Drugmakers Pay Millions To Government Under First PPRS Rebate

BMI View : The UK has traditionally had high state healthcare expenditure, with patients enjoying free access to doctors and specialists, and easy access to medicines. However, the government currently accounts for more than three-quarters of healthcare spending, and the expanding, ageing population will continue boost the demand for healthcare, pushing the government to focus on cost containment.

Highlighting revenue pressures for innovative drugmakers operating in the UK, on 30 June 2014, the Association of the British Pharmaceutical Industry (ABPI) and the UK's Department of Health announced the payment of a rebate of GBP74mn (USD126mn) by industry to underwrite the growth in the branded medicines bill under the 2014 Pharmaceutical Price Regulation Scheme (PPRS). The payment accounts for the first three months of 2014.

Controlled Expenditure On Branded Medicines

BMI View : The UK has traditionally had high state healthcare expenditure, with patients enjoying free access to doctors and specialists, and easy access to medicines. However, the government currently accounts for more than three-quarters of healthcare spending, and the expanding, ageing population will continue boost the demand for healthcare, pushing the government to focus on cost containment.

Highlighting revenue pressures for innovative drugmakers operating in the UK, on 30 June 2014, the Association of the British Pharmaceutical Industry (ABPI) and the UK's Department of Health announced the payment of a rebate of GBP74mn (USD126mn) by industry to underwrite the growth in the branded medicines bill under the 2014 Pharmaceutical Price Regulation Scheme (PPRS). The payment accounts for the first three months of 2014.

Controlled Expenditure On Branded Medicines

In order to provide the government with surety on the level of NHS expenditure on branded medicines supplied by PPRS scheme members, as a part of the 2014 PPRS, the Department and the ABPI agreed that instead of the headline price adjustments, a growth limit would be placed on the overall cost of branded medicines purchased by the NHS from members of the scheme. The allowed growth rate for 2014 is 0% and then for each subsequent year is 0%, 1.8%, 1.8% and 1.9%. The allowed growth rates for each year of the scheme will remain fixed.

Scheme members will make percentage payments based on the difference between allowed percentage growth and actual percentage growth in NHS expenditure on branded medicines. The difference between the allowed percentage growth and an agreed forecast percentage growth gives an initial estimate of percentage payments. An initial percentage payment of 3.74% has been set for 2014 and this will not change.

Rising Rebates

In subsequent years, the actual percentage growth will be reviewed versus the forecast and the initial estimate of payment percentages for the future years will be adjusted to reflect actual percentage growth, any over or underpayment from the previous year and a revised forecast percentage growth for the following years. Based on the initial values, the payment percentage for 2015 is currently estimated to be 7.13% and for 2016, 2017 and 2018 is expected to be 9.92%.

Revenue Pressures

In addition to rebates restricting UK drugmakers revenue streams, also putting pressure on company profitability, a new value-based medicine pricing system is to be implemented in September 2014. Furthermore, an ongoing threat to innovative drugmakers is the government's continued focus on encouraging the consumption of lower-value generic medicines.

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Related sectors of this article: Pharmaceuticals & Healthcare
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