Health Service Medical Supplies (Costs) Bill

Lord Lansley Excerpts

Committee: 1st sitting (Hansard): House of Lords
Monday 23rd January 2017 Grand Committee

[Baroness Redfern (Con)]

My Lords, I declare my interests as recorded in the register and formally welcome my noble friend Lord O’Shaughnessy as the Minister this afternoon. Although the Bill is modest in size and has few clauses, it will deliver an important role in securing better value for money not only for the NHS but for patients.

Pressures on the NHS increase year on year because of our ageing population, new technology, and development of new procedures with advanced drugs, resulting in an increase in spending over the past five years of 20%. We spend more than £15 billion a year on pharmaceutical products, and we are acknowledged by those companies to be a reference market for many other countries that do not have such a large or well-organised supply chain as we do.

Patients request access to innovative and cost-effective medicines, so the Bill delivers value for money and does not support the drug companies, which have a commanding monopoly position, to push up their prices. I am pleased to see a strengthening of the ability to collect data on the cost of medicines, medical supplies and other related products from across the supply chain, which the Bill would amend by extending the provisions of the 2016 Act.

The statutory scheme has delivered significantly lower than expected savings for the NHS, with concern as to whether competition in the market is sufficient to control prices, so with new powers to be established under the Bill, there will be opportunities for more competition for unbranded generic medicines and to apply price controls for companies that are members of the PPRS. Particularly when companies can charge unreasonably high prices for unbranded generic medicines when competition does not keep the prices down, the Bill closes a current loophole in the legislative framework.

Clause 6 requires information from more producers and companies but, importantly, any information that they supply which may be commercially sensitive cannot be disseminated beyond the prescribed bodies. We may therefore be better informed on a more consistent basis, particularly to assess whether the supply chain as a whole or a specific sector provides value for money for the NHS. The world is changing, and personalised medicine is an important development for us all—but, again, it needs to be delivered both effectively and affordably.

At all times, we must make sure that the UK is seen as an attractive place for the life science sector—research being seen as a vital component in the sustainability of the NHS, as we have heard from previous speakers. To balance the control of the price of medicines and innovation for pharmaceutical companies, there should not be a lack of motivation to invest in the extensive R&D that we all want. In order to stimulate continued investment, it is appropriate for the industry to see a stable marketplace here as significant and important.

If we are to create a level playing field for drug companies, should we not be trying to do the same for patients? I therefore ask my noble friend whether one measure to tackle the issue could be ring-fencing possible rebates or a percentage from the sector to invest in improving access to medicines and treatments—particularly when we read that a fifth of new drugs face rationing under tighter NHS cost-cutting plans. With a budget impact threshold, that has the potential to slam the brakes on the most effective new treatments and technologies just before they get to patients.

Finally, although we promote innovation, that is not only a priority in the NHS for the Government but for many other stakeholders in the industry. As I said, the Bill is modest in size but it carries the opportunity to ensure that this country is not left behind in access to the newest and best treatments, and that it delivers best value for money.

[Lord Lansley (Con)]

My Lords, I am pleased to have the opportunity to contribute in Committee. I join in welcoming our noble friend the Minister to his new responsibilities on the Bill. I also draw attention to my interests as recorded in the register. I think only one of them might be regarded as specifically relevant to the Bill, although it is a company which would not benefit directly from it.

As the noble Lord, Lord Warner, said, Amendment 1 raises quite a number of issues, which we will have the opportunity to return to on further amendments. If I may be so bold, the structure of Amendment 1 would insert a clause which is really designed to express hope and intention, rather than to provide a statutory provision having any effect. Some of the other amendments would have the necessary statutory effect to back up some of the intentions encapsulated in Amendment 1, but it does no harm to realise what we are trying to do.

On the amendment’s first limb of supporting,

“a flourishing life sciences sector”,

it is a very apposite day as that is one of the clear intentions of the consultation on an industrial strategy. Listening to the reports this morning, it was clear that in so far as there is a focus on sectors where this country has a comparative advantage—I think we were discussing comparative advantage in the Chamber only last week—pharmaceuticals and life sciences is clearly one of those areas.

A number of noble Lords talked about the strength of our research base in this country and, as the noble Lord, Lord Warner, said, the proportion of new discoveries that have emanated from our research base is striking. It is considerably in excess of our relative importance as a market. We are only about 3% of the global market in pharmaceuticals but we have more than 10% of the new chemical entities—and as my noble friend Lady Redfern said, we often represent up to 25% of the international reference pricing. That is one of the reasons why there is a noted sensitivity on the part of the industry about its strength in the UK.

Where the life sciences sector is concerned, from my experience around Cambridge—in my former constituency and where I live—we probably have the strongest cluster of life sciences in Europe. As was raised by the noble Baroness, Lady Walmsley, when you talk to the industry at the moment its principal concern is simply its capacity to recruit and retain some of the very best researchers and staff. It is often specifically about retaining them and is all to do with the current situation relating to our future relationship with the European Union.

