The UK's rebates on drug sales, and introducing the budget constraint into pricing models

Under the UK's Pharmaceutical Price Regulation Scheme (PPRS), drug companies will make rebates of about £550 million in 2016, according to this story.

The PPRS system provides an interesting model. Suppose it involved mandatory rebates, whenever the total drug bill exceeds the government's budget? Then the allocations to the industry would be a zero sum game, just as in the Sander's Medical Innovation Prize Fund approach. Drugs with higher prices would be claims on a greater slice of the fixed budget, at the expense of other less pricey drugs. The government expenditures would not be changed, even if they shifted to broader access to the more expensive drugs, but drug manufactures would be impacted, because more for Peter leaves less for Pauline.

This is probably a feasible way to transition to the optimal delinkage models, which would have more efficient incentive structures. Companies could not claim a loss of revenue, because the government budgets would be fully spent out. Access would improve.

Policy makers would then begin to ask the right questions, which include, most importantly, which set of prices/rewards provide the best incentives to investors in R&D, rather than "how much is this drug worth?." When you only ask, how much is a drug worth, but ignore the budget constraint, the conversation generally leads in the direction of rationing and access barriers.

Pharma industry will pay £550m of NHS 2016 drugs bill
Published on December 22, 2015, by Joel Levy in PharmaFile.Com

Since it was first negotiated by the ABPI in 2014 the industry has paid around £1 billion to the Government

A new financial agreement announced this week as part of the Pharmaceutical Price Regulation Scheme (PPRS), will see the pharmaceutical Industry pay around £550 million in 2016 to help pay for medicines for NHS patients.

The ABPI and the UK Department of Health announced the PPRS payment percentage for 2016 will be 7.80%, a fall of 2.56% on 2015’s level, but more than double that of 2014. The level is based on the growth of medicines expenditure.

This latest deal means the payments are restructured, so that around £200million of the estimated payments for 2017 and 2018 will be brought forward to 2016 to help the Government achieve its promises of additional NHS funding.

The PPRS is a non-contractual scheme through which pharmaceutical companies contribute towards the cost of medicines, with the aim of making the latest treatments affordable for the NHS. The ABPI says pharma made a contribution in 2015 of £202million to the Department of Health under the PPRS, bringing 2015's total to £619million. The industry has paid around £1 billion back to government since the inception of PPRS in 2014, and over the five years of the agreement expects to pay a total of £3 billion.

Meanwhile the forecast spend for the Cancer Drugs Fund for 2016/17 is £340 million, representing a £70 million drop on the previous year as the Fund is reformed in April 2016.

Acting ABPI chief executive Alison Clough says: "By agreeing to bring forward these payments, our industry is showing its commitment to patients so they get the medicines they need and also to improving the flow of new and innovative medicines into the NHS. We know that access to new medicines is patchy across the UK and that there are still barriers in the system.

"The PPRS is unique; combined with the UK having some of the lowest costs for medicines in Europe, it provides us with a real opportunity to use new medicines to help improve health outcomes. We hope today's agreement will help us to make faster progress."

The ABPI reiterated the industry’s call for more focus on modernising the medicines used in the NHS, to accelerate the use of those medicines which are recognised as offering the highest standards of clinical and cost-effectiveness and which have been recommended for use by NICE.