Health Service Medical Supplies (Costs) Bill

Kevin Foster Excerpts

2nd reading: House of Commons & Programme motion: House of Commons
Monday 24th October 2016 Commons Chamber

[Mr Hunt]

I am happy to give that reassurance. As I said, this industry contributes £56 billion to the UK economy, with tens of thousands of jobs. When the Prime Minister talks about where she sees our competitive advantage, she talks, first, about financial services, and life sciences is the very next industry she mentions. I completely agree with right my hon. Friend about its incredible importance, not just to this country but to the future of humanity. That is why we seek in this Bill to establish a fair relationship between the NHS, which we have to represent as we are funding it through the tax system, and the pharmaceutical industry. It is also fair to say that there have been times when some pharmaceutical companies’ practices have been disappointing, and because we want to make sure that that does not happen and that we can continue with a harmonious and productive relationship we are proposing this Bill to the House.

[Kevin Foster (Torbay) (Con)]

We agree that this is not about profit controls—about having a fair return for investment made—but about tackling an emerging business model that could almost be seen as profiteering.

[Mr Hunt]

My hon. Friend is right about that. The nice way of putting it is that we are closing a loophole. If one were being less polite, one might say that it is a shame we are having to do that. None the less, it is important to do what we are proposing to the House.

We recognise that it has been some time since the Government consulted on the options, and I wish to reassure hon. Members 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 the regulations come into force. We estimate that 17 companies would be affected by the introduction of a payment mechanism, with the 166 companies that are currently members of the PPRS not being affected. Our proposals would save health services across the UK an estimated £90 million per year.

The second key element of this Bill amends the 2006 Act 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. That generally works well and has, in combination with high levels of generic prescribing, led to 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 looks like an unreasonable and unjustifiable level. As highlighted by the investigation conducted by The Times earlier this year, there are companies that appear to have made it their business model to purchase off-patent medicines for which there are no competitor products. They then exploit a monopoly position to raise prices. 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 provide evidence to support this, but we also need to tackle it within our framework for controlling the cost of medicines and close the loophole of de-branding medicines. Although the Government’s existing powers allow us to control the price of any health service medicine, they do not allow controls to be placed on unbranded generic medicines where companies are members of the voluntary PPRS scheme. Today, most companies have a mixed portfolio of branded medicines and unbranded generic medicines. For that reason, all the manufacturers of the unbranded generic medicines mentioned in the investigation by The Times are able to use their PPRS membership to avoid government control of their prices.

It should be said that that practice is not widespread, but a handful of companies appear to be exploiting our freedom of pricing for unbranded generic medicines where there is no competition in the market, leaving the NHS with no choice but to purchase the medicine at grossly inflated prices or to transfer patients to other medicines that are not always suitable. Alongside the Government, many in the industry would also like to see this inappropriate behaviour stamped out.

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[Kevin Foster (Torbay) (Con)]

It is a pleasure to follow my hon. Friend the Member for Vale of Clwyd (Dr Davies) and to hear many of the points he made. He spoke of the NHS spending £262 million a year on 50 drugs; that is actually £262 million extra that we are spending on those drugs courtesy of the greatly increased prices. That really brings home the problems here and why the Bill needs its Second Reading.

As many hon. Members have already focused on a range of issues, I will focus in particular on generic drugs and some of the huge price increases we have seen. It is right to say—and this was perhaps touched on by the Secretary of State in response to the intervention by the hon. Member for Wolverhampton South West (Rob Marris)—that it is not unreasonable for a pharmaceutical company to make a profit in exchange for investment in developing a new drug and bringing it to market. But that is what our patent system is for. The patent is there to protect for a period of time the ability of the company to charge a reasonable price to reflect the risk it took in its investment.

The key point is that the drugs we are considering are now out of patent. The company has had a reasonable period of time to make its investment back. The issue is that there is only a very limited supply of them. It is only right that we deal with what is an emerging business model. There can be no two ways about it. Some of the names on the list of companies, such as AMCo and Atnahs, seem consistently to have unusually high increases in prices, in the thousands of per cent. It is clear that a business model is developing to take advantage of a loophole in the legislation and ultimately not to make a profit but to profiteer, at the expense of the NHS and people who need those treatments. I am sure we can all think of instances where drug company lobbying points to patients who are unable to get treatment; this is exactly the sort of thing that means people cannot get treatment.

It was highlighted earlier that it is slightly ironic that here we are, as Conservatives and under a Conservative Government, arguing for price controls. But this is not about intervening in a market but about intervening to deal with market failure, where the normal procedures of competition are not producing a fair or reasonable outcome either for the NHS or for the patients on whose behalf we are providing products.

