Billions of pounds in lost savings for the NHS are at stake due to expected reduced competition in branded generics and biosimilars, stemming from a UK rebate mechanism designed to increase access to new treatments and promote affordability, according to a new study cited by the British Generic Manufacturers Association (BGMA).

The BGMA called for branded generics and biosimilars to be made exempt from the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS), an agreement between the UK government, NHS England and the pharmaceutical industry that was introduced in 2019.

It argued that this rising rebate rate “is forcing manufacturers to shun the UK market, further reducing price competition”.

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The VPAS aims to balance innovation and patient access, as well as ensuring predictability on NHS spending for branded medicines, by limiting spending growth to no more than 2% in any of the five years of its existence.

If the total branded medicines spend exceeds the 2% cap, a rebate is charged to all manufacturers – including producers of branded generics and biosimilars – on the sales of their branded medicines to the NHS, with the scale of the rebate varying depending on the size of the overspend.

But the BGMA says a new analysis conducted by the Office of Health Economics – and reviewed and supported by Alistair McGuire of the London School of Economics – shows that “rather than controlling costs for the NHS, the scheme could be set to cost billions of pounds in forfeited savings every year”.

The VPAS rebate varies each year, depending on the difference between the allowed growth of 2% and forecasted growth in sales to the NHS of the branded medicines.

In 2019, the repayment percentage was 9.6%, in line with the anticipated increase in spending on branded medicines. In total, pharmaceutical companies repaid the Department of Health and Social Care just under £850 million.

“However, the rate was most recently raised from 5.1% to 15% in January to recognise the exceptional levels of spend on medicines during the pandemic. Next year it is expected to rise to 23.7% and could reach as high as 30% before the current agreement renews,” the BGMA pointed out.

The association noted that the scale of the levy has been “exacerbated by manufacturers of new blockbuster patented medicines being exempted for three years, the costs of which other VPAS member companies have to bear”.

According to the BGMA, branded medicines that fall under the remit of the scheme make up about 30% of all prescription medicines in England. Of those, about a third are branded generics and biosimilars. “These are products which by being genericized already mean they face competition which drives down prices,” the BGMA underlined.

“For example, the research shows that the average branded generic is a third of the price of the originator pre-loss of exclusivity, with around one third of those branded generics being sold at a price that is 80% less than the originator version.”

However, due to the rising rate of the VPAS rebate on top of existing competition, manufacturers are “finding the additional levy economically unviable given their already low prices”, the BGMA said.

The OHE and LSE research suggests that this will mean manufacturers will be forced to pull out of the market, resulting in less price competition and the loss of critical NHS savings.

 

Over £3bn in savings at risk between 2024 and 2028

 

“OHE’s forecast analysis looks ahead to the next five-year VPAS period between 2024 and 2028 and shows that at a VPAS rebate rate of 5%, the NHS will lose out on £3.071 billion of branded generics and biosimilars savings between 2024 and 2028, compared to exempting branded generics and biosimilars from the VPAS levy,” the BGMA observed.

The figure rises to around £7.8bn with a rebate of 25%-30% and includes offsetting the NHS losses with income received by the government from the VPAS levy being applied to branded generics and biosimilars.

But under the new 2024 predicted VPAS rate of around 25%, “the NHS is set to lose out by more than £800m over and above the projected levy income in the first 12 months alone”. These lost savings “are the consolidation of three costs borne by the NHS: higher reimbursement prices paid for medicines; a reduction in the level of discounts received by local NHS trusts; and higher prices paid for biosimilars in hospital tenders”.

Meanwhile, the association pointed out, separate IQVIA data shows that growth in spending on originator medicines in 2021 and in 2022 to date is 15% and 18% respectively, while off-patent medicines spending contracted by 2% in 2021 and grew 3% in 2022.

“This further reinforces the point that branded generics and biosimilars are supporting the growth in spend on on-patent medicines.”

The study also examined the rebate rise across various scenarios for biosimilar products. Although a reduction in competition was much less in relation to rebate rises, it was “evident that new product launches would be greatly reduced as a result, meaning again potential savings to the NHS would disappear”.

 

“Penalising” rebate constitutes a “double taxation”

 

BGMA chief executive Mark Samuels outlined that “generics and biosimilars represent four out of five medicines used by the NHS. They provide crucial competition when an originator product patent expires, and this saves the NHS approximately £15bn annually and means the UK has the lowest medicine prices in Europe”.

“However, this is being put in jeopardy by this penalising rebate, which is effectively an additional tax on branded generic medicines. We have argued for a long time that branded generic and biosimilar medicines should be exempt as it is in effect a double taxation on products already delivering massive savings via competition.”

“This study shows the very harmful effect on the market from VPAS and ultimately it will be the NHS and patients which are most impacted.”

Acknowledging that manufacturers can seek to raise their prices in response to the VPAS rate, the BGMA noted however that “if they want to go beyond their submitted NHS list price or the hospital tender price, they must enter negotiations, which requires the sharing of commercial pricing information. In many instances these applications are unsuccessful and very time-consuming, which is an off-putting factor for a company that markets tens or even hundreds of presentations.”

“Biosimilar medicines and many branded generics are branded because it is a requirement of the regulator in patients’ interests,” the BGMA said. “However, doctors prescribe generically to enable competition, or they are procured through competitive tenders, so the brand does not offer any particular value.”

Mr Samuels said he had “heard from companies directly that they are having to withdraw products as the operating environment is simply unfeasible. The VPAS payment was one of the factors connected to the recent shortage of hormone replacement therapy products”.

One company in particular was “considering closing its UK operations completely as a result of the VPAS scheme”, the BGMA suggested, with the effects of the “rocketing levy” compounded by current rises in the cost of medicines production, transportation and distribution.

“The system is just not sustainable,” the BGMA concluded. “It is high time the government reviewed their approach to make it fairer and encourage more competition, which has been independently shown to be most effective at regulating the prices of medicines paid by the NHS.”

 

See the original article in C+D's sister publication Generics Bulletin here