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Health Service Branded Medicines (Control of Prices and Supply of Information) Regulations 2008

rose to move, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 21 July, be annulled (SI 2008/1938). The noble Earl said: My Lords, the Prayer that I have laid relates to a set of regulations whose main effect can be summarised quite briefly. The regulations limit the maximum price of prescription-only branded medicines supplied to the NHS in respect of any company which is not already a member of a voluntary scheme designed to control such prices. Why am I objecting to these regulations? To answer that, one needs to understand what has led up to them. The pharmaceutical price regulation scheme is a voluntary arrangement between the Government and the pharmaceutical industry whose main purpose is to control the prices of branded prescription medicines sold to the NHS. It does that by regulating the profits that companies make on those sales. The formula is one which successive Governments have followed with minor modifications ever since 1957. It seeks to achieve a reasonable balance between fair prices for the NHS and a fair return for the industry, not least to enable it to research and develop new products. Every five or six years, the PPRS is renegotiated. The most recent scheme came into force on 1 January 2005 and was designed to last for five years. In August 2007, barely halfway through that five-year period, the Department of Health announced its intention to renegotiate the PPRS. Under the terms of the scheme, it was within its rights to do so. However, being within its rights to do so and being justified in doing so are clearly two different things. When the Government gave formal notice to end the PPRS, they cited three reasons: first, the recommendation from the OFT that the scheme should be reformed; secondly, the NHS had to make financial savings; and, thirdly, that having ruled that the PPRS was a legal contract, the High Court had thereby undermined a key element of the scheme. The validity of these three grounds is in my opinion highly contestable. However, there is one overriding feature of the Government’s actions which they have so far failed utterly to acknowledge. When the last PPRS was being negotiated, the industry was given a choice. It could either accept a five-year deal and a substantial price cut or a much shorter deal and a much lower price cut. The industry chose the five-year deal for one main reason: the pain of a higher price cut could be tolerated if, thereby, the industry was enabled to invest and plan for the future on a longer time horizon. The stability afforded by a five-year deal is of huge importance to pharmaceutical companies, whose very survival depends on long-term planning. The message sent out by the Government in drawing stumps on the deal could therefore not have been worse. The pharmaceutical industry is global. Decisions about where in the world companies should locate their R&D capacity rest on a number of factors, not the least of which is trust in the Government of the country in question. The Government’s action in announcing the premature end of the PPRS sent out a highly negative and damaging message about their attitude to honouring deals and their attitude towards the pharma industry. It was, and is, regarded as a breach of faith. In pharma headquarters around the world, these things are noticed, and they matter. However, the Government’s next steps were, if anything, even more damaging. On 29 February this year, they served six months’ notice of the end of the PPRS. In doing so, they brought the industry to the negotiating table in order to thrash out a deal for a new voluntary scheme. The new deal was agreed in outline on 16 June. At that point, the Government issued a consultation document. The consultation related to two issues: a statutory price freeze covering the past four months of this calendar year and a subsequent price cut as part of a new statutory scheme—the scheme we see before us in the regulations. The purpose of the statutory scheme is to be there as the mandatory alternative if any company should decide not to sign up to the voluntary scheme. The way that these consultations were handled was, frankly, shocking. On the statutory price freeze and on a number of key issues relating to the working of the statutory scheme the Government gave the industry only four weeks in which to respond to the consultation. That timeline was in clear breach of parliamentary convention and of the Cabinet Office code of practice which specifies a minimum of 12 weeks. The decision was completely unreasonable, because in the four weeks that it had available the industry did not have sufficient information to enable it to make a fair comparison between the proposed statutory scheme and even the interim voluntary alternative, because details of the voluntary scheme did not begin to emerge for another month and are still not clear. We know why the Government set the four-week deadline: because the six-month period of notice to end the PPRS expired at the end of August. But there was another alternative open to the Government: once the heads of agreement of the voluntary scheme had been settled in mid-June, it would have been perfectly possible for both parties to agree a straightforward extension of the old PPRS until the end of the year. During that time, the details of the new voluntary scheme would have emerged. That would have avoided the need to lay the regulation. But no: that was not something that the department was prepared to do. The second part of the consultation, relating to the extent and timing of the price cut and how to set the price of out-of-patent branded medicines, had a deadline of 25 September. It is clear that the industry needed time to digest and respond to those crucial