What is the Voluntary Scheme?

VPAS is a voluntary agreement between the UK government, NHS National Health Service (NHS) England and the Association of the British Pharmaceutical Industry (ABPI). The existing voluntary scheme expires at the end on 31 December 2023, with a new scheme scheduled to take effect from 1 January 2024.

VPAS sets a cap on the total permitted value of branded medicines sold to the NHS each year. It also includes mechanisms to control the maximum prices that may be charged to the NHS for a specific branded medicine and limits the profits that may be made by scheme members from their NHS business.

Practically, this means that members of the scheme pay back a certain percentage of their medicine sales to the NHS. The cap is subject to a permitted growth rate of 2% over a baseline value, with excess expenditure rebated by scheme members to the SoS. The VPAS in its present form covers only branded medicines but these include not only in-patent products but also branded generic products.

For most companies manufacturing or supplying branded medicines, the voluntary scheme is viewed as more favourable than the alternative statutory scheme Branded Health Service Medicines (Costs) Regulations 2018.

Criticism of VPAS

While the VPAS is intended to improve patient outcomes, manage the NHS’ medicines bill, and generally support the life sciences industry, the scheme has recently encountered significant criticism.

The ABPI objects to the “excessive” amount being levied. As recently as 2021 the VPAS rebate meant companies paid around 5% of their revenue back to the NHS. But in 2022 it rose to 15% and in 2023 to 26.5%. The government has proposed to raise the revenue clawback rate to 27.5%, meaning the proposed rebate rate is nearly three times what firms originally anticipated. This is completely outside both historical and international norms.

Celltrion Healthcare Co Ltd, a world leading company offering bio-similar medicines has recently reported the withdrawal of the supply of 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 rebate repayment rates.

Given the commercial environment these companies are facing, as a result of the rapid rise of the existing VPAS, today it is argued that the UK is losing out on investments in manufacturing and research, which is harming innovation within the UK.

It is our view that there is a large gap between the commitments of the governments vision for the life sciences and the reality for business. Clinical trial numbers are falling and there is a real risk NHS Patients will be forced to wait for, or not get access to medicines available in Europe.

The Decision Under Challenge

Negotiations for the new voluntary scheme commenced on the 4th May 2023. The British Generic Manufacturers Association requested full rights of participation in these negotiations by being appointed as an additional industry body – in addition to the ABPI. However, the SoS declined to afford such status. Instead, the BGMA was offered “formal observer status”. The BGMA viewed this role as unsatisfactory and brought a judicial review challenge against the lawfulness of this decision.

The BGMA challenged the SoS’s decision by arguing two factors.

The ABPI is incapable of adequately representing the entire branded pharmaceutical industry in the context of voluntary scheme negotiations

The BGMA argued that the ABPI is incapable of adequately representing and promoting the interests of the manufacturers of branded medicines because its central and predominant role is to promote the interests of innovator companies and in-patent manufacturers whose interests are distinct and conflicting to that of generic manufacturers. The BGMA expresses that its specifically represents the interests of manufacturers of generic medicines.

Of central importance to the BGMA’s case is that VPAS has been disproportionately prejudicial to the branded generic and biosimilar sectors. The VPAS percentage rebates are applied at a blanket rate to all – they are mostly based on the growth of in-patent sales which account for the increase. Manufacturers of new medicines are afforded a three-year exemption from the rebate. It is contended that the manufacturers of generic and biosimilar medicines have borne a disproportionately high economic burden under the VPAS.

The SoS did not have discretion to select the industry body with which it negotiates the voluntary scheme

The BGMA argued that the SoS’s discretion to select appropriate industry bodies could not be exercised to select bodies which represent only one section of the industry. The BMGA have contested the ABPIs abilities to adequately represent the generic and biosimilar sector, therefore the SoS’s decision to exclude the BGMA was not fair or reasonable.

The Judgement

Section 266(6) of The NHS Act

The judge found that under section 266(6) of the NHS Act the Secretary of State has a wide discretion when selecting an appropriate industry body for the purposes of negotiation of the voluntary scheme.

Mr J Turner acknowledged the SoS’s offer to involve the BGMA in the negotiations as a formal observer. He also acknowledged that there is no statutory obligation imposed on the SoS to commence negotiations or, having commenced negotiations, to agree a voluntary scheme. Finally, if a voluntary scheme is agreed, there is no duty for any manufacturer to subscribe to it.

Overall, Mr Justice Turner concluded that the SoS’s decision was within the parameters of Wednesbury reasonableness. There is no arguable ground for review with a realistic prospect of success to justify the giving of permission.

The ABPI as an appropriate industry representative

The judge did not accept the BGMA’s case that the ABPI was incapable of adequately representing the entire branded pharmaceutical industry in the context of voluntary scheme negotiations.

Mr Justice Turner noted that the ABPI retains a strong interest in advancing the cause of generic manufacturers despite the BGMA’s claims that it was inadequate. He noted that the ABPI members supply generic medicine and these account for 38% of all VPAS sales by value. This is a higher share of the market than the BGMA and British Biosimilars Association combined which amounts to 28%.

Future Negotiations for VPAS

Negotiations between the SoS and the ABPI for the next voluntary scheme have already commenced and will continue in their current form. They will involve only the Secretary of State and the ABPI. However, there is the possibility of taking into account submissions from other industry bodies (including the BGMA) and other stakeholders. The parties are aiming for Heads of Terms to be agreed by the summer 2023 for the next period of the scheme running from 2024 to 2028.

Comments

Richard Torbett, Chief Executive of the ABPI commented that “For over 60 years the ABPI has acted as the representative industry body for negotiations on the Voluntary Scheme for branded medicines – a responsibility we take extremely seriously – and one which has been reaffirmed by [today’s] judgment”. (10th July 2023)

“While we were disappointed that the BGMA decided to take this action – we recognise their decision was driven by the extreme challenge placed on all parts of the industry from the surge in the branded medicine payment rates.

“The solution to these problems must be a completely new and sustainable approach to medicines provision in the UK which rapidly brings industry revenue payments in line with comparator countries to unlock investment and growth.”

Mark Samuels, Chief Executive of the BGMA commented:

“The High Court’s judgment is extremely disappointing”.

“Over the past 10 years, VPAS has created a system which has treated on- and off-patent medicines in the same way, despite their supply being driven by different business models, cost pressures and market dynamics…And it means that one part of the pharmaceutical industry is disproportionately paying for growth in another part of the industry”.

“We have only ever wanted an equal opportunity to be proper part of the negotiations discussions given the significant impact they have on our sector. We don’t feel one trade association can adequately balance all needs of the industry.”

Comments from LS Law Founder, Wendy Lloyd-Goodwin

Having worked within the pharmaceutical industry for over 20 years, I have been involved first hand in representing the interests of the pharmaceuticals industry, as both a member of the ABPI legal expert network (LEN) and serving on the leadership teams of a number of high-profile pharmaceutical companies. The negotiation of VPAS has always been a long, complex and arduous process, with the conflicting needs of the NHS to reduce its medicines bill, and those of the industry needing to secure rates which takes into account the costs and time needed to innovate and bring new medicines to the market meaning a Win Win solution being almost impossible to achieve.

There is no doubt that the current VPAS rebate rates have been damaging to the pharmaceutical industry. A proposal which tackles this major industry concern will be greatly beneficial to both generics and patented-branded products.