Health Service Medical Supplies (Costs) Bill

2nd reading (Hansard): House of Lords
Wednesday 21st December 2016 Lords Chamber

Second Reading

11:37

Moved by

[Lord Prior of Brampton]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Department of Health (Lord Prior of Brampton) (Con)]

My Lords, this is a short and focused Bill, which is vital not only for the NHS but for patients. The Bill’s provisions have received robust debate and scrutiny in the other place, but also, I am pleased to report, broad support for their aims, objectives and measures from all sides of the House.

NHS spending on medicines is second only to staffing costs. The Health and Social Care Information Centre estimated that the NHS in England spent more than £15.2 billion on medicines in 2015-16—a rise of nearly 20% since 2010-11. With advances in science and our ageing population, these costs can only continue to grow. This is true across the world.

Of course, medicines are a vital part of patient care in the NHS, both in hospitals and the community. Thanks to the research and development efforts of the life sciences industry—an industry which contributes £56 billion and tens of thousands of jobs to the UK economy every year—our understanding of diseases and the best way to treat them has improved dramatically over the past 20 years. I have got to know many businesses in the life sciences industry over the past six months. They include some of the finest companies in the world—from Japan, the USA, Europe, Israel and other countries, as well as the UK. My message to them is clear: “You are part of the solution, not part of the problem. Your new innovative products can both provide better care and help the NHS deliver care at an affordable, sustainable cost”.

We recognise that we have a diffusion problem in the NHS—diffusion more than innovation. I would characterise this as a treacle problem. For a whole host of reasons—not just financial, by any means—we in the NHS are slow at uptake. This problem has been addressed in the Accelerated Access Review, chaired by Sir Hugh Taylor and Professor Sir John Bell, and it will be a key part of our life science strategy as we move forward. Our ambition is for the UK to be the best place in the world for life sciences: for research, development, innovation and manufacture and for use by our patients. Nothing in the Bill stands in the way of that. I would argue that the structure of the NHS—the biggest single-payer health system in the world—our access to patient outcome data and our exceptional discovery and translational research base should mean that we are well placed to have our cake and eat it, with new innovative medicines and devices at an affordable cost. To pursue that rather weak culinary metaphor, the treacle can become the icing on the cake.

The purpose of the Bill is to clarify and modernise provisions to control the cost of health service medicines and to ensure that necessary sales and purchase information can be appropriately collected and disclosed. These provisions will align the statutory and voluntary cost-control mechanisms currently in existence, allow the Government to control the cost of excessively priced unbranded generic medicines and ensure that we have comprehensive and accurate data with which to reimburse people who dispense medicines. Taken together, these measures will secure better value for money for the NHS from its spend on medicines.

The first element of the Bill relates to controls on the cost of branded medicines. For many years, the Government have had both statutory and voluntary arrangements in place with the pharmaceutical industry to limit the overall cost of medicines to the NHS. Companies can choose to join either the voluntary scheme or the statutory scheme. The current voluntary scheme is the 2014 pharmaceutical price regulation scheme, known as the PPRS. The objectives of the 2014 PPRS include keeping the branded health service medicines bill within affordable limits, while supporting the availability and use of effective and innovative medicines. For industry, the PPRS provides companies with the certainty and backing they need to flourish in the UK and in global markets. The current PPRS operates by requiring participating companies to make a payment to the Department of Health of a percentage of their NHS sales revenue when total sales exceed an agreed amount. So far, the PPRS has resulted in £1.45 billion of payments, all of which have been reinvested into the health service for the benefit of patients.

For those companies not in the PPRS, the Government operate a statutory scheme, which—until the current PPRS—was broadly financially aligned with previous voluntary schemes. The current statutory scheme is based on a cut to the published list price of products, rather than a payment mechanism on company sales. The difference between the two schemes has led to some companies making commercial decisions to divest products from the PPRS to the statutory scheme. This pricing misalignment of the two schemes makes no sense.

Last year, the Government consulted on options to reform the statutory medicines pricing scheme by introducing a payment mechanism broadly similar to that which exists in the PPRS. Our intentions were to put in place both a voluntary and a statutory scheme which were broadly comparable in the savings they achieve. Companies have freedom to decide which scheme to join and may move from one to the other, depending on the other benefits they offer, but it is the Government’s position that the savings to the NHS offered by each scheme should be broadly the same. In response, while NHS respondents supported our position, the pharmaceutical industry queried whether the Government had the powers to introduce a statutory payment scheme.

The Bill will clarify the existing provisions in the National Health Service Act 2006 to put beyond doubt that the Government can introduce a payment mechanism in the statutory scheme. The Bill would also amend the NHS Act 2006 so that the existing provisions for enforcement action would apply to the new powers. Payments due under either a future voluntary or statutory scheme would be recoverable through the courts, if necessary.

The powers to control the cost of medicines proposed in the Bill are a modest addition to the powers already provided for in the 2006 Act to control the price of, and profit associated with, medicines used by the health service. However, these additions are necessary to ensure that government has the scope and flexibility to respond to changes in the commercial environment. The intended application of the powers will be set out in regulations, on which we intend to consult as soon as we are able to do so. The Government have already published illustrative regulations to demonstrate how the powers will be exercised in a fair and proportionate way.

I would also like to reassure noble Lords and those companies in the statutory scheme that we will consult further on the implementation of a payment mechanism in the statutory scheme, including the level of the payment mechanism, before any regulations come into force. We estimate that 17 companies will be affected by the introduction of a payment mechanism, with the 166 companies that are currently members of the PPRS not affected. Small companies will continue to be exempt from payments. Our proposals will save the health services across the UK an estimated £90 million per annum.

