Life Sciences and Healthcare

Judicial review highlights pharmaceutical industry concerns over VPAS in UK

Published on 30th Jun 2023

Negotiations for new voluntary scheme being challenged by industry body as old scheme is criticised for amount levied on suppliers

A judicial review brought against the UK government over its approach to negotiating a new scheme for pricing medicines used in the NHS comes after sustained criticism of current arrangements by the life sciences industry.

The judicial review, and surrounding commentary by industry bodies, shines a light on the issues in contention ahead of new arrangements that will need to be in place by the end of the year.

Background on VPAS

The Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) is a voluntary agreement between the UK government's Department of Health and Social Care (DHSC), National Health Service (NHS) England and the Association of the British Pharmaceutical Industry (ABPI).

The voluntary scheme sets a cap on the total permitted value of branded medicines sold to the NHS each year. Practically, this means that members of the scheme pay back a certain percentage of their medicine sales to the NHS.

The current scheme took effect on 1 January 2019 and is in place until 31 December 2023, at which point a new voluntary scheme is scheduled to take effect from 1 January 2024.

Criticism of VPAS

While it is intended to improve patient outcomes, manage the NHS' medicines bill and generally support the life sciences industry, VPAS has recently encountered significant criticism. The ABPI has objected to the "excessive" amount being levied and that the government has proposed to raise  the revenue clawback rate to 27.5% "meaning the proposed rate is nearly three times what firms may have anticipated just a few years ago".  

It has recently been reported that Celltrion Healthcare Co Ltd, a world leading company offering bio-similar medicines, will withdraw from supplying Herzuma (a breast cancer drug) to Britain.

AbbVie Inc and Eli Lilly and Co, two of the world's largest pharmaceutical companies, left the voluntary scheme in January 2023 following a surge in repayment rates. The president and general manager for Northern Europe at Eli Lilly and Co have commented that "there is too big a gap between the commitments of the government’s vision for life sciences, and the reality for business. The current scheme has harmed innovation, with costs spiralling out of control, and the UK falling behind other major countries to be left as a global outlier".

ABPI's vision

The ABPI, which is the long-standing industry representative for VPAS negotiations, proposed in its framework that the voluntary scheme is "at the crossroads", advocating for change as "the current direction of travel is leading away from success and we must act urgently to reverse this trend".

Its four key themes for a new 2024 voluntary scheme include:

  1. A "fixed payment rate" for delivering a sustainable approach to medicines provision – this would include an industry-offered fixed payment rate to be levied across all eligible sales at around a 6.88% rate.
  2. A "genuine Brexit dividend" by maximising the potential of the UK life sciences industry as an engine for growth – this would include an "Investment Facility" worth over £1 billion for projects such as encouraging development in clinical research, genomics and real world data. This would be funded by a 1.5% premium paid in addition to the VPAS rate.
  3. A new "internationally competitive framework" for ensuring rapid patient access and adoption of new medicines – this would include a proposal for agreeing new terms to support rapid access to, and adoption of new medicines – with a particular focus on encouraging companies to prioritise the UK as an early launch market.
  4. A "Medicines Equity Partnership" with the NHS for improving health outcomes and productivity – this would include working directly with the NHS, particularly supporting the UK government's prevention agenda.

BGMA's vision

The British Generic Manufacturers Association (BGMA) represents the suppliers and manufacturers of generic and biosimilar medicines to the UK market. It has highlighted that the current voluntary scheme is particularly punitive to its members, which it claims supply two thirds of all medicines used by the NHS.

The BGMA states that branded generics and biosimilars already face intense competition when they enter the market, which makes the "VPAS rebate an additional cost burden they are less well-equipped to shoulder than other branded medicines" and the future supply of such medicines under the voluntary scheme is "economically unsustainable".

The BGMA has also published its views on how the new voluntary scheme should be designed, on the basis of three guiding principles:

  1. Differentiability: recognition that off-patent, competitive markets, behave differently to on-patent, single-source supply. For example, an exemption from VPAS should apply where the selling price of an off-patent medicine has been discounted by 30% or more compared with the originator product's list price prior to loss of exclusivity, or where off-patent medicines have been supplied to the NHS through hospital tenders.
  2. Equitability: designing a system that is based on progressive contributions among suppliers, depending on the products they market and the NHS savings they generate – this includes a suggestion of increasing the NHS maximum price from £2 to £10 to protect the supply of the lowest-cost branded medicines, and also considering the effect of the voluntary scheme on parallel imported medicines which do not pay VPAS levies.
  3. Predictability: for both the NHS' and industry's planning – this would include various controls on expenditure similar to the current voluntary scheme, but also a payment percentage review clause in case of official UK inflation reaching a pre-agreed figure or if required by a health emergency.

Judicial review over negotiations

Negotiations for the new voluntary scheme began on 4 May 2023 and are well under way. However, the DHSC decided to negotiate it with the ABPI only. The BGMA disagrees with this decision and has brought a judicial review against the DHSC challenging the lawfulness of the DHSC's decision.

The BGMA claims that:

  1. Negotiations should include representatives of those affected by VPAS – as VPAS affects both originator medicines and branded generics and biosimilars. The BGMA considers itself appropriate to represent generic manufacturers and suppliers, and should therefore be an industry body selected for the negotiations.
  2. ABPI are not an adequate industry representative – The BGMA flags that the ABPI (who has been granted full and sole negotiating status with the DHSC) "represents the interests of manufacturers of new patented medicines, but not the generic and biosimilar manufacturers and suppliers, whose interests are distinct and conflicting".

The DHSC and the ABPI (who are listed as an interested party to the proceedings) have both submitted detailed grounds of resistance. Some of the arguments include:

  1. ABPI is an adequate industry representative – there is a multitude of bodies representing various sectors of the pharmaceutical industry in the UK, beyond both ABPI and BGMA. The DHSC cites the fact that ABPI members make up nearly 80% of total VPAS "measured sales" by value and has represented the interests of the entire pharmaceutical sector in the UK since 1957.
  2. Effective negotiations - Including the BGMA as part of the negotiations would mean that the entire process "would be considerably longer, more expensive, and more likely to fail".

The ABPI has additionally publicly commented here that it is "disappointed that the BGMA has decided to take this action - but … recognise that it has been perpetuated by the extreme challenge placed on all parts of the industry from the surge in the branded medicine payment rates".

Osborne Clarke comment

It is clear that industry is currently dissatisfied with the current VPAS system and there is a lot of strain felt by the pharmaceutical industry. There is industry support generally for a new voluntary scheme in 2024 that provides a market which is more conducive to fair competition between manufacturers and ultimately acceptable to both the NHS and the industry.

However, as expected, there are varying priorities from different sections of the industry. While some priorities (such as finance) are similar on the surface, the proposed solutions from the ABPI and BGMA are significantly different in the finer detail. The ABPI is recommending a blanket fixed payment rate and none of its key themes cover the BGMA's main concern over the disproportionate effect of VPAS on generics and biosimilars.

This judicial review will decide the lawfulness of the DHSC's decision to exclude the BGMA from the VPAS negotiations. The eventual outcome is likely to set a precedent on matters such as how the DHSC decides which is the appropriate industry body for negotiations over voluntary schemes in the future.

On a positive note, the pressure of the impending deadline for the parties to agree to a new voluntary scheme, and positions taken by the ABPI and BGMA, have all led to detailed proposals on how the new scheme should operate. The industry will hope that these proposals will be given close attention by the UK government, with the aim of securing a consensus for an approach that balances the needs of the NHS with incentives for industry to develop and supply new medicines.


* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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