I went to see the amazing work being done on brain tumour research at Plymouth University recently—the skills and the groundbreaking research that will bring real benefits. But that is not the business model of the companies the Bill deals with. Their model is to look for a drug that needs to be prescribed and has only one supply, then buy it, get hold of the supply and jack the price up. That is nothing to do with delivering new and innovative products. The Bill is therefore very welcome, as it looks to intervene in that situation.

It is also right that to be able to tackle the problem we need information. Let us be blunt; if a company is looking to put its product price up by 12,000% it is not going to be particularly co-operative with an inquiry into whether that is fair, so it is right that the Secretary of State will have powers to require that more information be supplied.

[Rob Marris]

I am grateful to my new friend, another socialist, for giving way. May I tempt him to suggest some other areas of the economy where he and what I must now call his Christian Democrat fellows would be prepared to address the issue of profiteering, as we on the Opposition Benches would?

[Kevin Foster]

The hon. Gentleman tempts me, but I see you are now in the Chair, Mr Deputy Speaker, and you are very tough on any irrelevant points or points off subject, so that could be very dangerous territory.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

And you shall not be tempted.

[Kevin Foster]

That is good to know.

We have seen work the Government have done in other sectors, for example, on information in the energy sector. The Bill deals with a particularly unique practice, where there is, in effect, only one customer, the NHS, and only one supplier. I am struggling to think of many other industries where that is replicated. That is why these price rises are so disgraceful. This industry is about profiteering from illness and pain. There is nothing else like that.

[Rob Marris]

May I suggest another industry it might be worth looking at, where this situation obtains, namely the defence supply industry—not all of it, but parts of it?

[Kevin Foster]

I thank the hon. Gentleman for that intervention. As a member of the Public Accounts Committee I have spent plenty of time looking through examples of defence procurement that went wrong. The Minister might be new to the Department of Health but he certainly is not new to defence procurement. It is noticeable that much of what now makes its way to the PAC for a review of what went wrong concerns legacy issues—for example, the military flying contract—rather than modern procurement. But I am conscious that with Mr Deputy Speaker in the Chair I need to get back to the price of drugs for the NHS.

Looking through the evidence it is clear that the current system of regulation is not effective. Companies can, in effect, put their branded products into the voluntary scheme and use that as a way of jacking up costs for their generic products. That is just not right. As other Members have touched on, we are facing demands and pressures on the NHS. I have no problem with companies that give a good service charging a fair price and making a fair return on their investment.

That is clearly not what is going on with this business model. We can see numerous examples, in particular in the chart put together by the House of Commons Library, which shows increases of thousands of per cent. across a number of products. It is impossible to believe that such increases are going on for any of the input materials for those products. As we have said, this is flagrant racketeering and profiteering at the expense of patients and of people in pain. Even if the drug is still provided, that money should have been spent on other NHS services.

I am therefore pleased at the almost unanimity breaking out in the House on the proposals. They will clearly need to be discussed in more detail in Committee. But it is the right time for the Bill. It is not about tackling fair and legitimate profits but about getting rid of profiteering, which is why it has my full support.

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[Barbara Keeley]

No, but I think the hon. Member for Torbay was talking about companies that are not doing any research, but just buying up generic products and profiteering from them. There has been general condemnation of those sort of companies on all sides.

[Kevin Foster]

I want to be clear about this point. I think the shadow Minister would probably agree that certain names keep on popping up, particularly in The Times investigation, of companies that seem to be regularly involved in some of the most eye-watering price increases and involved in the mixed model. This Bill is about tackling anyone else who might be thinking of following that kind of business model as a way of exploiting the NHS for money.

[Barbara Keeley]

Very much so.

The hon. Member for Bury St Edmunds (Jo Churchill) welcomed the Bill and talked about the fact that individual CCGs could save £1 million on unused repeat prescriptions. A number of different forms of savings could clearly be made. She talked about the pressure on social care, and I join her in my concern about that. The right hon. Member for Chelmsford spoke earlier about an ageing population and the need for drugs, but older people also do not want to be isolated. It is worrying that 16,000 cases of malnutrition were found last year with an average age of 64 among those cases. People need social care, and I hope that the new Chancellor will listen and bring forward funding for social care in the autumn statement, because people need more than drugs.

As my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) made clear earlier, Labour supports the broad aims of the Bill and what the Government are seeking to achieve—better control of the cost of medicines. However, as my hon. Friend also outlined, we have a number of concerns, and I hope that the Minister will address them in his closing speech.