I now turn to the second key element of this Bill, which amends the National Health Service Act 2006 to strengthen the Government’s powers to set prices of medicines where companies charge unreasonably high prices for unbranded generic medicines. We rely on competition in the market to keep the prices of these drugs down. This generally works well and has, in combination with high levels of generic prescribing, led to very significant savings. However, we are aware of some instances where there is no competition to keep prices down and companies have raised their prices to what look like unreasonable and unjustifiable levels. This was also highlighted by the Times earlier this year.

We cannot allow this practice to continue unchallenged. My department has been working closely with the Competition and Markets Authority to alert it to any cases where there may be market abuse and to provide evidence to support this. Earlier this month, the Competition and Markets Authority issued its highest fine ever of £90 million against Pfizer and Flynn Pharma after finding that each broke competition law by charging excessive and unfair prices for anti-epilepsy drugs in the UK, and only last week the CMA issued a statement of objections alleging that Actavis UK has breached UK and EU competition law by charging excessive and unfair prices in relation to the supply of hydrocortisone in the UK. Those CMA findings are provisional, and no conclusion should be drawn at this stage that there has in fact been any breach of competition law. We also know that Concordia International, one of the companies that featured in the Times investigation, is under investigation by the CMA. It announced this itself.

We also need to be able tackle this practice within our own framework for controlling the cost of medicines. While the Government’s existing powers allow us to control the price of any health service medicine, the current powers do not allow controls to be placed when companies are members of the voluntary PPRS scheme. Today, most companies have a mixed portfolio of branded medicines and unbranded generic medicines, and therefore we are currently unable to act. I have to stress that this is not a widespread practice in the industry. This Bill amends the National Health Service Act 2006 to allow the Government to control prices of these medicines, even when the manufacturer is a member of the voluntary PPRS scheme. We intend to use the power where there is no competition in the market and companies are charging the NHS an unreasonably high price. We will engage with the industry representative body, which is also keen to address this practice, on how we will exercise this power.

The final element of the Bill will strengthen the Government’s powers to collect information on the costs of medicines, medical supplies and other related products from across the supply chain from factory gate to those who supply medicines to patients. We currently collect information on the sale and purchases of medicines from various parts of the supply chain under a range of different arrangements and for a range of specific purposes. Some of these arrangements are voluntary while others are statutory.

The Bill will streamline and expand the existing information requirements in the National Health Service Act 2006. The Bill will enable the Government to make regulations requiring all those involved in the manufacture, distribution or supply of health service medicines, medical supplies or other related products to record, keep and provide at request information on sales and purchases. The requirement to provide this information would be for defined purposes: reimbursement of community pharmacies and GPs; determining whether value-for-money is being achieved from the supply chain or products; and controlling the cost of medicines. This will put the current voluntary arrangements for data provision with manufacturers and wholesalers of unbranded generic medicines and manufactured specials on a statutory footing.

Because the arrangements are voluntary, they do not cover all products and companies, limiting the robustness of the reimbursement mechanism. The information power would also enable the Government to obtain information from across the supply chain to assure themselves that the supply chain is delivering value for money, something that we cannot do with our existing, fragmented data. The new power will provide insight into where profit is made and how much. This is important because, although the Government are generally not the buyer of these products, they pay for all products used in the health service.

The 2006 Act already provides powers for government to control the prices of medical supplies. We are not using those powers at the moment, nor do we currently see any reason to start using them, but we want to keep open the possibility, and in the Bill we are updating the powers in line with those for medicines. The term medical supplies, as defined in the 2006 Act, is capable of covering a wide range of medical supplies from bandages to MRI scanners. Many of these products are bought following competitive tendering, and a scheme that controls prices would therefore not bring any benefits.

I also reassure the House about the application of this information power to the medical technology industry. Over 99% of the companies supplying medical technologies to the NHS are SMEs. We have no interest in placing large additional burdens on these companies. The 2006 Act also already requires suppliers of medical technologies to provide information on almost any aspect of their business. We are not putting any new requirements on them but merely streamlining existing requirements.

I thank the devolved Administrations for their constructive input and engagement with my department with respect to the Bill provisions. The Bill reflects the agreement between the Government and the devolved Administrations that information from wholesalers and manufacturers will be collected by the Government for the whole of the UK and shared with the devolved Administrations, while information from pharmacies and GP practices will be collected by each nation. This avoids the burden created by each country collecting the same information.

The Bill will ensure there is a more level playing field between our medicine pricing schemes, while ensuring the decisions made by the Government are based on more accurate and robust information about medicine costs. I believe this legislation will establish a framework that is fairer for industry, pharmacies and the NHS, while also being fairer for patients and taxpayers. I beg to move.

11:52

[Lord Warner (CB)]

My Lords, I am sure we are all grateful to the Minister for taking us through the provisions of the Bill and explaining the Government’s approach to the pharmaceutical and devices sectors. I am not altogether sure I followed his metaphor on treacle and icing, but we will let that pass.

I support the main purpose of the Bill, which is to control the cost of unbranded generic medicines if the competitive market is not working properly in respect of particular products. We have all seen what happened when Pfizer and Flynn Pharma hiked the price of an anti-epilepsy drug used by the NHS by over 2,000% when a branded drug came off patent. The proposed £90 million fine from the Competition and Markets Authority should be a salutary warning to others contemplating such action, but I understand why the Government are taking preventive legislative measures, and I fully support that.

However, as the Minister indicated, the Bill goes a good deal wider than stopping the NHS being ripped off when branded drugs go off patent, and that is where we need to probe a little further. Here, I should make it clear that, like the Minister, I have been a Pharmaceuticals Minister negotiating a PPRS deal with big pharma and curbing the excessive profits of generic companies—all areas which such a Minister has to take account of—and I have no illusions about the difficulties of his brief in this area. But it is also part of that brief to ensure flourishing UK pharmaceutical, biotech and devices sectors as part of a buoyant life sciences industry in this country, which provides many high-value jobs. It is not just about getting the cheapest deal on drugs for the NHS.