The sector recruits staff from all over the world, way beyond the European Union, but is only too aware of the reaction there has been among its staff—something like 15% of whom are on average from elsewhere in the European Union—to the prospect of our leaving the EU. It is one of those classic situations: if Britain had never been in the European Union, staff attracted from elsewhere within it would have come here understanding under what circumstances they came. Having had the expectation of being EU citizens enjoying access to all the British circumstances, they find the prospect that those might be taken away from them very difficult. It is very important for us to be clear about not only accrued rights but the circumstances in which people come here.

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[Lord Warner]

Will the noble Lord clarify something for me? The point of my amendment was, in a sense, not any particular PPR scheme but the principle of a PPR scheme, which is a negotiation between government and the industry. No one is arguing that the PPR scheme should be set in stone for ever and a day. What the industry is concerned about is that Government are getting ready to impose a system as an alternative to a negotiated system. The amendment is not meant to enshrine a particular PPRS but to encourage the idea of a negotiated deal with the sector. Does the noble Lord accept that that is a good principle?

[Lord Lansley]

The short answer is yes. We should aim for what is a price paid by the NHS to the industry for the medicines that it uses that is reflective of value and is designed to promote innovative medicines—that is, as we will discuss in a later amendment, those that meet unmet need or add substantially to therapeutic benefit and are not the “me-too” drugs that are very similar to existing medicines but have a slightly different method of operation or delivery. Paying for what innovation gives by way of therapeutic benefit is where we want to be.

However, the amendment is right in the sense that one has to do that alongside supporting the life sciences sector. That is where freedom of pricing at introduction is important. I have accepted the principle of a PPRS which delivers a budget to the NHS and delivers freedom of pricing to the industry. We are not legislating precisely for the structure of the PPRS, but let us assume that those are continuing features. However, through the operation of the rebate or some other means, it seems perfectly possible to incorporate some of the criteria that will be the subject of our discussions on a number of amendments, as is reflected in the second limb of the amendment.

[Baroness Finlay of Llandaff]

The noble Lord referred to me-too drugs. I hope that he agrees that it is important to recognise that such drugs have often been developed in parallel. They do not take a molecule and just copy it; they develop a new molecule or delivery system, often to minimise side-effects and to maximise efficacy. But they also have a production cost behind them. They are not just copies of something previously produced and marketed differently; they have innovation behind them as well.

[Lord Lansley]

I understand that. There is a perfectly good argument for the benefits that are derived from incremental innovation. Not every innovation is a step change compared to what has gone before, so that is a perfectly valid point. One objective that we should arrive at, as I hope my own Amendment 10 will later reflect, is that the structure of value has to understand what those benefits might look like. New medicines will come through that are similar but are significantly better, for example in terms of compliance for patient populations, because they are administered differently. One might say, “Well, it’s a very similar drug”, but one has to look at what the overall benefit might be, which is part of the value.

[Baroness Masham of Ilton (CB)]

My Lords, cost-effective medicines which work for patients are vital, but some orphan drugs will cost more. Why are there differences in the pricing of drugs in Scotland and England? Someone must be making a lot of money.

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[Lord Lansley]

May I say a quick word on these two amendments, which would have the same effect in relation to the voluntary and statutory scheme? I understand the debate that we have just had, but it seems to me that we are likely to have a more productive discussion to this effect on the next group. The purpose of these amendments is simply to say that the money that is generated through the rebate must travel back to pay for medicines. The consequence of any such scheme would be that, whereas at present the Treasury together with NHS England and the Department of Health agree a budget based on the Treasury’s assumption that there will be a drugs bill and that bill will be controlled at that level by virtue of the rebate, the Treasury would be obliged to say that the drugs bill could not be controlled. We know that the rebate does not necessarily correspond to the prior assumption of the level, so the amount of money available to fund medicines would be variable, particularly if it was applied to new medicines, as in Scotland. There would therefore be, from the industry’s point of view, nothing in principle to prevent it from pricing up products that fall within the scheme to which the rebate is applied, with the impact that that would increase the money available to supply additional medicines, knowing perfectly well that there would be no overall budgetary control. At the end of the day, there has to be budgetary control. It is only by virtue of the fact that the rebate is not automatically recycled into additional NHS expenditure that the budget can be controlled. In the absence of any such control, I cannot see how the amendments would work.

[Lord Hunt of Kings Heath]

Surely it is the other way round. The NHS could up its intake of new medicines willy-nilly, knowing that the industry would have to pay a rebate to the department. In essence, industry would be paying for the uptake of new medicines. The problem is that the Treasury discounts the figure. It makes an estimate of what the rebate is likely to be in the next financial year and builds it into the baseline budget, which is based on minimal growth.

[Lord Lansley]

The position is that the PPRS is a deal based on a budget. If you want to construct something that does not have a budget limit, you could certainly do so, but I do not think that the amendments would have the effect that was looked for. As for another way of doing it, this is where we get on to what in my view is the real debate. I am not sure that I have ever believed that there should be a fixed drugs budget in the NHS. We have a health budget and we should aim for the NHS to derive the greatest possible benefit to patients from the budget that it deploys—not the drugs budget but the total health budget.

