Health Service Medical Supplies (Costs) Bill (First sitting)

Justin Madders Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 8th November 2016 Public Bill Committees

[The Chair]

Thank you very much.

[Justin Madders (Ellesmere Port and Neston) (Lab)]

Q This question is to Dr Ridge. The pharmaceutical bill has increased significantly in recent years—up another billion pounds in the last financial year. Could you give us some thoughts on why that has been the case?

Dr Ridge: I am absolutely delighted to do so. Just to emphasise some of the increases, I have brought with me the “Prescribing Costs in Hospitals and the Community” report from the Health and Social Care Information Centre, which is now part of NHS Digital. That organisation routinely publishes information on a range of things, including prescribing and drug expenditure. In the 2014-15 report—the latest one—it says that the overall NHS expenditure on medicine in 2014-15 was £15.5 billion, an increase of 7.8% from £14.4 billion in 2013-14 and nigh on 20% from £13 billion in 2010-11. In 2014-15, hospital use accounted for nearly 43% of the total cost—that is up from 40% in 2013-14 and 32% in 2010-11. From 2013-14 to 2014-15, the cost of medicines rose by 7.8% overall but by 15.4% in hospitals. This is a particularly important fact: the cost of medicines in hospitals has risen by some 59.8% since 2010-11.

I hope that emphasises where we are in terms of expenditure on medicines. There are a number of reasons for that. One is around an ageing population, with people living longer and multi-morbidities—more than one disease. Of course, in many ways we are very grateful to the pharmaceutical industry. I would say this as a pharmacist: medicines are a truly wonderful thing. They are also the highest expenditure in the NHS after staff, but they have delivered some really important therapeutic gains over the years.

When you look to the future in terms of how medicines in the specialised areas will change in nature, particularly at the reasons around ergonomics, personalised medicine and the ability to be able to target medicines, that will affect expenditure, with development costs in among that, but it will also affect how the pharmaceutical industry will price medicines. So there is a raft of reasons, largely clinical but also technological, from the past. Going forward, we are going to see more of that. Of course, that is set in the context of the NHS financial position and the gaps set out in the five year forward view.

[Rob Marris (Wolverhampton South West) (Lab)]

Q The new proposals suggest a £5 million threshold exemption for small companies. I wonder what your views of the appropriateness of the magnitude of that threshold are. Perhaps Mr Kennedy might lead on that because it is principally your bailiwick.

Philip Kennedy: Yes. Thank you. I would like to welcome the question. From our perspective at the ABHI, 99% of the medical device industry is made up of small to medium-sized enterprises, which are absolutely vital to the lifeline of the industry as well as to the whole country and employ some 90,000 people. There are over 3,000 companies. The definition of SME within that is companies that employ 250 people or fewer or have annual turnover of £50 million.

In the scope of these proposals, we believe that the considerations of the SMEs in the sector are absolutely crucial, not only to the health of the industry, for which you would expect us to be extremely vocal, but to the effectiveness of the NHS being able to benefit from the innovation and the good working relationship it has with SMEs in the sector. We feel that the potential to put in a layer of bureaucracy and cost is not good for the NHS and certainly not good for the SMEs that are largely representative of the sector.

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[Justin Madders]

Q Mr Kennedy, you have talked about the difficulties your members have in providing this information. Is it the profitability element that your members are unable to strip out at the moment?

Philip Kennedy: Specifically on profitability, I can give an example from my own company that produces capital equipment for operating theatre rooms. We have a UK business and an export business. At any one time, there are large tenders arriving in either the UK or export, on which we would cover our fixed overheads and then perhaps bulk buy more supplies to fulfil a particular tender. So, at any one time, it is extremely difficult to look at a 12-month period for a particular product or market and say that is the profitability of that product, because it does not take into account the overall cost of running the business throughout the year. To be able to do that for a business of our size would be challenging with three accountants—one paying people, one paying suppliers and one doing our books for statutory purposes. To add another person or two to analyse the profitability, to comply with new legislation, even the potential of the new legislation, would be extremely difficult. It is not the profitability per se—transparency is not the issue for us—it is the time it would take to take it down to a product level and make it a meaningful assessment of cost and profitability.