As well as taking the understandable measures to collect pharmaceutical data and manage costs, the Bill also introduces provisions to manage the purchase of other medical supplies. I was glad to hear the Secretary of State raise in his opening speech the issue of the impact on the medical supply sector, but I have heard concerns expressed that the medical technology sector sees the new information measures as “onerous”. The hon. Member for Erewash (Maggie Throup) mentioned that, too. There is a concern that measures in the Bill fail to take into account the unique characteristics of medical devices and the medical device industry. I hope that they will start to be taken into account as the Bill progresses. There is seen to be a danger that the measures will put additional burdens on that sector and the NHS, and lead to higher costs. I hope that that is not the Government’s intention; it would be ludicrous if costs were increased by a Bill that is designed to manage them.

We need to bear it in mind that the medical technology industry employs around 89,000 people in the UK, has an annual turnover of over £17 billion and has seen employment growth of around 11% in recent years. Some 99% of the UK’s 3,310 medical technology firms are SMEs, with 85% of them having a turnover of less than £5 million. The cap levels at which data could be collected were mentioned earlier. We should bear it in mind that we are talking about an awful lot of small companies.

The Bill imposes a regulatory burden on all companies in the supply chain. The reporting requirements will affect all firms producing medical supplies, including the very small organisations. The issues we have extensively discussed on pharmaceutical pricing bear no relation to the price of other medical supplies. The example of a particular type of product was mentioned earlier, but they are or seem to be treated the same way in the Bill.

On the scale of the burden being imposed, the Government’s impact assessment is not much help. It says:

“The main costs will be on manufacturers, wholesalers and dispensers. These costs have not been quantified, as their magnitude will not be known until after consultation on subsequent regulations.”

Measures seem to have been bolted on to this Bill, as Members have mentioned, at the last minute, but because they could have a negative impact on the medical technology sector, we need to be very aware of them. The new information powers proposed by the Government are being put forward at a time when manufacturing firms are going through the uncertainty surrounding this country’s leaving the EU. These measures can only add to that uncertainty. As I said, 99% of the medical technology firms are SMEs, with 85% of them having a turnover of less than £5 million.

Notes on the financial implications of the Bill put forward a curious position that

“no policies will be directly implemented as a result of these changes. Their implementation would require additional future changes to secondary legislation and additional Impact Assessments to assess their cost effectiveness.”

Ministers are asking us to change primary legislation to give the Government new information powers, but the details and impact of those new powers on the supply chain will emerge only in future. That level of uncertainty is unacceptable, and we will seek to amend the relevant clauses in Committee if we feel that this still needs to be resolved.

Importantly, the information powers will also impact on dispensing GPs and pharmacists. I note that the BMA was not represented at the workshop held by the Department of Health on the information powers. We wait to hear, but I would find it unusual if our hard-pressed dispensing GPs would welcome the additional work required of them to provide and disclose information to the Government.

The other part of the supply chain affected by the new information powers will be pharmacists. The Government have just imposed punitive cuts on pharmacists, which we discussed in the House last week. I am still deeply concerned about those cuts. Ministers do not seem to understand what they are doing to the sector. On Friday, an independent community pharmacist in my constituency told me that he estimated that the Government cuts would cost him £86,000 a year, and that he envisaged an average cut of £60,000 for many pharmacies. That will certainly mean staff cuts, but it also means potential bankruptcies for the pharmacies that will be hardest hit.

In relation to that, and the new information powers that the Bill imposes, Pharmacy Voice told me that

“small volume pharmacies are the hardest hit by the proposals and many face a funding cut of around 20% in 2017/18 from the imposition of cuts announced…They do not have teams of administrative staff who can respond to demands for information, and the likelihood is that the NHS would insist on information being provided in a specific format.

It could be information that they do not currently analyse. For example, when a pharmacy buys stock for dispensing, it may also include purchases of medicines for sale over the counter. The overall discount the pharmacy gets on the order is not allocated to each item, and pharmacies could not provide the actual price paid per item.”

On behalf of the pharmacists that it represents, Pharmacy Voice wants to ensure that the cost of meeting the Government’s information requirements is fully funded by the NHS. It feels that the imposition of cuts has already jeopardised the future of the pharmacy sector, and that of small pharmacy businesses in particular. Can the Minister assure me that the cost of the information that must be gathered under the new information powers will not impose an additional burden on pharmacists?

The Labour Opposition support the broad aims of the Bill and the measures to control the costs of medicines, but, as I said earlier, we are concerned about the information powers that the Government want to take, which are considered to be “onerous” by the medical supplies sector. We want to be reassured that they are not. The work and the costs involved could deal yet another blow to the pharmacy sector, which, as I have said, is still counting the costs of the Government’s imposition of funding cuts amounting to 12% for the rest of this year and over 7% next year. We will table amendments in Committee relating to the work and the costs involved in information-gathering.

We also ask Ministers to give serious consideration to using all future rebates from the pharmaceutical sector to improve access to treatments for patients. A number of Members have referred to the need to examine that much bigger issue of access to drugs and treatments, and I hope that Ministers will take the opportunity to do so as the Bill progresses.