[Lord Hunt of Kings Heath]

That is very interesting. It has always struck me that when you chair a board of an NHS foundation trust, for instance, there is a philosophy that says that spending on doctors and nurses is a good thing but spending on drugs is a bad thing. It is a ludicrous position. I agree with the noble Lord, Lord Lansley, that there is a big problem. Spending on drugs is seen as a cost pressure, so automatically everyone’s emphasis is on keeping that spending down, whereas a rather more sophisticated approach would take the view that, if you have spent your money on drugs that have had a hugely positive impact on the throughput of patients, cost-effectiveness and efficiency, that might be a good investment. The question when we come to the next group is whether our current arrangements have come to the end of the road and whether we need to move on to something rather more sophisticated.

[Lord Warner]

What we set up a long time ago was, effectively, NICE to be the arbitrator, and we controlled the flow of technology appraisals into it. I used to sign off a limited number of drugs that would go into the NICE process. We have that system, which has now been legally enshrined. It is also open to NICE to withdraw drugs from use, as it has from time to time, or to change procedures. We have a system enshrined in our law in which the NHS is required to commit to introducing NICE-approved technology appraisals, so the idea that we should let the Treasury arbitrarily reduce and control the small bit of that total NHS budget on those grounds seems bizarre. I agree with the noble Lord, Lord Lansley: we have ended up obsessing about this relatively small part of the NHS budget when we have set up a system to ensure that the NHS gets value for money through the NICE appraisal process. We are getting into a strange situation, which is why we are scrabbling around to make amendments to try to make a pretty crazy system slightly less crazy.

[Lord Lansley]

There is a risk of going on about this, but the structure of the amendment in the context of the PPRS as presently constructed is illogical, because the PPRS is constructed around budget control. The point, however—we will no doubt come back to this, not least on the next group—is that we should be thinking about how we can arrive at a negotiated price for the NHS to buy medicines which may well be marketed initially or globally at a given price, but the amount that the NHS should pay should reflect value. I have said it before and I will keep coming back to it.

I would not be as disparaging of the current consultation between NHS England and NICE at the noble Lord, Lord Hunt. It could have the effect that he describes: adding additional jeopardy because one has to meet not only all the normal criteria for an effective medicine but the NICE threshold, and NHS England might step in with hobnailed boots and say, “But we are not going to make it available and you must change the funding direction”. But it might recognise reality. The consultation, in my view, may have the effect of avoiding arbitrary post hoc rationing of medicines, because the NHS should be up front, negotiating price discounts on medicines, regardless of the rebate. That means engaging with the industry at an early point.

If the industry understands the consultation properly, it will understand that the budgetary impact for the NHS under current circumstances cannot be ignored. The best way to deal with that is not to go through all these processes and then find, at the end of the day, that the NHS cannot afford it, or that NICE has to say no through the application of the threshold. Rather, it is to use the pharmaco-economic evaluation and the health technology assessment properly alongside NHS England and say: “Here is something that is valuable and we want to be able to use it, but we must recognise the budgetary impacts”. There may well therefore be some risk-sharing processes or discounting processes to enable the product to be available to the NHS at an early stage and to give industry and the NHS all the information they need subsequently to be able to make sure that they have got the pricing right.

[Lord O'Shaughnessy]

I thank noble Lords for these amendments and for the discussion that has followed. I will come back to the issue of budgetary control raised by my noble friend Lord Lansley. I do not think it is enough simply to say that it should not be a factor. It is a factor and I will talk about how that interacts with the current system in my response.

Our concerns with these amendments are twofold—one is a matter of principle and the second is a matter of practice. In my short period in the office I have already had an opportunity to talk about ring-fencing on at least one occasion. Noble Lords understand that the Government’s policy is not to ring-fence with budgets set by politicians but rather to give money to the NHS and its constituent parts and to trust clinical judgment on commissioning health services in response to the regulatory regime that is set up to hold them accountable. I have not yet heard from anybody who disagrees with that fundamental principle.

Amendments 2 and 4 are unnecessary, therefore, because all the income and savings from the PPRS and the statutory scheme are already invested in NHS services. As the noble Lord, Lord Hunt, said, the anticipated income from the PPRS and the statutory scheme are put into the NHS baseline. That baseline is the figure above which we will be spending the additional £10 billion by 2020-21. That money is already in the baseline and it is there to be used with the discretion of clinicians within the system.

The Health and Social Care Act 2012 requires the Secretary of State to promote the autonomy of NHS England and clinical commissioning groups. This includes their decisions as commissioners about priorities for funding. That is because it is a fundamental principle of the NHS that funding should be allocated according to clinical priorities based on the judgment of clinical commissioners. That might include new treatments but it might include scaling up older, effective treatments or investing in staff. The proposed amendments would result in the income received from a voluntary or statutory scheme being used solely for the purposes of reimbursing the NHS for medicines and medical supplies. It is perhaps worth highlighting to noble Lords that the NHS spent over £15.2 billion on medicines in 2015-16—far in excess of the cumulative income received from both schemes.

