Investment Research and Business Due Diligence
Monday, June 24, 2013
UK proposes to cut branded prescription drug prices by 10% to 20%
As part of the renegotiation of the Pharmaceutical price regulation scheme, to be implemented from 1 January 2014 onwards, the British government has proposed several changes to the statutory scheme.
The statutory scheme as earlier implemented in 2008 had enforced reference drug prices and price adjustments. The proposed changes to the statutory scheme that have been proposed include
1) Establishing revised reference prices
The basket of drugs against which the current statutory scheme provisions apply was established at 1 December 2008. As a number of new drugs have since come onto the market, the Government proposes that new ‘list price’ reference prices are established against an up to date basket of drugs. It is proposed that this will be determined from all drugs on sale on 1 December 2013.
2) Introducing a new price adjustment
The government proposes to apply a 10%, 15% or 20% price discount to the calculated average selling price (ASP).
In the current statutory scheme the price adjustment is applied to the reference price and not the average selling price. The ASP is generally lower than the reference price, as hospitals negotiate a substantial discount on the reference price or listed price.
The ASP is an average of the prices paid by all hospitals for a specific drug, taking account of all discounts negotiated with the supplier.
Removing the exemption to the price adjustment established by the £450,000 low cost presentation provision
Currently, where sales to the NHS of a given drug are no more than £450,000 in a calendar year, no price adjustment has applied. Instead, the price was capped at the reference price level, which was the price at which it was on sale at 1 December 2008.
However, the primary data source to check the level of NHS spend on a particular drug has historically been community pharmacy data, which primarily captures spend in primary care. Consequently, if a drug is sold mostly into secondary care it has effectively been exempt from the price adjustment.
Alongside the introduction of average selling prices (see below) the Government proposes that this low cost presentation provision be removed so that sales to hospitals are more effectively captured, and thus ensuring that the scheme more closely aligns to practice in the PPRS.
4)Introducing a small firms exemption covering those with total UK sales of branded medicines to the NHS of less than £5 million
Currently, where firms have sales of branded health service medicines of £25 million or more in England, they are exempt from the statutory scheme information provisions, though the price adjustment does apply.
However, the proposed introduction of price adjustments on average selling prices (see below) depends on companies supplying the information identified in the regulations. Consequently, the £25 million provision would provide a de facto exemption.
The Government proposes that this £25 million information exemption be removed, and replaced with an exemption which covers both the information requirements relating to average selling prices, and the price adjustment, for all companies with UK sales of branded health service medicines of less than £5 million. We believe this would ensure that there is no adverse impact on small firms, and would align to the existing small firm exemption in the PPRS.
6) Making provisions for line extensions.
The Government proposes making provision in the statutory scheme for the handling of line extensions to a given drug, for example where a new presentation of a branded product is introduced, such as the introduction of a new capsule size or a different method of administration. The intention is to allow for the relevant reference price (i.e. the list price and the ASP) of the original presentation, and the price adjustment, to apply to these different presentations, which otherwise might not be captured within the scheme. It is proposed that this be managed through agreement between the relevant company and the Department of Health,
aking into account wider industry practice in pricing line extensions, such as through the PPRS.
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