questions. In the consultation document, the Government indicated that they would lay regulations on the statutory scheme in the autumn, to take effect on 1 January. But what did they do? On 21 July they laid a regulation covering not just the price freeze to apply during the last four months of the year but all aspects of the consultation process, including all elements of the new statutory scheme. That action rendered the consultation deadline of 25 September completely superfluous. Never mind what the industry thought or was going to say in its response, the Government were pressing ahead regardless. The industry feels that it has been treated with indifference bordering on contempt in this whole exercise. Why did the Government choose to handle things in this way? If they had wanted to they could have laid an initial regulation implementing the price freeze covering only the period to 1 January. Then, later, they could have laid a further regulation, as they originally promised to do, to underpin the new voluntary PPRS, taking effect from that point. They knew that an interim voluntary scheme would be needed before the fully fledged scheme took effect, so why did they not mirror that two-step process by having two sets of regulations which would have allowed the industry proper time to respond to the consultation as it had a right to expect? Once again, the Government were acting within their legal powers—I have no doubt that the Minister will make that point—but I cannot view it as anything other than abuse of process. That abusive attitude, I am afraid, extends to the regulations. We see in them a power given to the Secretary of State to specify the maximum price of products from 1 September 2008 to 1 September 2009. It is important for the House to understand that the power goes completely against the principle of free pricing which for more than 50 years has underpinned the PPRS and been a key driver for industry in deciding to invest in the UK. For those caught by the scheme, all new product prices will be set by the Secretary of State by reference to two new benchmarks: therapeutic and international reference pricing; in other words, prices of therapeutic equivalents and prices in other countries. This provision represents an unprecedented change in government policy and is completely anathema to the industry. The Minister may well answer that the industry has an alternative—it can sign up to the voluntary scheme—but she may not sufficiently appreciate the effect of the regulations in the boardrooms of international pharma companies, which read the regulations and interpret them as a statement of UK government policy. The very fact that the Government are actively endorsing therapeutic reference pricing could prove highly damaging to UK and non-UK pharma companies alike in international markets. It is important to note in particular that the regulation does not differentiate between new active substances, line extensions or otherwise; it applies across the board. The Explanatory Memorandum makes mention of free pricing for new active substances, but there is nothing about that in the regulation, and, in any case, ““new active substances”” are not defined. We are left a number of key questions. Why have the Government, by publishing a regulation in this form, chosen to depart from more than 50 years of established policy and the principles that have underpinned the PPRS during that time? Why have they undermined the principle of free pricing by introducing therapeutic reference pricing and international price comparisons when they must know that they are guaranteed to act as a complete block on new investment in R&D in this country? The words of the consultation document, where we see repeated mention made of encouraging and rewarding innovation, ring hollow. For a company caught by the regulations, innovation is for the birds. When pharma companies both here and overseas are presented with these two diametrically conflicting position statements from the UK Government, they will ask what exactly Ministers believe and what exactly they want. When companies read words in the consultation document about promoting, ““a strong and profitable pharmaceutical industry””, and then the heading in the Explanatory Memorandum which states: ““Benefits: prevention of increased profits in the pharmaceutical industry””, their bewilderment would perhaps be doubly understandable. I could go on in this vein. It is clear that from the letter of intent to renegotiate the PPRS in August 2007 to the serving of notice on 29 February, right through to the tabling of the regulation on 21 July, the Government have conspired to do everything in their power to send a message of ““we could not care less”” to the pharmaceutical sector. The Minister has a chance tonight to put some assurances on the record. She will, I hope, give an undertaking to repeal this statutory instrument and return to the House with one which coincides with the commencement of the new voluntary five-year PPRS. That was what the consultation document promised and what the industry justifiably expected. She will also, I hope, undertake to ensure that any such SI enshrines the principle of free pricing of new active substances and remove therapeutic reference pricing and international reference pricing from price-setting criteria. We need to see the negotiations on the new PPRS brought to a swift conclusion on a basis which restores predictability and stability for the pharma industry and which bolsters international confidence in the UK as a country that genuinely supports and rewards innovation over the long term. I look forward to the Minister’s reply on these important issues and beg to move. Moved, That an humble Address be presented to Her Majesty praying that the Regulations, laid before the House on 21 July, be annulled (SI 2008/1938). —(Earl Howe.)