I come to a couple of points raised by the noble Lord, Lord Hunt. The first, as I mentioned, is on budgetary control. The second is that if additional money were spent, it could be recycled back into funding for innovative drugs. I am not sure. I have not had the opportunity yet to consult with the boards of life sciences companies, but I am not sure that there is an open-ended commitment there either to continue spending money in the NHS. There is a need for budgetary control on both sides. I appreciate—and it is a strong theme in this debate and was in the previous debate—the need to do something about access. The ability to access drugs and to access them quickly is both good for patients—because clearly those drugs are being approved because they are an improvement largely on what has gone before—and also good for life sciences. If we are in the game, as it were, of trying to find a win-win out of the changes we make now or in future, clearly access will be a clear part of that.

My noble friend Lord Lansley touched on a practical objection. It is the potential unintended consequence of ring-fencing the income from schemes specifically for certain types or categories of medicines. The income from the PPRS and the statutory scheme can fluctuate, so allocating the income to a specific area, such as new medicines, brings risk. This could potentially disadvantage patients by making treatment dependent on income from medicines pricing schemes, thereby producing inequities. At the moment the Department of Health manages that risk. The proposed changes would move that risk on to the NHS—which, as we know, is already under a great deal of pressure.

I understand the intention behind the amendments, but I am not convinced that the Government predetermining clinical decisions and clinical priorities for spending on medicines and medical supplies is the right way to go. We believe that the current PPRS is designed to incentivise companies to bring new medicines to market. Companies with mainly new medicines in their portfolios pay less than companies with mainly old medicines, and as part of the PPRS, the Government have made a number of commitments around NICE decisions and the funding of NICE-approved products in order to support access to new medicines.

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[Lord Hunt of Kings Heath]

My Lords, I will speak to the second part of Amendment 3, as I think we have comprehensively covered the first part in our debates on the first two groups. I am not looking to the Minister to respond to the first part. The second part of my amendment seeks clarification on the relationship and equivalence between the voluntary and statutory schemes. It provides a further opportunity to debate the future of a voluntary PPR scheme, because, clearly, it might be argued that the Bill is setting a precedent for determining in legislation the nature of a voluntary scheme. It would be helpful if the Minister set out in very broad terms the kind of approach he wishes to be taken in the future—in either a statutory or voluntary scheme—looking at the issues we have talked about in relation to pricing, access and value for money.

In many ways, the voluntary PPRS approach has served government, patients and the industry pretty well over the years. There is no doubt, as the noble Lord, Lord Lansley, referred to, that it has provided certainty to government, alongside giving the industry flexibility on the prices it sets, because it acts as a marker to many other countries. However, the actual price paid is very different from the notional price set. What comes to my mind is that this is not very transparent and very few people understand the system. One does begin to wonder whether it is still serving its purpose and whether we need to think about a new approach that is neither the voluntary PPRS approach we have at the moment nor the statutory approach we have in mind for companies that have not signed up to the voluntary system. If anything, there is the issue of equivalence, which companies wish to know about in terms of the two schemes, but it would be helpful to know where we are going in relation to future negotiations, and the amendments from the noble Lords, Lord Warner and Lord Lansley, will address this. I beg to move.

[Lord Lansley]

The purpose of Amendment 5, in my name, is to recognise that the Government have brought forward legislation to do a necessary thing, which is to address the discontinuity between the voluntary scheme and the powers available under the statutory scheme. As such, where companies were operating under the statutory scheme with a pre-existing discounted price, often in the hospital sector, the effect of the statutory scheme imposing a given price cut did not impact on their effective price to their customers. Therefore, they did not make a contribution, in that sense, to the budgetary control that was being looked for. The purpose of the legislation is to bring equivalence to the voluntary and statutory schemes. But if we are creating equivalence between the voluntary and statutory schemes, we should be clear that the legislation does precisely that. The noble Lord, Lord Warner, quite accurately referred to this issue at Second Reading, if I recall. There are companies under the statutory scheme—Gilead is a particular example—with products that would, under the voluntary scheme, not have a PPRS control applied to their pricing because they would not contribute to the rebate as they have been introduced after December 2013. Under the statutory scheme, however, they are required to contribute.

As I understand it, the objection to bringing the two schemes to an equivalent place is that under the statutory scheme, as things stand, there are relatively few products and a significant proportion of them have been introduced since December 2013. Therefore, under the statutory scheme, the effect on the rebate of the rest of the companies would be excessive. That can be dealt with. The powers are available. If we legislate in the form that I propose, the Government can modulate the rebate between the two schemes in order to arrive at a similar result for those companies that have to contribute to the rebate and apply a common percentage. As a matter of principle, if we are legislating for the two to be equivalent, it is desirable to do so.

