{"id":187793,"date":"2025-10-09T10:12:10","date_gmt":"2025-10-09T10:12:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/187793\/"},"modified":"2025-10-09T10:12:10","modified_gmt":"2025-10-09T10:12:10","slug":"the-tough-choices-at-the-heart-of-the-governments-dispute-with-big-pharma","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/187793\/","title":{"rendered":"The tough choices at the heart of the government\u2019s dispute with big pharma"},"content":{"rendered":"

The details may have been tucked away on the business pages, but drug prices have been a constant source of headlines in recent months. Pharmaceutical companies have been in dispute with the UK government over the Department of Health and Social Care\u2019s (DHSC) clawback on their sales of medicines into the NHS<\/a>. Some have been so unhappy they have threatened to withdraw products or planned investments into the UK \u2013 worrying both patients and those whose jobs depend on the sector.<\/p>\n

While it would be a challenge to find any commercial entity that does not want to be paid more for the goods and services it provides, much of the impetus for current dispute stems from President Trump\u2019s \u201cmost favoured nation\u201d<\/a> policy, under which he has demanded drug companies end the practice of charging substantially higher prices<\/a> to US consumers than to those in rest of the world. Perhaps not surprisingly, rather than trigger a price drop in America, the move has prompted companies<\/a> to seek to increase prices charged elsewhere.<\/p>\n

In the summer, UK ministers rejected the pharmaceutical industry\u2019s demand<\/a> for an effective price increase of around \u00a32.5 billion a year \u2013 the equivalent to almost half of the real-terms increase for the DHSC\u2019s entire budget next year. However, with trade talks ongoing with Washington<\/a>, the government remains under pressure to capitulate. While that might result in fewer alarming headlines for a government that has put the life science industry at the heart of its strategy for economic growth<\/a>, it would compromise the NHS\u2019s ability to make the most of its budget with little or no guarantees that the hoped-for investment and growth will follow.<\/p>\n

In this long read, we set out the controls the NHS has to limit how much of its budget is spent on expensive new medicines and why the government should stand firm against pressure to weaken those controls, which protect value for both patients and the taxpayer.<\/p>\n

How does the NHS control drug spending?<\/p>\n

As the single purchaser and prescriber of drugs on behalf of the entire UK population, the NHS has considerable consumer power which it asserts, broadly, through two mechanisms.<\/p>\n

The first is the National Institute for Health and Care Excellence (NICE), set up by the Blair government in 1999.<\/p>\n

Established during a furore<\/a> over whether the then-new drug Viagra for erectile dysfunction should be available on the NHS, NICE\u2019s methodology focuses on establishing how much health improvement a new drug or therapy offers patients beyond treatments already available for the same condition. These improvements are measured in terms of how many extra years of life in “full health” the treatment can be shown to offer, using an internationally accepted metric known as the Quality Adjusted Life Year or QALY<\/a>, where one year of life in perfect health is equal to one QALY, and a year of life in pain or with other impairments is measured on a scale between zero and one, depending on the level of severity.<\/p>\n

NICE\u2019s standard approach is that one additional QALY should not increase the existing costs of treatment by more than \u00a330,000. This is a threshold<\/a> that emerged over time as the new institute worked its way through the first set of drugs it assessed, rather than being drawn from an analysis of what might be the most equitable approach, or offer the best value for money. It is also a threshold that is frequently breached<\/a> where diseases are regarded as particularly severe or rare.<\/p>\n

Representatives of the pharmaceutical industry have highlighted<\/a> that the standard \u00a330,000 threshold has not increased in over two decades, suggesting it should be uplifted in line with inflation. However, there is mounting evidence<\/a> that rather than being too low, the threshold is currently set too high.<\/p>\n

That is because the \u00a330,000 figure substantially exceeds the average cost to the NHS of producing one QALY through its existing services, such as GP care, a visit to A&E or a surgical procedure \u2013 with multiple economic analyses<\/a> finding that the NHS produces, on average, one QALY gain for every \u00a36,000 to \u00a315,000 it spends.\u00a0<\/p>\n

As the NHS can only spend its budget once, this means that a decision to roll out a new drug that extends the lives of 1,000 patients for a year at the cost of \u00a330,000 each, could \u2013 on the most conservative estimate \u2013 come at the cost<\/a> of foregoing the same level of benefit for twice as many patients, had the budget been spent on extending existing forms of health care \u2013 including, for example, providing additional GP services, or surgeries for which there are currently long waiting times.<\/p>\n

Branded medicine sales rebates<\/p>\n

The NHS\u2019s second price control mechanism is the long series of pricing agreements it has established with the pharmaceutical industry with respect to new branded medicines. The latest of these \u2013 known as the Voluntary Scheme for Branded Medicines Pricing, Access and Growth<\/a> (or VPAG) \u2013 has been at the centre of the recent row between government and industry, due to the level of rebate that companies are due to return to the government after their sales into the NHS exceeded agreed levels.<\/p>\n

The VPAG is a complex agreement that in essence caps the annual level at which NHS spending on branded medicines is allowed to increase in any given year. The cap was set<\/a> at 2% growth for 2024, rising to 3.75% this year, and to 4% by 2027. Instead of literally shutting the NHS\u2019s doors to further drug purchases if and when these caps are breached, the agreement requires companies repay sales above the cap back to the DHSC. At the heart of the current debate is the fact that growth in branded medicine sales has significantly exceeded the cap in the last two years \u2013 due in part to the NHS\u2019s faster adoption of new drugs \u2013 resulting in the rebate for 2024 sales being higher<\/a> than originally expected, at around \u00a33.5 billion.<\/p>\n

