Life cycle adjustment left out of statutory scheme on pricing of NHS medicines

The government will not apply a life cycle adjustment mechanism to levies on branded drugs sold to the NHS under the statutory scheme.
medicines on shelves in medicines cabinet

A life cycle adjustment (LCA), which would vary a levy on branded drugs sold to the NHS depending on how long a medicine has been on the market, will not be introduced as part of a new statutory pricing scheme, according to the government.

After considering responses to its consultation on the ‘Proposed review of the 2023 scheme to control the cost of branded health service medicines’, the Department of Health and Social Care (DHSC) said on 4 December 2023 that it “has decided not to implement the proposals for a LCA” in the statutory scheme. 

An LCA had previously been agreed as part of the government’s new ‘Voluntary scheme for branded medicines pricing, access and growth’ in November 2023.

Manufacturers of branded medicines must choose to join either the voluntary or statutory pricing scheme.

In its proposals for a restructured statutory scheme, published in a consultation in July 2023, the DHSC said it was considering an LCA mechanism that would only apply to older medicines that have been marketed for at least 12 years.

Products subject to the LCA mechanism would have been liable for a higher “supplementary” payment percentage if operating in a market with lower competition, or a flat, lower LCA payment percentage if operating in a more competitive market. The DHSC described the measure as “pro-innovation and pro-competition”.

For older products where there is low competition, the charge would have been set at 36.0% in 2024, 38.0% in 2025, and 40.0% in 2026.

Older products “with competition” would have been levied at 10.0% across all three years.

The DHSC proposed that, for newer products, where the active substance has been marketed in the UK for less than 12 years, the levy would have been set at 9.7% in 2024, 11.1% in 2025, and 15.4% in 2026.

However, in a statement published alongside its response to the consultation on the statutory scheme, the DHSC said: “Upon consideration of consultation responses, the government has decided not to implement the proposals for an LCA in the statutory scheme.

“We intend to consult on alternative proposals to maintain broad equivalence with the terms agreed in the 2024 voluntary scheme for branded medicines pricing, access and growth for setting statutory scheme payment percentages in a way that distinguishes between medicines at different stages in the product life cycle.”

Under the new statutory scheme, the DHSC has said that companies will pay a levy on the sales of branded medicines to the NHS of 21.9% in 2024, 24.0% in 2025 and 26.8% in 2026.

These percentages are lower than the current 27.5% levy, which was announced in April 2023, but the Association of the British Pharmaceutical Industry (ABPI) said the levy rates for the next three years will be well above the historical average of 10.6% that applied before this year.

Richard Torbett, chief executive of the ABPI, said: “This announcement sends a very confusing message to global life science investors. The new voluntary scheme agreement shows that the government realises that capping the UK medicines market below its natural growth is unsustainable — yet this statutory scheme continues to do so, resulting in damaging headline rebate rates which undermine the UK in the eyes of investors.

“The government has consistently said it wants to support the international competitiveness of UK-based life sciences. To really make a difference, they should use next year’s consultation to unlock the constraints on growth which are impeding inward investment.”

Last updated
The Pharmaceutical Journal, PJ, December 2023, Vol 311, No 7980;311(7980)::DOI:10.1211/PJ.2023.1.203993

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