The Bill includes medical devices and technologies which have nothing whatever to do with the Pfizer-Flynn case. The information provided to me suggests that there has been little consultation with the sector before devices provisions were included in the Bill. The ABHI, the sector trade body, wrote to me to express its concern that the Bill will impose onerous regulation on its members across the country. It points out that SMEs make up 98% of the medical technology industry—I think the Minister accepted that—and that some of those SMEs are already leaving the UK market in favour of more flexible markets. As it says, in the longer run, this will have an adverse effect on the UK’s supply chain and the quality and competitiveness of the products available to the NHS. Given that the Minister has accepted the existing powers to intervene in the devices market if things are going wrong, why are the Government taking these new powers? I have never been very convinced by words such as “streamlining” and “modernising”, and I do not think the sector has been either. Why do they seem to be going in for a heavy-handed way that is bound to alienate many small businesses? Can the Minister explain in more detail what discussion there has been with the ABHI and the sector itself on the Bill’s provisions on devices and technologies, and why the sector was included in the Bill at all? What is the mischief that is being addressed by that inclusion?

Turning to the pharmaceutical industry, it is clear that the Government have not totally taken the sector with them, although the ABPI accepts the Government’s right to act in cases such as Pfizer-Flynn. Companies are clearly uncertain how the Government are going to set the price mechanism in the statutory scheme. I think the Minister was promising consultation, but he will have to do quite a lot of work to convince them that there is not some secret agenda. Can the Minister throw more light on the Government’s current thinking on the issue? How will the provisions ensure that payment levels that seem fair to large multinationals are not punitive to SMEs? I would like to know a bit more about at what level SMEs are excluded from the provisions. Will payment levels in the statutory scheme vary—this is critical to the sector—according to the circumstances of particular producers, some of whom are producing drugs for a very niche market with particular patient interests and concerns?

There are clearly concerns about the drafting of Clause 3 and whether it will penalise innovation. It has been suggested to me that the clause will not achieve the Government’s stated objective of delivering equivalence between the statutory and voluntary schemes. This is because the PPRS excludes sales of branded medicines launched after 1 December 2013 but, so far as I and the industry can see, there seems to be no similar exclusion for such products in the proposed arrangements for the statutory scheme, which would in effect be a penalty on innovative drugs. Does the Minister agree that there is an inconsistency? Is there not a risk that the UK’s already poor record, which he acknowledged, on speedy uptake of new medicines will get worse? Linked to this is the question of what consideration has been given to the impact of the new payment scheme on patient access to medicines where there is little competition. What risk assessment has been made of companies withdrawing supplies from the NHS market? Have there been any discussions with patient interest groups about these issues?

Another issue surfaced by the ABPI is the new power to obtain payments from pharmaceutical companies through the PPRS scheme. They accept that this makes sense if a company leaves the PPRS with a payment outstanding, but the Bill seems to be more widely drawn than that. The ABPI is clearly concerned that the Government may be considering making the voluntary PPRS somewhat less voluntary after the current one has run its course in 2018. What assurances can the Minister give the industry on that?

There are clearly significant industry concerns about the Bill’s provisions on the collection of information at a product level, especially in the international companies. For many of these companies, the UK market is a very small part of their business. What happens if they decline to co-operate over the information provisions in the Bill? It also looks a somewhat cumbersome information collection system that could impose quite rigorous burdens on many smaller companies. How much discussion has there been with the industry on the detail of the information requirements in the Bill and what scope is there for further modification?

Lastly, can the Minister clarify how this new system fits in with the current arrangements for using competitive tendering to purchase innovative drugs which NHS England, for example, does from time to time? Will companies give competitive prices in those tendering arrangements if there is a real risk that the Department of Health will take another cut a bit later on? Indeed, will the Department of Health snaffle money through this statutory levy which will not find its way back to the NHS to purchase innovative drugs more speedily? Can the Minister reassure us that the Department of Health is not creating a more bureaucratic edifice in this Bill that could damage NHS finances rather than confining itself to closing the loophole that Pfizer-Flynn exposed? We may need to probe some of these issues a little further in Committee.

12:01

[Lord Lansley (Con)]

My Lords, I am very pleased to follow the noble Lord and pay tribute to the fact that he has clearly identified some of the issues to which I will refer briefly here at Second Reading but which we will need to look at in Committee. The noble Lord did so very ably and helpfully. I thought that my noble friend the Minister set out the Bill very clearly, which is very helpful to the House. I understand that he is moving on to new ministerial responsibilities, so perhaps I may be the first to say that I know—having had the privilege of knowing my noble friend over many years since we first entered another place together—that his knowledge, experience, expertise and wise judgment on health matters is highly respected and much esteemed throughout the sector. His guiding hand will be much missed but we extend enormous thanks to him for all that he has done not only at the Department of Health but prior to that at the Care Quality Commission.

I draw attention to my interests in the register, and in particular as an adviser to MAP BioPharma—although the company is not directly affected by the provisions of the Bill.

In another place this Bill was referred to as a technical Bill. That is probably not an accurate description. It extends the powers of Ministers and gives them the ability to secure a payment under the statutory scheme which they did not feel they were able to do. It gives Ministers greater powers to control the prices of unbranded generic medicines which they did not have and it gives them a greater power to require information from suppliers. So there is a significant threefold extension of the powers of Ministers.