The rebate has been presented by industry as an unfair \u201ctax\u201d<\/a> that breaches the norms of commercial transactions, in that payments made to buy medicines NHS patients have already received is clawed back. What is missing from that presentation is an understanding of how cost and price are constructed<\/a> for new branded medicines, which are protected from price competition through patents.<\/p>\n

While for some other goods the bulk of the cost to producers relates to the raw materials and manufacturing processes involved in creating each item, for most branded drugs the cost of producing one additional unit is relatively small, with the vast majority of cost<\/a> instead incurred during the research and development (R&D) stage. Pharmaceutical companies reasonably expect to be able to recoup their R&D expenses, and patent protections \u2013 usually in place for over a decade after a drug is launched \u2013 mean they have significant power<\/a> to command prices that enable that, alongside a profit margin.<\/p>\n

In the UK market, these prices are set with one eye on the maximum cost per QALY<\/a> the NHS will pay, and the other on the number of doses<\/a> the company expects to sell during the patent-protection period. When actual sales volumes are higher, company profits can increase markedly, as the price set for each extra dose vastly exceeds the cost of producing them. Seen in this light, the UK\u2019s VPAG scheme provides a degree of protective counterbalance for the NHS against the power that drug companies have to command high prices while patents are still in place.<\/p>\n

Newly authorised drugs are exempt from paying any rebates for three years \u2013 a period which coincides with recent analysis<\/a> examining the time it takes for a company to recoup its R&D investments. Small- and median-sized companies with sales volumes under \u00a330 million a year also benefit from exemptions and allowances under the scheme<\/a>.<\/p>\n

Market dynamics<\/p>\n

Industry representatives have argued that the combined impact<\/a> of these two cost-control mechanisms has meant company income from branded medicine sales into the NHS across the UK has essentially stayed flat in real terms since 2014.<\/p>\n

Viewed from an industry perspective, this implies the NHS is not the most lucrative market to sell into. However, from the NHS perspective, the metric indicates a degree of success<\/a> in containing the extent to which scarce health care resources are diverted into treatments that on average bring smaller health improvements than other established forms of care.<\/p>\n

A third perspective is that the pharmaceutical marketplace is a dynamic one where patents eventually expire, exposing branded drugs to competition from much cheaper \u2018generic\u2019 and \u2018biosimilar\u2019 alternatives. The UK has one of the highest rates of generic drug use<\/a> in the world, with 81% of drugs prescribed in primary care being generic<\/a>. The fact that the value of sales revenue for branded new medicines has nonetheless remained constant in real terms is an indication that when one branded medicine is replaced with a cheaper generic alternative, the expenditure freed up is in effect immediately reallocated to fresh spending on another new branded innovation.<\/p>\n

Location, location, location<\/p>\n

Despite this point, several pharmaceutical companies have threatened<\/a> to pause or scrap planned investments in the UK, if the NHS does not increase the prices it pays for new drugs.<\/p>\n

But putting aside the fact that, due to population size, the UK is a relatively small portion of the global marketplace for branded medicine sales, there is no evidence<\/a> that the prices countries pay for new medicines, or the speed at which new drugs are adopted, influence investment decisions by pharmaceutical manufacturers and developers in a globalised marketplace.<\/p>\n

Instead, firms tend to locate research and manufacturing activities in countries that offer the most cost-efficient and operationally advantageous conditions, while marketing their products globally. Investment decisions are more plausibly driven by national policies on taxation, government support for R&D<\/a>, and the availability of a skilled and knowledgeable workforce. These are areas where the government has already set out substantial concessions<\/a> to the global pharmaceutical and medical technology<\/a> marketplace.<\/p>\n

The latest salvo in the affair \u2013 President Trump\u2019s recent announcement<\/a> of 100% tariffs on branded medicine imports \u2013 may prove a case in point, where local taxation policies play a bigger role in determining choice of manufacturing location than consumer prices.<\/p>\n

But pharmaceutical companies are more than just the sum of their manufacturing plants. Indeed, a 2007 report<\/a> for the UK\u2019s then Department of Trade and Investment and the Association of the British Pharmaceutical Industry found that, when companies were considering where to locate their high value research and development investments, \u201cby far the most important driver is to establish oneself in a location where one can do good science, both by accessing world leading scientists, and by accessing an adequate stock of well-trained scientists to work on the programme\u201d. There is little to suggest that has changed in the years since.<\/p>\n

At a time when many within the US science and health research community see their work as being under threat<\/a>, through both cuts to government funding and the official promotion of anti-scientific rhetoric<\/a>, the UK government would do well not to underestimate the comparative advantage already offered to health science in the UK.<\/p>\n

\u00a0<\/p>\n

Sally Gainsbury is a Senior Policy Analyst at the Nuffield Trust. Huseyin Naci is an Associate Professor at the London School of Economics and Political Science.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"The details may have been tucked away on the business pages, but drug prices have been a constant…\n","protected":false},"author":2,"featured_media":187794,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[43],"tags":[102,2960,56,54,55],"class_list":{"0":"post-187793","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-healthcare","8":"tag-health","9":"tag-healthcare","10":"tag-uk","11":"tag-united-kingdom","12":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/187793","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=187793"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/187793\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/187794"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=187793"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=187793"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=187793"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}