Health Service Medical Supplies (Costs) Bill

Lord Hunt of Kings Heath Excerpts

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

[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.

--- Later in debate ---

[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.