I completely understand and accept the reasons for the Bill. Ministers were right to bring it forward. There has clearly been a transfer that one might uncharitably describe as gaming between the voluntary and the statutory scheme—more politely it would be called arbitrage between the two—since there are suppliers of medicines, particularly in the hospital sector, that discount their list prices to those purchasers. Therefore, a statutory scheme that simply consists of a cut to the list price does not necessarily have any effect on their prices. So it does not have the intention that the voluntary scheme has. The Bill, quite rightly, closes a potential gap in control of the supply of generics by those companies that are also members of the voluntary scheme.

The Bill also extends information supplied by companies for dispensing and it might be useful in all of those to have a little bit of history, if I may detain your Lordships on that. I remember that before 2010, when I was shadow Secretary of State for Health, we were very clear that what we wanted to do as a potential incoming Government was to give stability to the industry and to that effect we said that we would not change the then PPRS before the renewal in 2014. But we were equally clear that when we got to the new PPRS in 2014, it needed to change and that, as it stood, its objectives were no longer being satisfactorily met. It gave businesses freedom for pricing medicines at introduction—and we should be well aware of the relative importance of this. The noble Lord, Lord Warner, referred to the relatively small size of the UK pharmaceuticals market, with about 3% of the international marketplace for pharmaceuticals, but the UK list price plays a much larger part in reference pricing internationally, with something like 25% of the total pricing effect. So it is very important to the industry to have that freedom of pricing.

However, the effect of the ability to price at the list price is that one has a NICE health technology assessment and evaluation with a threshold applied, which still leads frequently to NICE saying no to medicines. The net effect is that we have a licensed and effective medicine available to patients—but at the list price NICE says no and patients lose out. In our view, back then, this was an entirely unsatisfactory position. It seemed to us that, when an effective medicine is available to patients, it should be available to clinicians and patients through the NHS, and between the Government and the industry a mechanism should be established to ensure that a fair price is paid for the medicine. The patient should get the drug, the industry should get a fair price and the NHS should pay only what is necessary to achieve that.

The lack of access in the short run, as your Lordships will recall, is why we established the Cancer Drugs Fund, after Mike Richards’ report on the relative access in different countries in Europe to medicines demonstrated a significant shortfall in access in this country to cancer medicines in particular. But the intention always was—and I reiterate this, because it is frequently misrepresented—for the Cancer Drugs Fund to end at the beginning of 2014, because the new pharmaceutical price regulation scheme was intended to achieve the access benefit that the Cancer Drugs Fund was achieving in the short run. The fund did not overspend up to 2014; it was retained beyond 2014 and it then overspent, but that was not its original intention. So I do not accept the criticism of the Cancer Drugs Fund.

However, the PPRS negotiation for 2014 did not deliver the changes that were intended. It delivered budget control to the Treasury, freedom of pricing and introduction for the industry and a degree of rate of return reassurance to the industry. So to that extent, the taxpayer was well represented, the NHS may say that it was quite well represented and the industry was well represented—but I am not sure that patients were. What we need is a PPRS that serves patients at least as well as it serves the NHS.

[Lord Hunt of Kings Heath (Lab)]

This is a very interesting exposition, but could the noble Lord clarify that there is a difference between the notional list price, which is used as a marker for many other countries, and the actual price paid by the NHS? Secondly, does he agree that, if the Treasury had not purloined the rebate, we would have had the money and patients would have had access to new drugs?

[Lord Lansley]

The noble Lord makes interesting points, which point to where we were always intending to go—to a point where there was in effect a negotiated price between the industry and the NHS so that there was a proper discount. Now we have a rebate system. There was a lot of debate in the other place about where the rebate money went. It goes back into the NHS through the mechanism of the overall Consolidated Fund, so it is less transparent than is the case in Scotland, for example. However, that does not mean that it is lost to the NHS.

I will anticipate something that I was going to say later. A consultation is taking place involving NHS England and the National Institute for Health and Care Excellence, looking at how they can work together to introduce budgetary impact considerations alongside NICE evaluations to establish what prices the NHS should pay for medicines. That is taking us in the direction we have to go—namely, what is in effect negotiated pricing through the NHS to ensure access to medicines for patients. That is the positive construction of the present consultation. The negative construction is that it will create in effect double jeopardy. In the first instance NICE may say no on the basis of the list price. Then NHS England may add a second reason to say no because of the budgetary impact of new medicines—so there is an inherent problem with that.

I will finish the history for a moment. Where dispensing is concerned, there is a history under the last Labour Government of the pharmacy sector significantly exceeding the planned margin between the wholesale price and the reimbursement price because of a lack of good information. Therefore, we can be absolutely clear that an important purpose of the Bill is to get the margin survey right and provide more comprehensive data on the prices being achieved in the purchasing of medicines so as to make the reimbursement price deliver the agreed gross margin as part of the global sum to pharmacies.

Therefore, I support the Bill and its intended purposes. It will be important that it is used properly. The noble Lord, Lord Warner, made some very good points, including on equivalence between the two schemes. Gilead, a firm in my former constituency when I was in another place, continues to tell me what it thinks about these things and points precisely to the potential disparity between the statutory and voluntary schemes in relation to medicines introduced since 1 December 2013. If equivalence is the intention, we need to ensure that the Bill specifies that.

We are looking for a competitive environment in relation to unbranded generic medicines. The Competition and Markets Authority is pushing for that and the measures in the Bill can help Ministers to achieve that prospectively, as it were, rather than just dealing with abuse. But it is wrong for Ministers to take powers which would allow them to behave non-competitively. There is monopsony in this—monopoly purchasing by Ministers. Where a competitive environment is created—for example, where the price is determined in a competitive tender process—it would be completely wrong in my view for them suddenly to find that a price agreed through a competitive process is overridden by ministerial diktat—as the noble Lord said, Lord Warner, said.

