What does the new drugs deal mean for the NHS?

The new Pharmaceutical Price Regulation Scheme (PPRS) agreement looks like a good deal for the NHS.

Getting the budget fixed for the next five years for a sizeable chunk of spend is good news. It also matches the expected trend of spending and immediate pressures on the NHS with zero increases in the branded drugs budget in 2014 and 2015 and thereafter only a two per cent increase (i.e. more or less in line with expected inflation) in each of the remaining three years of the agreement.

It isn’t quite as tough for the pharmaceutical industry as it appears at first sight. Expiry of patents means that generic equivalents will become available for some significant drugs (the so-called ‘patent cliff’ which continues for much of the lifetime of this agreement).

The NHS has an excellent record of taking advantage of these much cheaper non-branded alternatives. But they also fall out of the PPRS, meaning there is some headroom for growth in sales of in-patent medicines while still keeping within the budget ceiling set by the agreement.

The drugs may be providing better value for patients but rising cost is an issue, particularly given the pressure on acute hospitals

The effects of the ‘patent cliff’ (and the price controls in the last PPRS agreement in 2009) can be seen in spending on all drugs in primary care. Over 1 billion prescriptions were dispensed in 2012 – yes, 18.7 for each and every one of us. That’s a 13 per cent increase on 2009. But, spending was the same at £8.5 billion.

It is a different story for hospitals which make much more use of new medicines, including those approved by NICE.

We don’t yet have figures for 2012 and what we do have for the preceding years probably overstate the position because they don’t take account of the discounts available to hospital purchasers. Nevertheless, between 2009 and 2011 costs rose by 15 per cent from £3.8 billion to nearly £4.4 billion.

And for the four year period from 2008 it was a whopping 30.5 per cent. The drugs may be providing better value for patients but rising cost is an issue, particularly given the pressure on acute hospitals.

This is the central issue for the implementation of the new PPRS agreement. The quid pro quo for the overall budget cap is a greater push on, and more scope for, new medicines. The Department of Health will encourage take-up through greater emphasis on performance against the innovation scorecard that, amongst other things, marks hospitals’ use of medicines approved by NICE.

The pharmaceutical companies must collectively pay back any excess spend over the budget cap, but that excess will be shared between them according to the NHS spend on ‘older’ medicines. ‘New’ medicines (molecules with marketing authorisation after December 2013) will be exempt from the calculation.

The aim of this is to encourage faster take up of innovative treatments, despite the obvious increase in costs over recent years. The effect will fall disproportionately on acute and specialist trusts. It is their budgets that will feel the strain. It is possible they may see costs continue to rise as they have been doing.

There are two consequences of this.

First, they may be reluctant to see costs rise like this and take steps to constrain them as best they can, thus defeating the Department and industry’s shared aim of more rapid take up.

Second, although the NHS as a whole will get a rebate for any excess spend over the budget as a whole, it is not clear how this rebate will filter back into hospital budgets and give individual trusts the kind of security that the NHS has overall.

The simple message from this complicated saga is that it will be vital for the money to be in the right place if the twin intentions of a budget cap and faster take-up of innovative medicines are to be achieved.

A mechanism needs to be found for this. Relying on the tariff and individual negotiation with commissioners (who will be the direct recipients of any rebate through their allocations) just won’t do the job.