I am slightly worried about Amendment 3 because it assumes that there is a voluntary scheme. We do not know. There may or may not be a voluntary scheme. But a voluntary scheme will not always be in place at the point at which the Government, in order to protect the NHS, may require there to be one. I do not think that we should be in that position. There would be a flaw in the powers available to set a methodology for a rebate under a statutory scheme. In Amendment 6, which the noble Lord, Lord Warner, has not yet had a chance to speak to, he clearly understands that there needs to be a relationship between these two, but I fear there is a risk of gaming on that amendment because the industry may say that if it does not agree a voluntary scheme there cannot be a statutory scheme. Therefore, there is no scheme, and I do not think that that we want to get ourselves into that position. It will not surprise the Committee that I can see reason for my own amendment even if I am not necessarily in favour of everyone else’s.

[Lord Warner]

My Lords, I reassure the noble Lord, Lord Lansley, that I see excellent reasons for his amendment. If the purpose of the Bill is to achieve equivalence between the two schemes, the Bill should secure that. At the moment, it does not. The industry does not think that it does. I am not sure, technically, whether the noble Lord’s amendment secures it, but I think it does. If it is not quite right, no doubt the Government can amend it. I tabled Amendment 6 to push the Government a little more on their commitment to a voluntary scheme. That is its purpose. We have had a good canter over that particular area. As I said when we discussed Amendment 1, I was not totally convinced by the Government’s position, but I want to set out briefly why this is important.

The scheme has stood the test of time as a basis for a relationship between an industry and government where that industry has a much bigger set of customers and a much bigger presence outside the UK. We have actually punched above our weight in securing the presence of that industry in this country, partly through the NHS, but partly because a system was imposed on the industry in terms of the research-based drugs industry. There was a negotiation. Amendment 6 is not meant to say in any way that a particular type of PPRS should be enshrined in legislation for all time. It is trying to get the Government to say, clearly and unequivocally, that for the foreseeable future, there will be some form of voluntary scheme in which a negotiation takes place in an open and transparent way with this particular sector in order to keep this sector being attracted to setting up, doing research and developing pharmaceuticals for the population at large and for the NHS in particular.

Amendment 6 is trying to get out of the Government rip-roaring support for the foreseeable future, a little stronger than the Minister said earlier on, for a voluntary scheme that presents an opportunity for government and the sector to agree the basis on which they operate in a life sciences industry producing drugs that can be made available quickly and speedily, when proven, to the NHS and its patients.

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Moved by

[Lord Lansley]

10: After Clause 3, insert the following new Clause—
“Price control: criteria
After section 264 of the National Health Service Act 2006 (statutory schemes: supplementary) insert—“264ZZA Price control: criteria(1) In determining the prices of medicines under sections 261 and 263 of this Act, the Secretary of State must have regard to the criteria listed in subsection (2), insofar as the prices concerned relate to a new chemical entity, or a new indication for the use of an existing medicine.(2) The criteria are—(a) the prospective therapeutic benefit to patients;(b) the extent to which the therapy meets an as yet unmet need;(c) any wider social benefits which would accrue from the medicine’s use;(d) the desirability of making licensed medicines available to clinicians and their patients, for use where they are the most clinically appropriate treatment; (e) the desirability of promoting innovation in new therapies; and(f) affordability for the National Health Service, including any evaluation of the relative benefit of the medicine compared to other treatments available.””

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[Lord Lansley]

Amendment 10 is intended to insert into the Bill some of the criteria that I hope would form part of a value assessment for pricing of medicines. The difficulty is that, as things stand, the structure of the two schemes is not designed to take account of those criteria. It is not a value assessment but a budgetary control process. We are, to that extent, looking at an amendment the purpose of which is to put into the legislation criteria applicable to the design of a future PPRS.

I have in the past—in a debate in my name in another place, back in December 2014—expressed the view that we could redesign the existing PPRS to reflect the value of medicines. That would be done by modulating the extent of the rebate payable, such that medicines that were relatively costly in relation to their determined value under such a system would pay a higher proportion of the rebate than those that appeared, on the basis of this assessment, to be charged at something more relevant to the implied value. That is in the existing scheme and I see no prospect of it being revised during its present life through to the end of 2018. An amendment of this character would clearly be designed in relation to a future PPRS.

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[Lord O'Shaughnessy]

My Lords, I am very grateful to my noble friend Lord Lansley for this amendment and I pay tribute to his considerable expertise in this area. We had the opportunity to discuss some of this when we met. I also recognise that the amendment’s purpose is to start thinking ahead to what comes next. It is not so much to define right here and now what is required but to do something which I think he has been trying to do for a long time: to broaden the discussion about how we price value into medicines and bring that broader discussion to bear. I recognise the intention. It clearly is important that we think of these things in the broadest possible sense for the benefit of the most people possible.

