Trying to get clarity on CDF and VPAS and implications for the IMF

Companies who are thinking about seeking funding via England’s new Innovative Medicines Fund (IMF) need to think through all the commercial implications, including whether spending in the IMF counts towards rebates made against sales through the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS). With the IMF not yet used, but based on the Cancer Drugs Fund (CDF), Leela Barham used a freedom of information request to find out how the CDF spend is treated, and speculates as to what that might mean for the IMF.

2019 VPAS shapes commercial realities for companies

The 2019 VPAS is the latest in a long line of negotiated agreements that cover NHS spending on branded medicines, running from 1 January 2019 and due to end on 31 December 2023.

The VPAS undoubtedly shapes commercial realities for companies selling branded medicines, as those companies in the scheme - not quite all, but most of the market - have to pay back a percentage of the value of their sales to the Department of Health and Social Care (DHSC). It’s not called a sales tax, but a sales tax is what it is. The tax rates have been rising over time, starting at 9.6% in 2019, and could be in the region of 30% for 2023 once final calculations have been completed by the DHSC.

For company bottom lines, it matters just what sales this rebate applies to, since the deal also sets out when the rebates don’t apply. Exemptions include exceptional central procurements, centrally procured vaccines, small company sales, and low-value sales (when the NHS list price is less than £2). Companies that bring New Active Substances (NAS) to the market don’t have the rebate applied to those sales for the first 36 months after marketing authorisation, rather, rebates due on these sales are paid by all VPAS members.

‘Other’ influences on commercial realities

The 2019 VPAS is a big influence on the bottom line, but in the complex pricing and reimbursement landscape that is now the UK market it’s not the only one.

Of particular interest to companies, partly because the alternative is few, if any, sales are ‘special’ funds that can allow a company to bring in revenue for a product, even when there are questions about its value. It’s not just good for the company: for patients, these can be treatments that can make all the difference to them. As ever, the controversy is about the trade-offs and just where to draw the line.

For England, an example is the Cancer Drugs Fund (CDF). It’s been around for some time, having first been introduced in 2010 on a regional basis. In 2022, it’s now worth £340 million. It’s got a few bells and whistles, too, when it comes to the money. Companies will typically have had to discount to get on it, maybe a couple of times along the journey to get there, and as part of companies having their product in the fund they have to agree – collectively – to pay back should more than £340 million in a year be spent. That’s a policy overhang from when the fund was first introduced, and it blew the budget.

The CDF predates the 2019 VPAS by nine years. At the time the CDF came in, the 2009 Pharmaceutical Price Regulation Scheme (PPRS) - the old name for VPAS - was in place and that relied on profit control and price cuts, not rebates, to help keep the branded medicines bill in check.

The PPRS changed over time, and the 2014 PPRS first introduced a cap to NHS branded medicines spending delivered via rebates. That meant that some clarity was needed about how the CDF sat alongside the deal. Ann addendum to the 2014 PPRS explained that CDF spending did count in calculating rebates, but only up to pre-specified amounts, each of which was under £340 million, except for 2015/16. In 2018/19, it was set at £280 million (pro-rated for the 9 months that 2014 PPRS covered; the last quarter of that financial year was covered by the 2019 VPAS). Any spend over that would not count and, therefore, would reduce the overall payments that companies would need to make.

Just what the real benefit of this quasi in and out treatment of CDF spending that was used in the past amounted to is not clear, or at least has not been found in the public domain.

Such an addendum is not attached to the 2019 VPAS and, whilst the CDF gets mentioned twice in the main agreement, it doesn’t cover whether CDF spending is in, or out. No mention of the CDF is in the annexes. The question has, therefore, been whether the approach under the 2014 PPRS was carried forward, or not.

In or out of VPAS?

With nothing found in the public domain, one route is to use a freedom of information request to try to find out just how spending on the CDF is treated under the 2019 VPAS. Freedom of information legislation is a legacy of former Prime Minister Tony Blair, a policy that allows anyone to ask government agencies for information, and a policy that Blair regrets.

The DHSC has responded to an FOI to pose the question, “How are CDF monies treated under VPAS?” Their response was:

“The £340 million funding of the CDF is allocated from NHS England budgets. For the Voluntary scheme for branded medicines pricing and access (VPAS), unless specifically exempt under scheme rules, sales of products within the CDF are included in measured sales when calculating sales growth used to set the VPAS payment percentage each year, and included in eligible sales used to calculate the amount owed by the relevant scheme member each quarter.”

That can be taken to mean that all company sales in the CDF are in the scope of VPAS. The exemption that is most likely to apply is an exemption for the first 36 months of sales for NAS.

Innovative Medicines Fund

The reason that such a technicality matters is not just because of incentives for companies to launch in the UK shape access for patients – the CDF has arguably meant some products that might otherwise have not been launched in the UK have been, although the impact of 30% plus rebates on sales may change that – but also because another special fund has been closely modelled on the CDF.

The Innovative Medicines Fund (IMF) was launched in June 2022. The fund is to cover treatments outside of cancer that have promise but, just as under the CDF, where there may be questions about value for money. The fund has been touted as being relevant to treatments for very rare diseases.

No announcements seem to have been made about it being used though. That means it is both still pretty new and untested and, for many companies, there are questions about whether or not to seek to use it.

The IMF follows much the same operating model as the CDF. Perhaps that translates, also, into the treatment of IMF sales under the 2019 VPAS and any successor to the 2019 VPAS? Companies looking to use the fund to secure interim sales in the future will have to weigh up the commercial return when sales could be subject to a VPAS rebate.

It’s another potential disincentive, since companies are also asked to agree to continue to supply, even if interim funding ceases. Routine funding might not be given, if, following a review of new evidence generated during the interim funding period, it doesn’t show the treatment offers value for money. It’s an issue raised by the ABPI. Unlike many cancer treatments in the CDF, those given interim funding under the IMF could be for diseases for patients who will live much longer. Maybe it should be taken as a given, but if companies find themselves supplying at no cost to the NHS, those ‘sales’ should not count for rebate calculations. Some mechanics will be needed to account for that, should a successor to the 2019 VPAS follow much the same approach used to date.

The reality is that the payoff from launching under the IMF is not always going to present an attractive offer to companies, no matter how much the fund is talked up. That’s because it’s the total impact of all the commercial drivers that affects incentives to launch, not just a special fund.

What next?

A successor to the 2019 VPAS will only emerge if a new agreement can be reached between industry and government and only they know where negotiations are at, whether they be informal or formal at the moment.

Whilst there will be big-ticket issues to work through – should it be more of the same or something different? – nonetheless, for companies to plan, there’s a need to work through the details, too. More transparency can only help when it comes to the future, especially when it comes to incentives to launch, which will affect patients’ access to treatments when there is a high unmet need.

About the author

Leela Barham is a researcher and writer who has worked with all stakeholders across the health care system, both in the UK and internationally, on the economics of the pharmaceutical industry. Leela worked as an advisor to the Department of Health and Social Care on the 2019 Voluntary Scheme for Branded Medicines Pricing and Access (VPAS).