I hope that we will also discuss two other issues. A very important one is to build back into the thinking on the future PPRS, through this legislation, what a future PPRS should have at its heart. Ministers making decisions about pricing structures should have specific reference to affordability. They should also have reference to the ability for patients to access the medicines they need through the NHS; the extent to which the pricing system enables unmet need to be met; and the extent to which medicines deliver relative therapeutic benefit, so that we literally pay for innovation and for therapeutic advance, but do not pay a lot of money for me-too drugs with brandings attached to them. However, we should pay for societal benefit. One can imagine the considerable benefit to society that would be derived from a new drug to treat early onset Alzheimer’s. We should also give explicit support to innovation. As the Bill proceeds, I hope that we will see more detail on not only the regulations but how the consultation between NHS England and NICE is proceeding. Perhaps the Government could also say more about their formal response to the accelerated access review and the life sciences strategy.

I support the Bill and I hope all the issues that I have referenced will be brought forward and discussed, including the structure of the information powers. At the moment, they are too wide-ranging and lacking in safeguards. Strictly speaking, there may be circumstances in which it is necessary for Ministers, if they ask for information, to provide a notice saying for what purposes it will be used and with whom it will be shared. Under those circumstances there should also be the potential for an appeal to the General Regulatory Chamber—but we can look at that in more detail in Committee.

As I say, I support the Bill and I hope we can look in Committee at giving more clarity on some of those issues and perhaps even building in one or two safeguards.

12:16

[Baroness Walmsley (LD)]

My Lords, I thank the Minister for his explanation of the Bill. However, while I have no problem with the Government’s intention of closing the loopholes identified in the statutory scheme for medicine cost regulation, aligning schemes and ensuring that medicines are reasonably priced and affordable to the NHS, I do have quite a lot of questions. I also share the concerns raised by the noble Lords, Lord Warner and Lord Lansley.

My first question is whether this is the right time to make these changes, with Brexit on the horizon. Some of the Bill’s provisions add further uncertainty to what is already a very uncertain time for the businesses affected by them. If trade between the UK and other EU countries becomes subject to customs duties, import VAT and border controls, it will increase costs to the life sciences industry and drive up costs to the NHS. This will certainly impact on patients. As the Minister has acknowledged, the life sciences industry is very important to our economy, and these changes could impact upon it very adversely.

There is no doubt that the medicines bill has risen over the past five years, but what evidence is there that this is just because of unreasonable price rises in the pharmaceutical sectors that are not currently controlled, such as generic medicines? We have heard a lot about increased demand in all areas of medicine and care, and this is usually attributed to greater longevity and a general increase in medical advances to treat more conditions better. So why do the Government think that the rise in the medicines bill is any different? Yes, of course, like other noble Lords I have heard of one or two particularly outrageous cases of enormous unexplained price rises in generic medicines, and this is suspiciously like profiteering. But is it really necessary to go as far as this Bill does in order to deal with just a few very unethical cases? I am a little surprised that the Government are acting before we see whether the current cases under competition law are actually going to deliver the right result. As I said, I accept there is a loophole for generic medicines sold by companies in the voluntary scheme, but what is the extent of the use of that loophole? How much is the NHS losing, and how much are patients suffering because of profiteering?

Clause 1 provides the Government with a much stronger enforcement mechanism for obtaining the payments rightly owed, but does this constitute an amendment to the current PPRS, and if so, does it require the agreement of all those involved in a future scheme? Will there be any discussion with companies that propose price rises? There are many reasons why prices sometimes rise, apart from a desire to make more profit. There should be some mechanism for finding out whether the price rise is justified and reasonable, rather than someone in the DoH just making an arbitrary judgment.

We have concerns that the traditional appraisal methods and notions of cost-effectiveness are no longer suitable for some modern medicines, especially for very innovative new drugs which will be suitable for only a very small population of patients. The NHS has been slow to respond to these changes and I would not want to think that the Bill could make things worse.

There is a need for much more clarity about Clause 3. The payment mechanism, which really amounts to a tax on net sales, will, we understand, be set somewhere between 10% and 17%, so it seems reasonable to ask how the Government will assess the impact of their chosen level on the availability of the medicine concerned. Will we know what percentage the Government plan to choose before the Bill completes its passage through your Lordships’ House? We would not want its unintended consequence to be shortages of certain useful medicines.

As we have heard, Clause 5 brings medical devices within the scope of price regulation. Is there really any evidence that there has been price abuse among suppliers of medical devices, as we have heard there is in relation to pharmaceutical items? With these items it is vital that there is a range of products for patients to choose from, as something that suits and works for one patient may be very uncomfortable for another. That is why driving down the cost of products will not necessarily save money in the long term. If a patient cannot get on with his or her life and contribute to society, an unsuitable but cheaper product could cost the economy more money in the long run.

Companies have told us that this section of the Bill is vague and does not make the Government’s policy intentions clear, so they need more reassurance. Nor are those intentions adequately covered in the Explanatory Notes or the impact assessment accompanying the Bill. That has prevented companies fully understanding how the provisions will affect their business. It is not very reassuring for the Government to say that they do not intend to implement all sections of the Bill immediately, because this uncertainty makes it impossible for businesses to plan when their main customer might be able to hold them over a barrel on price at some unknown time in the future. I certainly could not run a business in that sort of climate. Unsurprisingly, businesses are very concerned about this. Some clarity was offered during the Bill’s passage through another place, including, as I have just mentioned, the fact that the Government have no immediate plans to use the powers, but they could decide to use them at short notice at any time in the future. That provides the very uncertainty that investors hate and it is very bad for business.

Clauses 6 and 7 concern data collection. It seems very strange to me that the National Health Service Act 2006 already contains the power for the Government to require medical technology suppliers to provide them with information, and the Government have said that the Bill will clarify and modernise those powers. We have heard from officials that the penalty for non-compliance will be changed from a criminal to a civil one, which will be more proportionate to the offence. However, as these powers have not been used to date, the fact that the Government are making these changes suggests to some that their use may be planned in the not-too-distant future, and that brings more uncertainty.

