You get what you agree to, at least when it comes to the money under VPAS

Views & Analysis
rising payment percentage

Rising payment percentages under the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) have been criticised despite (some in) the industry knowing that payment percentages in the range of 30% were not only possible, but predicted. Leela Barham argues that more transparency at a minimum is required next time around, should a VPAS style of agreement be agreed upon for 2024 onwards, and perhaps even a more radical re-think about how a deal is struck in the future.

Predictable for government

The 2019 VPAS, just like its predecessor that was in place from 2014, has at its heart a payback mechanism. The deal saw any company that decided to join the scheme collectively guaranteeing that the NHS would not spend more than 2% extra a year on branded medicines, keeping the bill affordable.

That agreed rise in branded medicines spending isn’t all that much against historic spending increases on the NHS, which to a degree – since not all demand is met – reflects increasing need. That is why companies who are members of the 2019 VPAS have collectively paid back almost £3 billion to the Department of Health and Social Care (DHSC) up to Quarter 2 of 2022.

Variable for companies

That companies are paying back was always going to be a given against the 2% allowable growth rate. It was always part of the scheme that the amount to be paid would vary for companies. Those payment percentages have been rising over time (Table 1).

2019 2020 2021 2022 2023
Annual payment percentage 9.6% 5.9% 5.1% 15.0% 26.0%*

Source: DHSC (2022). *predicted.

The 15% rate for 2022 is lower than the maths automatically spits out. It should have been 19.1%, but the industry body, the ABPI, agreed with the DHSC that it should be lowered. The DHSC said that this was an exceptional change, reflecting the rapid growth in sales in 2021 driven in part by COVID-19.

For DHSC at least, a lower payment percentage was a temporary measure and the payment percentage for 2023 looks like it could be 26%, in part to help recoup monies not paid in 2022. According to the results of a calculator from Richard Williams, a market access consultant, the payment percentage could go over 30% in the final year of the current deal.

Higher payment percentages were always expected, just not published

The 2019 VPAS agreement was published on 5 December 2018 and an annexe showed that growth rate of branded medicines spend was expected to go up over time. It follows that the payment percentage would too. In reality, growth rates have been both lower and higher than forecasted (Table 2).

Table 2: Forecasted and actual growth rates and payment percentages under the 2019 VPAS

2019 2020 2021 2022 2023
Initial forecast growth rate of measured sales 5.72% 6.84% 8.57% 9.21% 8.79%
Actual growth rate of measured sales 1.75% 2.58% 9.38% - -
Initial forecast payment percentage 9.6% 14.2% - - -
Actual payment percentage 9.6% 5.9% 5.1% 15.0% 26.0%*

Source: DHSC (2018) and DHSC (2022). Note the growth rate of measured sales reflects growth rates in sales under VPAS, sales under the statutory scheme, and parallel imports, and each of these have seen major changes in growth rates over time. *predicted.

What’s missing from this table, because it’s not published in the 2019 VPAS agreement annexe, are the original forecasted payment percentages for 2021, 2022, and 2023. That differs from the predecessor, which did publish expected payment percentages for all five years of that scheme: at the time, those predictions never got higher than 9.92% a year. No reason is given for this different approach to transparency under the 2019 VPAS.

According to a briefing from Williams, the forecasted payment rate for 2023 (at the time the 2019 VPAS was negotiated) was 31%. The ABPI would have known this, and perhaps so, too, would some companies who were closer to the negotiations. But maybe some companies didn’t?

With the benefit of hindsight, it looks like the industry took a bet in agreeing to the 2019 VPAS that, in reality, the growth rates that were forecasted by DHSC, would not really play out.

In some ways, that’s right. The forecast was out – by a lot – in 2019 and 2020. But not for 2021, and perhaps not for 2022 or 2023, although time will tell.

That it turns out that last year’s payment percentage might be lower, or around about the forecasted rate back in 2018, puts the industry in a difficult position as it lobbies about the payment percentages. As Williams put it, “I can imagine the DHSC might argue that a levy of 30% in Year 5 is exactly what the industry ‘signed up to’.”

More transparency needed

The 2019 VPAS deal was struck as a negotiation between DHSC, NHS England, the devolved nations, as well as others on the side of the government and industry body, the ABPI.

The ABPI has the difficult job of trying to keep its diverse membership content – an impossible task in reality – and not every member company of the ABPI will have been close to the negotiations that resulted in the 2019 VPAS.

A challenge now for the ABPI is why it presumably agreed to the publication of the 2019 VPAS without forecasted payment percentages. Cold comfort probably, but even those companies who were not privy to predicted payment rates could have worked them out using a back-of-the-envelope calculation. If they didn’t last time, they really need to do that in anticipation, should a deal similar to the 2019 VPAS be struck in 2024. Being forewarned is being forearmed after all.

For those in the industry who may say that they would not have signed up for a deal with 30% payment rates, had they known that at the time, there is a reality check, too. The DHSC holds a lot of the cards; they can – and indeed have – shaped the statutory scheme to shadow VPAS.

Lobbying ramping up

Now, everyone knows just how high the payment percentage could go under the 2019 VPAS in 2023. That’s prompting lobbying from the British Generics Manufacturers Association (BGMA), which represents companies that sell branded generics and biosimilars that are under the VPAS, has been pointing to dire consequences of the withdrawal of products, a loss of competition, and higher bills all around, should payment rates continue rising if a 2019 VPAS style of deal is repeated from 2024 onwards.

Individual companies are lobbying, too. According to reporting in the Financial Times, at least two companies have written to Ministers to highlight the impact of higher payment percentages under VPAS. One of those is Celltrion Healthcare, which says that it is no longer viable to continue to supply the NHS with biosimilars. Closure of the company’s UK operation is also mooted, forgoing plans to increase the UK workforce by 20 staff. The other company is not named.

Ben Lucas, managing director of MSD UK, said in a piece he wrote for the New Statesman, that, with a payment rate of over 30% predicted under the 2019 VPAS for 2023, it puts the UK “out of kilter with comparable countries.”

Different engagement is needed in negotiations for a successor scheme

A much tougher issue is whether a successor to the 2019 VPAS should stick with the current approach to negotiation, which boils down to bilateral negotiation. The ABPI has a special designation to represent all companies that sell branded medicines in any statutory consultation with the government. Yet, that doesn’t stop those not formally around the negotiating table last time around to be quick in pointing that out.

The BGMA has already highlighted how they were not involved in the 2018 negotiations.

Patients, too, are calling for a role this time around. The Blood Cancer Alliance (BCA) described the approach taken in 2018 as not sufficiently inclusive of patients or their representative organisations. According to Richard Torbett, executive director for UK and international commercial policy at the ABPI when negotiating the 2019 VPAS, and now chief executive of the ABPI, there was dialogue with patient organisations via the ABPI’s Patient Organization Forum. This time around, the BCA is asking for the government – so, not just relying on working ‘with’ or ‘through’ industry – to publish a formal plan for engaging with patient organisations during the 2023 negotiations.

It’s going to be hard not to include more perspectives in negotiations this time around, but how it will be done is unclear.

Different approach to negotiation needed in the long-term?

It’s probably too late for a negotiation that must end in 2023, but is more radical thinking about how to strike a fair deal needed? Other sectors could offer lessons, such as having an independent group that takes in evidence from all those affected and comes up with key numbers that shape the deal, as is the case for nurses. That said, they are due to strike over what they see as a too-low pay offer from the government, based upon the independent pay review body, so there’s no such thing as a perfect approach. But could it be better than what has been done since 1957?

About the author

leela barhamLeela 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).