[Justin Madders]

Q Do you not factor that in when you are putting tenders in in the first place?

Philip Kennedy: No. We work in a competitive market—

[Justin Madders]

Q So you would tender for something you might make a loss on.

Philip Kennedy: Absolutely we might, because we may feel that to keep the factory running that month, we need to make a loss, or if we see potential revenue for further purchases from that particular trust, either in service contracts or future hospital builds, we may decide to take a lower price point for that tender.

[Rob Marris]

Q Or the other way round—what the market will bear. That is our concern.

Philip Kennedy: Or what the market will bear. Of course, in recent years, with the funding concerns, the price is only really going in one direction and that is putting a huge squeeze on niche product manufacturers. The other thing about the medical device sector, which goes back to the point about definition, is that there are some very specialised small businesses that work only within a certain sector. It is difficult to ask them to produce swathes of data to the same extent as a larger generic manufacturer or, indeed, large ostomy company that is quite accustomed to producing data for drug tariff.

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[The Chair]

A final, quick question, Mr Madders. You have got one and a half minutes for the question and answer.

[Justin Madders]

Q Dr Ridge, where does the rebate currently go, and where would you like it to go in the future?

Dr Ridge: The rebate, as I understand the financial flows, comes into NHS England, and it informs NHS funding more generally. I would say what I said previously: we find ourselves in a health system that is becoming even more devolved in nature in England. I worked in Scotland for five years, and it is rather different there. Therefore, we should give organisations the flexibility to use the rebate in a way that they deem fit for their local priorities.

[The Chair]

Thank you very much. As there are no further questions, I thank Dr Ridge, Mr Kennedy and Mr Smith for coming this morning. We are now going to move on to the next panel.



Examination of Witness

David Watson gave evidence.

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[Maggie Throup]

Q So you feel that what is included and what is not included is correct in the Bill?

David Watson: Yes. Increasingly, the NHS itself is looking to strike deals with industry on medicines that are launched that have a large budget impact. Quite often, those are sold through contracts with the NHS as well. One of the options here would be that the payment mechanism would exclude those products, which have frankly already been managed elsewhere, rather than there being effectively a double dip.

[Justin Madders]

Q You mentioned various challenges to the industry. I wonder whether you could expand on that a little and say whether you feel we are close to a tipping point in terms of the potential impact on investment in jobs and research.

David Watson: As I said, the UK has a really strong history here. The EU transition is clearly one of the specific challenges at the moment, which I will not go into, but there are challenges from industry from a commercial point of view. Access to new medicines in the UK is more challenging for UK patients than it is in a lot of other countries, so we do not always have the best clinical practice here, particularly on newer medicines. As Dr Ridge mentioned, a consultation has just been launched on the interaction between the NHS and NICE. That creates a whole lot of uncertainty for industry, at a time when we have a PPRS in place. The accelerated access review is potentially very good, but it is unclear how it is going to work. At the moment, industry sees a number of different initiatives, some of which it is very encouraged by, others of which it feels are slightly piecemeal and working in isolation from each other. From a global company perspective, I think that it leads to the UK being seen as a confusing place to operate.

[Rob Marris]

Q Following up on that, I understood you to say that other jurisdictions do it better, particularly for new medicines. Forgive me if I misunderstood you there. If I did understand you correctly, can you give some indication of what they are doing that we are not doing, which you and your members think would be desirable for the industry and for patients, were we to do it in the United Kingdom?

David Watson: That was exactly the subject covered by the Government’s accelerated access review, so it has identified some of the reasons. One of the specific things we would say that the NHS could look at is that, where medicines are viewed to be very cost-effective, the implementation of the guidance and quick access for patients to those medicines should be a priority. Quite often, we see medicines that are cost-effective and affordable, but are still not being taken up. I think that is a real concern for everybody.