One can understand the Government wanting and needing information in order to ensure that the reimbursement system works effectively, but the new provisions go a lot further than the current requirements and may put a very heavy administrative burden on companies. We have been told by officials that the intention is to make this burden as light as possible, and that is good, but how will this be done when, I understand, separate information will be required for every product throughout the whole supply chain, even for those outside this country? Companies tell me that currently they do not collect all the information the Bill requires and they would find it very difficult to do so. Is all this information really necessary to achieve the Government’s intentions in the Bill?

There is an issue about consultation. Some suppliers are claiming that the Government’s statement in another place that there has been extensive consultation is simply not true. They were not consulted. Only a few large trade organisations were consulted. We really need from the Government a clear commitment to proper consultation before these regulations are finalised and implemented. It is essential that the Government proactively engage with the entire industry before bringing forward legislation such as this.

I believe in evidence-based policy and that the Government should always be transparent in their intentions when they make changes, as mentioned by a previous speaker. However, at the moment that is not the case. If the powers are to be used, they should say so, and then there should be proper engagement and consultation with the businesses affected. It is in the interests of the companies affected that they work with government to support consumers and the NHS. After all, that is what they do; that is their business. The Government are asking for clarity from NHS suppliers about costs throughout the supply chain, so should not suppliers be able to expect clarity from the Government in return?

My primary concern is that any increase in payments by manufacturers and suppliers to the Department of Health should be put to use in improving access to new medicines and ensuring that existing medicines are provided in a timely way to all patients who need them. So far, I have not been assured by the Minister that this is what will happen to any increased payments. I wonder whether he is willing to do that today—after all, it is Christmas.

We need to see this Bill in the wider context of the struggle of the NHS and social care to provide services in the light of rising demand and costs. Apart from their efforts in this Bill to control costs, the Government have ignored that. The recent Statement announcing a small amount of additional money for social care, and the allowance of a raised local authority precept, will not bring money into the deprived areas that need it most. Until this is dealt with, measures such as those in the Bill are only scratching the surface of the problem.

Finally, I join the noble Lord, Lord Lansley, in paying tribute to the noble Lord, Lord Prior. It has been a great pleasure to work with him. He has always been very patient and courteous with us in this House in answering our questions. I also thank the noble Baroness, Lady Chisholm of Owlpen, who I understand is also moving on. I wish them both a very peaceful and restful Christmas and extend that to other noble Lords and to the Bill team. I look forward to working with whoever it will be in the new year as we move on to the Committee stage of the Bill.

12:26

[Lord Hunt of Kings Heath]

My Lords, as the Bill involves the supply of medicines and other goods to the NHS, I should like to start by declaring an interest as president of the Health Care Supply Association and of GS1, the barcoding organisation. I too congratulate the noble Lord, Lord Prior, on his move to the business department. We have very much enjoyed working with him and debating the issues. He has been unfailingly courteous to your Lordships’ House, and I am sure that we have all appreciated the work he has done on behalf of the Department of Health. Like the noble Baroness, Lady Walmsley, I too congratulate the noble Baroness, Lady Chisholm of Owlpen, on her retirement from government and thank her warmly for the work she has done as a Whip. She has taken part in many Dispatch Box debates and we are very grateful to her. I also, of course, welcome the noble Lord, Lord O’Shaughnessy, to his new post. He will enjoy taking the Bill through its remaining stages—perhaps.

As noble Lords have said, the recent fines imposed by the Competition and Markets Authority on Pfizer and Flynn Pharma for charging the NHS excessive prices is a salutary warning to the pharmaceutical industry. We certainly welcome the provisions in the Bill that deal with the small number of companies that have exploited loopholes in current legislation by controlling the price of unbranded generic medicines. However, the Bill misses an opportunity to counter the growing lack of access to new innovative drugs, which is putting the health of NHS patients at risk. I have listened to what the Minister has said, but it seems to me that the cumulative impact of decisions made by his department, and particularly by NHS England, is that there is less and less access. This is a very serious problem, both for the NHS and patients and for the industry and the life sciences sector.

My other concern is that this is a burdensome regulatory Bill. In fact, I am sure that in his new post the Minister will be shocked by the number of regulations that this Bill brings in, without any justification whatever, it seems to me. I hope that as we go through the passage of the Bill, we might look at making some of those regulatory requirements more focused, as the noble Lord, Lord Lansley, suggested.

The powers under the NHS Act currently allow the Secretary of State to make a statutory scheme for limiting the prices or profits of companies that choose not to be members of the voluntary scheme. The Minister has explained that the statutory scheme is less effective in terms of the level of saving that it makes than the mechanism in the voluntary scheme, thus leading to some companies leaving the voluntary scheme in favour of the statutory scheme. I well understand the argument that he put forward. On the other hand, I would argue that the voluntary scheme has served both health service patients and the industry well over the years. It is important that in bringing these measures forward we do not in effect remove the voluntary nature of the PPRS. It would be helpful if the Minister would set out the circumstances under which the powers in Clause 2 would be exercised. Is it intended that the power could be used to change the current voluntary PPRS scheme? Could these provisions be used in the future to restrict the voluntary nature of the PPRS agreement?

I also raise a point referred to by the noble Lord, Lord Warner. Are any perverse incentives likely if companies in the statutory scheme move to the rebate system applying in the voluntary scheme? At the moment, I am informed that companies in the statutory scheme are able to lower their prices directly to the NHS because they are not part of the rebate scheme. In terms of those companies, if the NHS gets the benefit of the lower prices, the department that gets the benefit of the rebate is the Treasury. Is there a risk in switching from the statutory sector to the voluntary sector in terms of the outcome for the National Health Service?

