The new voluntary scheme for branded medicines pricing and the BGMA challenge

12 minute read
15 January 2024


The relationship between the NHS and pharmaceutical companies in relation to the sale of branded medicines is subject to various financial controls designed to restrain the cost of medicines and achieve maximum value from the NHS budget. These controls take the form of either statutory or voluntary schemes.

On 1 January 2024, the new Voluntary Scheme for Branded Medicines Pricing, Access and Growth (the VPAG) came into force, following a non-contractual agreement between the Department of Health and Social Care (DHSC) (representing the Government), NHS England and the Association of the British Pharmaceutical Industry (ABPI) (representing the UK pharmaceutical industry).

It follows the expiry of the 2019 Voluntary Scheme for Branded Medicines and Pricing (the VPAS) and is intended to run until 31 December 2028. The aims of the VPAG are to promote better patient outcomes and a healthier population, support UK economic growth and contribute to a financially sustainable NHS by maintaining the affordability of UK branded health services medicines, securing the provision of safe and effective medicines at reasonable prices, and encouraging efficient competition.

The Government published a policy paper on 14 December 2023 providing useful background and detail on the aims and requirements of the VPAG. However, the purpose of this article is to reflect not on the VPAG itself but on the process of negotiations that led to its implementation. In particular, it addresses the case of British Generic Manufacturers Association Ltd (BGMA) v Secretary of State for Health and Social Care [2023] EWHC 1725 (Admin) regarding BGMA's rights to participate i­n the scheme negotiations.

The challenge

The challenge arose following a decision made by the Secretary of State (SoS) on 16 March 2023 to deny BGMA full rights of participation in the negotiations for the voluntary scheme (in which the ABPI was participating). Although the SoS granted the BGMA formal observer status, enabling it to observe the negotiations, the essence of the challenge was whether or not the refusal of negotiating status was lawful.

BGMA's push to participate was grounded in the distinction between in-patent medicine and 'generic' medicines. Following discovery of a new drug, manufacturers may apply for a patent which protects the manufacturer from competition for up to twenty years. In the absence of competition, this protection generally raises the price of the drug, inviting a healthy profit margin which rewards investment in research by the originator, and therefore incentivises further investment. However, on expiry of the patent, other manufacturers gain entitlement to market generic copies of the drug formulation (generics). The presence of generics on the market, and the resulting increase in competition, generally drives down profit levels on the medicines. Both in-patent medicines and generics are branded and as such fall within the scope of the VPAG.

The BGMA contended that the ABPI could not properly represent the interests of generics manufacturers (which the BGMA itself represents), as the ABPI's predominant role is to promote the interests of originators. This, it argued, would result in a scheme which applies a disproportionately high economic burden on generics manufacturers as compared to in-patent manufacturers.

The relevant law

The National Health Service Act 2006 provides the relevant legislative context, making provision for the enforcement mechanisms that are to apply to voluntary schemes once terms have been agreed. In order to be statutorily enforceable, the scheme must meet certain purposes laid down under section 261; and, by virtue of section 263, must be preceded by "consultation with the industry body and any other person the Secretary of State thinks appropriate…", where 'the industry body' refers to "any body which appears to the Secretary of State appropriate to represent manufacturers and suppliers" (section 266(6)).

It is then open to any manufacturer to choose to subscribe to the terms of the scheme in preference to those otherwise applicable under the statutory scheme.

The High Court's decision

In his judgment published on 10 July 2023, Mr Justice Turner dismissed the judicial review challenge, finding the SoS' decision to be lawful.

While acknowledging that the law does not preclude the SoS from engaging with more than one industry body, Turner J considered that whether a body is "appropriate" for the purposes of the negotiations is "context specific" and the SoS retains a "wide" discretion to identify whether a body is appropriate for these purposes. Specifically, he observed that the language of section 266 is broadly permissive, leaving significant scope for subjectivity. There is no statutory obligation or target imposed on the SoS to initiate or even to conclude negotiations with a view to agreeing the voluntary scheme, nor is there any obligation on manufacturers to subscribe to it once agreed.

Turner J noted that the SoS is still required to act rationally, but he was not persuaded that any more intensive level of review was justified in this case. The SoS was practically left with a choice between two or three-way negotiations. With regard to the three-way option, the SoS voiced concern, in its evaluation of the option to accede the request, that affording the BGMA full negotiating status may hinder the process as it would be difficult to agree governance across both BGMA and ABPI, resulting in more cumbersome or complex negotiations.

Turner J acknowledged the force of these concerns, highlighting that the involvement of BGMA would have led to a real potential for delay and would increase the risk of no voluntary scheme being reached at all. He thus considered it was within the scope of the SoS' legitimate judgement to conclude that it would be in the interests of NHS patients for the negotiations to proceed between only two parties.

Notwithstanding the above, Turner J recognised that a central pillar of BGMA's case was that the ABPI is incapable of adequately representing the interests of manufacturers of branded medicines as a whole; and further acknowledged that "there can be no doubt that the interests of in-patent manufacturers were and are likely to remain a high priority for the ABPI".

However, he noted that the SoS had gone a considerable way towards ensuring the BGMA could participate as fully as possible short of having a power of veto; the ABPI retained a strong interest in advancing the cause of generics manufacturers; and the ABPI held express responsibility to act as an "all-industry" body in various other functions – including the negotiations in question. For example, its terms of reference for the negotiations made clear its responsibility to ensure a successful outcome for the entire branded pharmaceutical industry. It also engaged in an all-industry engagement exercise in preparation for the negotiations.

Turner J therefore concluded that the SoS' decision "fell very comfortably within the parameters of Wednesbury reasonableness" – even under more scrutiny, it would have been "unimpeachable".

Impact of the decision

While public lawyers might have empathised with the frustrations of BGMA's position, few will have been surprised. The decision reinforced the familiar high bar that a claimant must clear in order to demonstrate the unlawfulness or irrationality of a public authority decision in the exercise of broad statutory powers, particularly in the context of an ultimately 'voluntary' mechanism. The evaluation by the SoS of the option to accede to the request prior to its refusal rendered it an uphill battle for the BGMA to undermine the legitimacy of the decision.

That said, while BGMA may not have succeeded in its push to secure negotiating status, the publicity around the judicial review claim, and the opportunity to make its case to the SoS and the ABPI, is likely to have been instrumental in the negotiations themselves. The ABPI will have been acutely aware of its responsibility to ensure a successful outcome for the entire branded pharmaceutical industry and the SoS will have been conscious of the same considerations.

Notably, the BGMA has released a statement following agreement of the VPAG, indicating that "for the first time in over 50 years of this pricing agreement's existence, it recognises that a one-size-fits-all rebate doesn't work and a more nuanced approach is needed". It further states that it is "pleased the new deal reflects our call for a tiered approach that takes into account the contribution off-patent medicines already make in terms of vital savings".

Only time will tell as to whether the BGMA is content with the scheme in practice and indeed whether its members are satisfied that it achieves its intended aims. But, at least in theory, the judicial review challenge appears to have fulfilled a broader purpose of ensuring that the BGMA's voice is heard, even while being formally unsuccessful.

To discuss any of the points raised in this article, contact Emma Kensett.

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