Amendment 10 would require the Secretary of State to have regard to factors such as therapeutic benefit to patients, meeting unmet need, wider societal benefits, the promotion of innovation in new therapies and NHS affordability. I would like to draw noble Lords’ attention to the legal duties that already exist, which the Government believe currently achieve the intention behind the amendment. Section 266(4) of the NHS Act 2006 already requires the Government to bear in mind,

“the need for medicinal products to be available to the health service on reasonable terms”,

and,

“the costs of research and development”,

when limiting the price of medicines—something we discussed in the last group. Section 233 of the Health and Social Care Act 2012 requires NICE to have regard to,

“the broad balance between the benefits and costs of provision … the degree of need … and … the desirability of promoting innovation”.

In reading out these sections, I am beginning to understand that these Acts are often very, very long. I am thankful for small mercies that our Bill is not, yet.

As part of the NICE clinical and cost-effectiveness assessments, NICE already considers factors such as therapeutic benefit to patients, unmet clinical need and the promotion of innovation, and has recently consulted on new affordability considerations. The point here is that some of the factors that my noble friend is concerned about are already taking place but within the NICE process as part of that assessment.

The Government’s priority is to make sure we get the best possible results for all NHS patients with the resources we have. We will continue to look at how to promote better access to effective medicines through NICE recommendations and guidance to the NHS. In developing that guidance, NICE takes account of all health-related costs and benefits, including the benefits to carers. As I am sure my noble friend will recall, in 2014, NICE considered changes to its methods to better capture the wider costs and benefits to society of new drugs and treatments, sometimes known as value-based pricing. It is only responsible to report that, during the consultation, some significant concerns were raised; for example, about the potential implications for products that offer limited life extension without associated gains in quality of life for those with terminal illnesses. The consultation highlighted a significant diversity of responses, demonstrating that this is a complex issue. The point here is to say that there may be a way through, but we do not yet know what the right way forward is. It is critical that stakeholders continue to have confidence in NICE’s work, and we agree with NICE that these issues require very careful consideration before making changes to the way that we assess medicines.

My final point is on freedom of pricing, an issue that has been raised and which this amendment would have an impact on. Noble Lords will be aware that the Government, when setting prices for new medicines, currently operate a system of freedom of pricing for medicines that are a new active substance. This means that the maximum NHS price approved and published by the Secretary of State is that proposed by companies. NICE will then assess the product and consider whether it is clinically and cost effective. The PPRS allows a company to propose a discount to the maximum price.

We know that this system of freedom of pricing for new active substances is of great value to the life sciences industry, providing commercial flexibility, which is important in a context where other countries may reference the maximum NHS price in their own pricing arrangements—something we know to be of huge value. It does not prevent the NHS securing substantial discounts, which indeed it does, and these form part of the overall assessment of value undertaken by NICE. The amendment could, however, have the effect of removing the principle of freedom of pricing, which has been an important pillar of medicines pricing agreements for years. It would require the introduction of assessments akin to clinical and cost effectiveness when determining price, as opposed to determining through NICE whether it should be used. Such an approach would largely replicate the factors that NICE considers as part of its clinical and cost-effectiveness assessments.

I want to make one final point on the current scheme and looking ahead. The PPRS commits the Government to maintaining the basic NICE threshold and take-up periods until the end of 2018. It is my belief that the right time to look at whether the sorts of factors that my noble friend has raised should be taken into account in medicines funding and pricing arrangements is as part of discussions on a new medicines pricing system, where it can then be looked at in the round. That opportunity will arise when considering what should happen when the current PPRS expires. I would be very happy to explore with him proposals on what any new scheme could look like. I look forward to productive dialogue and to benefiting from his wisdom in the months ahead. On that basis, we believe that the amendment is unnecessary, although we sympathise with its intention. I therefore ask my noble friend to withdraw it.

[Lord Lansley]

I am grateful to my noble friend for that thoughtful and helpful response. I will say three things. First, thank you for the opportunity to be consulted as the future PPRS structure is developed. I very much appreciate that.

Secondly, on freedom of pricing and introduction, it does not necessarily follow that putting into the legislation the criteria that Ministers should take into account in so far as they exercise their powers has a direct impact. That might be done, as I described, through the mechanism of modulating the rebate, which would not impact on the freedom of pricing and introduction.

My third point is that I did not invent value-based pricing. I may have advocated it for some considerable time—probably 10 years now—but it was advocated before I took it up by the OECD in a wide-ranging report on pharmaceutical pricing internationally and by the Office of Fair Trading in its review of the previous PPRS.

[Lord Hunt of Kings Heath]

My Lords, I think it goes back even further, to an Oxera report on value-based pricing.

[Lord Lansley]

The noble Lord is absolutely right about that. There is a history to this. The reason why there is a history is, first, that this is an eminently desirable place to arrive at, in that it would give us tremendous transparency in pricing. At the moment, it is extremely difficult to discern the pricing structures in the industry from the point of view of the payers. Secondly, it would enable us—and this is the objective—to arrive at the point where we could give patients the access to the medicines that are most appropriate to them.