Also, has the Minister assessed the risk that small companies currently in the statutory sector, which may be less able to absorb rebate payments, may leave the market altogether? The noble Lord, Lord Warner, referred to that. I also want to ask about something that the noble Lord, Lord Lansley, mentioned. I understand that the aim is to permit broad equivalence to be achieved between the voluntary and the statutory schemes. Does the Minister think that, to reassure the sector, that should be explicitly stated in the Bill?

Clause 5 extends the power to control the maximum price to other medical suppliers and not just medicines. I listened carefully to what the Minister said, but I am not yet convinced that there is any reason at all for the Government to propose this. The impact assessment, as far as I can see, is silent on the matter. The Minister will know that both the BHTA and the ABHI expressed concerns about the burdens that will be put on the devices and technology sectors. There is also the issue of consultation. It is clear that the major trade associations were consulted, but the industry has a whole host of organisations representing bits of it, such as the continence and stoma industry, for example, which is an important, significant player but was not consulted, despite the implications for it. It comes to the point when the Minister essentially says, “We are going to have these powers, but we do not expect ever to use them”, and they have not been used since 2006. My advice to the Government is to forget it because we seriously question whether Clause 5 should stand part of the Bill.

On regulation in general, I had thought that one benefit of Brexit would be that no longer would we have regulations that the Government consider too burdensome but which they had to agree to, effectively, through the compromises that negotiations in Europe always lead to. I find it curious. This seems to be an example of gold-plating legislation. Clearly, the Government had to deal with a generic problem and introduced this, which is like a Home Office Bill, as the noble Lord, Lord Warner, described it. It is like a Christmas tree. The department found lots of other nice things to put in it, but cannot actually come forward with any strong evidence as to why they should be included. In my naivety I thought that in this Brexit world we would be going for light-touch regulation, but I have to say that this does not look like light-touch regulation to me.

A further example of this is found in Clauses 6 and 7 relating to the provision and disclosure of information. The ABPI has pointed out that the information requirement is onerous and goes well beyond what is necessary, but what is striking is that the provisions are drawn so widely. My reading of the Bill suggests that it applies to any,

“person who manufactures, distributes or supplies any UK health service products”.

The Bill goes on to explain that, so far as England is concerned, it applies to any medical product used to any extent for the purposes of the health service under new Section 264A(1) and any other medical supplies or related products required for the purposes of the health service. We are talking about millions of products. The impact assessment states that the costs have not been quantified for manufacturers, wholesalers and dispensers. Why have the costs not been quantified for these businesses, which number in the tens of thousands? I thought that that was what impact assessments were all about and I thought that the Government had a policy in relation to reducing the regulatory burden on industry. It is very difficult to understand why the department has gone for such a broad-based power and I will certainly be interested in seeing whether it is possible to hone down these clauses and focus on the information that the Government can prove they actually need.

I want to pick up on the issue about access to medicines. What is so striking about the Bill, which is concerned with medicines, is the glaring absence of provisions to increase the uptake of new medicines by NHS patients. Any number of reports, in particular over the past two years, show that we have taken an increasingly restrictive approach to the adoption of new medicines in this country. This goes alongside the current consultation by NICE referred to by the noble Lord, Lord Lansley, with the proposal that if a NICE-approved treatment is expected to exceed £20 million in any of the first three years of its use on the NHS, NHS England can ask NICE to allow a longer period of phased introduction. I think that the noble Lord, Lord Lansley, suggested that this could be okay, but there is a risk of double jeopardy. We need to hear from the Government in this Bill how it is not going to be double jeopardy. The industry goes through all the processes it needs to in order to ensure that a treatment gets through the NICE process. The medicine then has, if you like, an affordability test which is in addition to a cost-effectiveness test, and thirdly, the Minister is taking draconian powers to reduce the amount of money going to the industry generally. That is triple jeopardy. The question I put to the Minister is this: what is the cumulative impact of all these proposals, not only in relation to the actual price but in relation to access to innovative new drugs?

The noble Lord, Lord Lansley, referred to the 2014 PPRS agreement and said that it could have been ground-breaking in relation to access for patients. I agree because it was a very good agreement and one that could have finally opened the door to the NHS giving access to treatments that every other country has access to before we have here. I know that the noble Lord and I seem to disagree about where this rebated money goes, but he will know that the industry agreed to hold drug costs for a five-year period with the bill staying flat for two years and then growing only slowly after that. There have been one or two modifications since then, but that is the broad principle. If drug expenditure by the NHS goes over the agreed level, the industry will pay a rebate at every quarter, and so far it has paid £1.5 billion back. The noble Lord’s argument is that I should not worry about that figure because the NHS gets it. As I see it, what clearly happens is that the Treasury forecasts in advance what the rebate will be. It is also well advertised in advance what the allocation to the NHS will be. In essence, the Treasury gets the benefit because it reduces the contribution it makes to a given figure.

If it had been agreed that the rebate could have been used—perhaps as in Scotland or in another way—to fund much greater access to new drugs, we would have achieved what the noble Lord, Lord Lansley, set out to do. It is a hugely missed opportunity. None the less, I hope the Government, when looking for the next PPRS agreement, will look at the lessons to be learned. I agree with him and my noble friend that clearly we need value for money and certainty but, unless we can deal with this pervading problem of lack of access to new medicines, NHS patients will get no benefit whatever.

We have to link that to the health of the life sciences sectors and the industry. In his new role, the Minister will be as concerned about this as he probably is at the moment. The UK has been one of the foremost countries in the world for drug development. We know that our life sciences was one of the reasons why. The noble Lord, Lord Lansley, suggested that flexibility on pricing on first introduction is also a reason because it acts as a benchmark for other countries, but I have no doubt whatever that the NHS’s failure to adopt new medicines is putting future investment at risk. I do not think we can be complacent. A long time ago, when I was responsible for it, the UK developed about 30% of the top 100 new drugs. That, as I understand it, is now down to 14%. The risk is we can go lower.

