause would therefore mean that we would not have the necessary information to put in place and operate a price control scheme if we wanted to and take specific action against instances of unwarranted price rises that come to our attention, although I appreciate that noble Lords have concerns that those two things will never happen in reality. Finally, it would impede our ability to put in place more robust reimbursement arrangements for medical supplies provided by community pharmacies for all the reasons that I touched on in the
context of small and medium-sized enterprises. That is very important information to have to ensure that reimbursement happens properly.
It is right and proper for the Government to have effective powers to gather information regarding medical supplies and other related products in order to improve our understanding of the costs across the supply chain and ensure that those are providing value for money and that we are properly reimbursing community pharmacies. The medical supplies industry is made up largely of SMEs, and my comments earlier reflect my very real concern to ensure that we ask only for essential information that does not provide an additional burden on such companies. On that basis, I ask the noble Baroness to withdraw the amendment.