[Lord Hunt of Kings Heath]

This is very interesting and rows back to a point that the noble Lord made earlier. One issue is the capacity to negotiate with industry. My understanding is that the pharmaceutical industry has made some approaches to NHS England to look at elements of what the noble Lord is suggesting. There is a sense that, at the moment, there simply is not the capacity to negotiate the kind of sophisticated agreement that he seeks.

[Lord Lansley]

Without repeating what I said earlier about the consultation being conducted jointly by NHS England and NICE, I think that that is precisely the point. These two organisations need to be brought together. There is a degree of sophistication in the NICE processes that needs to be allied to the affordability and therapeutic benefit considerations as seen by NHS England. I freely admit that NHS England is still developing its role.

In relation to specialised health commissioning, I think that it is tremendously positive for it to be able to see the needs and advantages of commissioning all these specialised services on a national basis, as opposed to the patchwork and inconsistencies that we used to see. In that sense, it is only discovering what the commissioning pressures and costs look like—but that will enable it to move on to understanding what that means in terms of the relative benefit and, by implication, affordability of getting into negotiations with companies.

We need to arrive at the point where NHS England can engage up front with industry about the potential cost and pricing of medicines and obviate the need for NICE to go through the long process of the introduction of additional thresholds. As we discussed, there is an issue about the introduction of an additional threshold for highly specialised technologies. We do not want to go to that place with additional thresholds and a variety of arbitrary figures. We should be able to arrive at a point where industry can engage up front with an expectation of understanding what kind of discounting or price it is likely to be able to attract from the NHS because it is able to have a serious discussion about relative value.

I have been dragged back into another, longer conversation. I entirely take my noble friend’s point that there are references to these criteria for Ministers to take account of elsewhere, but there is a risk that the PPRS can be constructed as a budgetary control mechanism without regard to those criteria—notwithstanding that Ministers have a responsibility for them in other places. Even if it were constructed in terms of cross-reference to ministerial duties elsewhere, we could still continue to look at whether this part of the legislation—the statutory basis for the scheme—should cross-refer to the criteria that should be brought to apply. But I take my noble friend’s comments in good part and I am happy on that basis to withdraw the amendment.

[Baroness Finlay of Llandaff]

In light of the noble Lord’s remarks, I wonder how he sees there being flexibility. The problem with establishing a value-based price, however one works it out, is that we do not have a crystal ball. A product may be used for a whole lot of different indications. One example is Rituximab, which was developed for lymphoma but is now widely used for at least seven other indications. Some of those are chronic conditions, so there is long-term use.

Obviously, the company produced a product and a price was fixed estimated on a certain amount of use, but then its sales went up hugely. That represents an enormous profit. In the system that the noble Lord envisages, how much flexibility would be built in to allow for volume sales and a dramatic lowering of the production costs? That has happened with a lot of things that were initially expensive to produce, but where production costs dropped dramatically over time. We must not inadvertently get locked into pricings that over time become inappropriate.

[Lord Lansley]

There is a risk of making this debate too extended, but the amendment is not about the whole structure of pricing but about what criteria should be taken into account. In the context of a PPRS scheme such as the present one, the point I made previously was that it would be possible, for example—and this is only an example—to modulate the rebate by reference to any gap between the price charged to the NHS by a company and the value as disclosed by a comparative assessment.

Of course, if there are a number of different indications, the value may vary according to those indications, but that is no problem in itself because all you are doing is trying to understand to what extent a company would be required to contribute a lot to the rebate because there was a big gap between the price charged and its relative value. Some companies may contribute virtually nothing to the rebate because there is no disclosed gap between the price charged to the NHS for a product and its relative value. That is merely an example of how a scheme could be adapted using this sort of value assessment. I beg leave to withdraw the amendment.

Amendment 10 withdrawn.

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Moved by

[Lord Lansley]

16: After Clause 5, insert the following new Clause—
“Price control: exemptions
After section 264 of the National Health Service Act 2006 (statutory schemes: supplementary) insert— “264ZA Price control: exemptionsIn controlling maximum prices of any health service medicines and medical supplies, including amounts payable to the Secretary of State under a voluntary or statutory scheme, the Secretary of State may not set a maximum price in respect of any product for which the cost of that product to the National Health Service has been determined through an open and competitive tender process.””

[Lord Lansley]

Amendment 16 takes us to an issue that was the subject of consultation prior to the introduction of the Bill: whether the Government should take powers to control prices in circumstances where there has been an open and competitive process—for example, a tender process. We know that one reason why the legislation is required is because it does not follow that because products have become unbranded generic medicines they are necessarily available on a fully competitive basis in the marketplace. We have seen examples of that. In explaining the purpose of the Bill, it was stated that:

“The government’s intention is to use these new powers where due to a lack of competition in the market, companies charge unreasonably high prices for unbranded generic medicines”.


That is understood. There can be circumstances where there is a lack of competition.

Quite clearly, however, there are circumstances where the products available and the prices set are themselves the product of an open and competitive process, such as a tender process; for example, in relation to blood products being supplied to the NHS. There may well be a degree of market dominance in some of those, even though some of the complex medicines may be generic. For example, I know a company that produces medicines in circumstances where it has to use opiates, and the availability of those opiates might be limited.