We very much look forward to debating the Bill. It clearly has very useful measures on drug costs, but no case has been made to extend its provisions to medical devices and technologies. It looks like gold-plating regulation, which we would like to try to improve, but overriding this is the sense that, until the Bill provides for increasing NHS patients’ access to ground-breaking new treatments, it remains defective.

12:42

[Lord Prior of Brampton]

My Lords, I thank the noble Baroness, Lady Walmsley, and the noble Lord, Lord Hunt, for their kind comments about me. I have very much enjoyed this role for the past 18 months. Going over to BEIS, which is the rather horrible acronym we have, I will still have a keen interest in many of the issues that lie behind the debate we have had today. I welcome my noble friend Lord O’Shaughnessy, who is sitting behind me, to his role.

I think my noble friend Lord Lansley, or maybe the noble Lord, Lord Warner, said that in another place this was called a technical Bill. At one level it is, because the issues are quite difficult and technical, but there is substance in it as well. It is not a technical Bill in that sense of the word.

I will start by addressing the wider issues around life sciences and access. We are all agreed that access to new drugs and devices for the NHS is a huge issue. We are falling behind. I do not think there is any doubt about that. That is what lay behind the Accelerated Access Review; that is why we had it. The work led by Sir Hugh Taylor and Professor Sir John Bell absolutely nailed that in its report. I assure the House that the principles behind the Accelerated Access Review will be incorporated into our strategy for life sciences that we are developing over the next few months with industry.

We have to reconcile access and affordability. That is the issue behind the NICE and NHS England consultation: if the impact is more than £20 million per annum—that is our suggestion—it has to be looked at. There will always be a tension between access and affordability. As I said in my opening speech, that circle can often be squared because many such new developments, particularly in medical devices, will save costs. A lot of the work that has been done around digital health, adult hospital healthcare, health analytics, machine learning and the like has the potential to help us solve the productivity problem which has bedevilled not just our own health system but every health system in the world.

I think it is pretty much universally agreed that we need to take more powers around isolated cases of huge price increases for certain generic medicines where there is no competition. I think there is no question about that and we are all as at one.

The purpose of putting a payment mechanism into the statutory scheme, which is in the first part of the Bill, is only to align the two schemes. I assure the noble Lord, Lord Hunt, that we are not doing away with the voluntary scheme—on the contrary. It is just that we want to avoid the temptation, to which my noble friend Lord Lansley alluded, for companies, quite legitimately, to arbitrage between the two schemes. Historically, the two schemes have been broadly aligned from a financial point of view. It was only when the payment scheme was introduced into the voluntary scheme in 2014 that the two schemes became unaligned. The department’s view at the time was that we had the powers under existing legislation to put a payment scheme into the statutory scheme. It was only when, as part of the consultation, the industry queried whether we had that power that the department decided that we should introduce the power, which we are doing through this Bill, to put the two schemes roughly on a par. That is not to say that there will not be other benefits in the voluntary scheme which will still be very attractive to industry. I hope that that is the case and that we will be able to build on the voluntary scheme.

It is also worth mentioning that we will become much more sophisticated over time in the way that we price medicines. As a relative layman and objective viewer, it seems to me extraordinary that we have not already developed outcomes-based pricing for many of these drugs. When a drug is going to have an effect on 60% of the people who use it, why would we want to pay for the other 40%? Given that we in the UK are a single system and have access to data in a way that many other, more disaggregated systems do not, we are in a very strong position to have well-informed, data-rich, outcome-based pricing. The hep C drug is a classic case of our being able to move towards more annuity-based pricing. If we cannot afford the up-front cost of some medicines all in one go but can spread the cost of them over a number of years, that would seem an eminently sensible reimbursement process. I think we will see some much more sophisticated pricing arrangements coming into the mix as we move forward. That is the purpose of aligning those two schemes.

The aspect of the Bill about which the noble Lord, Lord Warner, and others have expressed the most concern is the information requirements and powers to extract information, particularly from small companies supplying medical devices. The noble Lord asked what the cut-off was for an SME. It is sales of £5 million, which omits quite a few supplies into the NHS from companies below that level. Again, the purpose of this part of the Bill is to ensure that we get our reimbursement rates right, particularly for integrated wholesale pharmacies. There is a feeling that some of the very big wholesalers—I will not name any names—make pretty hefty margins on some of these products. We need to know what price they buy at so that we can try to manage those margins and be sure that the NHS gets a reasonable deal.

Many of the issues raised are quite detailed and I am delighted to leave them to my successor to address in Committee. However, the last thing in the world we want to do is to build a bureaucratic edifice here, or to gold-plate regulations, information requirements and the like. I assure noble Lords that we are absolutely open to all ideas and suggestions on how we can reduce the regulatory and bureaucratic requirement on companies that supply the NHS.

The noble Lord, Lord Warner, heard that certain companies look to go overseas to less bureaucratic and regulated systems. I think that that is down to not so much the regulation as the uptake issues. I am sure the noble Lord and others have met, as I have, many small companies that tear their hair out about trying to supply to the NHS. They find it easier to supply the US, Australian or other world markets than our own. That is not to do with the information requirements that already exist or will exist under the Bill. It is still the case that the NHS is a very treacly organisation. It is hard to get your product into it. Even when it has been approved by NICE, it is difficult to get it diffused throughout the NHS.

Not many noble Lords participated in the debate but, as always in this House, the quality of contributions has been extremely high. I thank all those who contributed and ask the House to give the Bill a Second Reading.

Bill read a second time and committed to a Grand Committee.