None the less, if the NHS can procure on the basis of a tender that is open and competitive, why should the Government leap in and try to amend it? I understand that the response to that is to say that companies can take account of the rebate in the prices that they set. But surely when one enters into a tender, the companies concerned may not be in symmetrical positions in relation to the implications of the rebate. Some companies are indifferent to the rebate because they are not affected by it and other companies are affected by it. The nature of the rebate over a period of time and the extent of it may be variable, and they may make completely different assumptions about what that process looks like. So it seems, on the face of it, that a much cleaner approach to the Bill would be exemption from the price control mechanism in those circumstances where clearly the mischief that the Bill is intended to remedy does not apply: that is, in an open and competitive process. I beg to move.

[Lord Hunt of Kings Heath]

My Lords, this is helpful. Medicines have been referred to, but I would have thought that it could be helpful with other medical supplies. I have had a letter from the British Healthcare Trades Association. It says, in relation to other medical supplies:

“We cannot think of any procurement scenario in our sector where products, on an ongoing basis, are not subject to tender or tariff procedures. The price is tested at entry and reviewed at regular intervals, and the terms and conditions pertaining to the contract or tariff arrangements will include requirements for provision of information”.


That deals with the issue of information. So the noble Lord has put forward a very interesting suggestion and I hope that the Minister might be sympathetic to it.

[Baroness Walmsley]

I too have a great deal of sympathy with the amendment, but I just wonder what the definition would be of an “open and competitive” process—perhaps it would be defined in regulations. Does the noble Lord agree?

[Lord Lansley]

That is a helpful suggestion. It might not necessarily be defined in regulations, but one might contemplate that the Secretary of State would issue guidance as to what constituted such a process.

[Lord O'Shaughnessy]

I thank my noble friend for his amendment and am very happy to show sympathy with it, as other noble Lords have done. I will start by stating that the Government’s view is clearly that competition and market forces are the best way of delivering value. Wherever possible, we should ensure that competition is there, that it works and that it involves as many participants as possible. In many instances, that is the way to drive better value. That being the case, my first priority is to look at ways of improving how markets operate, before reaching for the lever of regulation. That principle is guiding our work on the pricing and cost control of medicines and medical supplies.

For that reason, I understand the sentiment behind the amendment. The underlying assumption here is that if the NHS tenders for a product in a competitive market, the tender should always secure the NHS the best possible deal, and that there should be no need for further government intervention. However, while that is the case sometimes, it is not always the case. I will give a couple of examples. The department or the NHS may conduct tenders for a number of reasons, including security of supply. Furthermore, EU procurement rules —of course, that may change in future—which have been implemented into domestic legislation pursuant to the Public Contracts Regulations 2015 mean that, for contracts for products over a certain value, the NHS has to tender such contract opportunities in accordance with the requirements specified in the procurement rules.

Where there is a sole supplier of a particular product, or other factors such as supply or specificity of products apply, a tender exercise in itself is unlikely to result in significantly lower prices. For example, the department has run competitive processes for von Willebrand factor. This is used to treat patients with a genetic deficiency in the quality or quantity of this protein, which causes problems with blood clotting. Although there are six or seven products that may meet our tender specification, they all have a different concentration of von Willebrand factor, so they are not easily interchangeable. This means that, in practice, the suppliers of such products do not compete on price, knowing that clinicians need access to all the products to select on clinical need and that the department will make awards on this basis.

--- Later in debate ---

I say to both my noble friend Lord Lansley and the noble Baroness, Lady Finlay, that I have great sympathy for the intention of their amendments in this group and the previous group. I would be very happy to meet them individually to discuss the substance of their proposed amendments to see what more could be done, not necessarily through the Bill, but through any other kind of intervention that might be possible, to deliver something that has come up again and is in constant tension with the other thing that we care about, which is access and keeping prices down—something that we all want to achieve. On that basis, I ask my noble friend to withdraw his amendment.

[Lord Lansley]

I am grateful to my noble friend for his interesting response. Like the noble Baroness, Lady Finlay, I want to take it away and think about it. I probably felt kind of comfortable with what my noble friend said in relation to branded medicine. I thought it was specifically in relation to unbranded generic medicines that the issue was, perhaps, most likely to arise. However, I can see that he is identifying circumstances where there might be a tender process, and that the fact of it being a tender does not necessarily mean that it is open and competitive on price. I therefore see why the amendment does not do the job. However, I can still see where there might be a risk, none the less. There might be open and competitive tender situations where the companies concerned feel that they are in subsequent jeopardy that the price that has been determined competitively might be overridden by the powers that are available to Ministers. We just need to see whether, perhaps in further discussion, we can find some way to give companies an assurance that that would not be the case, whether statutorily or otherwise. I would very much value my noble friend’s assurance that we will have that conversation. On that basis, I beg leave to withdraw the amendment.

Amendment 16 withdrawn.