The VPAS Payment Percentage for 2023, including the adjustments for accumulated Under Payments, is expected to be in excess of 26%. As such, a number of VPAS Members have indicated that they are considering moving from VPAS to the Statutory Scheme. We explore how the situation arose and the implications below.
Background: What is VPAS?
The Voluntary Scheme for Branded Medicines Pricing and Access (VPAS or the Scheme) is a voluntary agreement under section 261 National Health Service Act 2006 between the Department of Health and Social Care (DHSC) and the Association of the British Pharmaceutical Industry (ABPI). The current version of the Scheme commenced on 1 January 2019 and runs for five years, concluding on 31 December 2023.
The stated purpose of the Scheme is to support innovation and better patient outcomes through improved access to the most transformative and cost effective medicines, whilst limiting NHS expenditure on branded health service medicines through an affordability mechanism. This mechanism requires Scheme Members to make Scheme Payments to DHSC to cover NHS spend on branded medicines in excess of the permitted NHS budget.
The VPAS is an alternative to the Statutory Scheme. Any manufacturer or supplier of branded health service medicines which is not a member of VPAS, is automatically subject to the Statutory Scheme. The Statutory Scheme also includes a requirement for member companies to make regular Scheme Payments to DHSC, calculated as a percentage of sales.
VPAS affordability mechanism and calculation of VPAS payments
The VPAS affordability mechanism establishes a baseline level of expenditure on branded health service medicines and defines permitted growth (which together constitute Allowed Sales). Where NHS expenditure (Measured Sales) exceeds Allowed Sales, VPAS Members (with the exception of small companies) are required to make Scheme Payments to DHSC to address the proportion of the excess attributable to VPAS sales. Scheme Payments are calculated by applying a Payment Percentage to a Scheme Member’s Eligible Sales. Eligible Sales are net sales of branded health service medicines, excluding sales attributable to new active substances (NAS), centrally procured vaccines, exceptional central procurements and the first £5 million sales (excluding NAS) by medium sized companies.
|Scheme Payment = Scheme Member’s Eligible Sales x Payment Percentage in that calendar year|
The Payment Percentage is calculated by taking the difference between forecast Measured Sales for a given calendar year and the Allowed Sales for that calendar year and multiplying that value by forecast VPAS Measured Sales as a percentage of total Measured Sales for that calendar year (Calculated Scheme Payment). The Calculated Scheme Payment is then adjusted to reflect any Under Payments or Over Payments in previous calendar years of the Scheme (identified once actual sales data are reconciled with the forecast data used to calculate the Payment Percentages for previous years) and divided by forecast Eligible Sales.
|Payment Percentage = Calculated Scheme Payment (adjusted for Under Payments or Over Payments) ÷ forecast Eligible Sales|
In essence, the Payment Percentage captures the extent to which any growth in sales beyond the permitted amount is due to growth in VPAS Eligible Sales. As such, a Scheme Member will see their Scheme Payments increase if their Eligible Sales increase or the Payment Percentage increases, or both.
The concerns for 2023
Growth in NHS expenditure on branded health service medicines during the early part of the Scheme was less than anticipated, with the result that the Payment Percentages set for 2020 and 2021 were lower than expected. Growth in expenditure in 2021 however substantially exceeded forecast levels, due at least in part to the COVID-19 pandemic, with the result that the Payment Percentage calculated for 2022 was 19.1%, after incorporating an adjustment for a material Under Payment in the previous year. Following discussions with ABPI, DHSC accepted that an unexpected increase in the Payment Percentage of this magnitude could not be accommodated by industry and, accordingly, the Scheme was amended at the end of 2021 to provide explicitly that the Payment Percentage for 2022 would be 15%, with the remaining accumulated Under Payment carried over to 2023. The associated guidance described this as an exceptional, one-off amendment.
Growth in NHS expenditure on NHS medicines has continued to be strong in 2022, with the result that the VPAS Payment Percentage for 2023, including the adjustments for accumulated Under Payments, is expected to be in excess of 26.0%. In the above circumstances, a number of VPAS Members have indicated that they are considering moving from VPAS to the Statutory Scheme. This, however, has given rise to areas of potential uncertainty.
- The first is whether companies that leave VPAS at the end of 2022 escape liability for accumulated Under Payments in previous calendar years of the Scheme or may be subject to demands from DHSC for additional payments once actual sales data become available and are assessed. In this context it is relevant that the only mechanism for the recovery of Under Payments under VPAS is via revision of the Payment Percentage applicable to future years of the Scheme as described above, as well as a final year reconciliation procedure for accumulated Under Payments in 2023, as described at paragraph 4.10 of the Scheme. In these circumstances, DHSC has indicated that only companies who remain members of VPAS in the final year will be liable for accumulated Under Payments during the reconciliation procedure.
- The second area of uncertainty is whether, if a high proportion of VPAS Members leave the Scheme at the end of 2022, the remaining companies would have to bear a greater share of any accumulated Under Payment identified at the end of the Scheme. Such accumulated Under Payment would include the amount deferred to 2023 in accordance with the Scheme amendment on 19 January 2022, which will not be paid off using the projected Payment Percentage for 2023 if many companies leave the Scheme.
- Finally, reconciliation at the end of the Scheme will also be affected by the product portfolios of the companies which choose to remain in VPAS versus those that elect to transfer to the Statutory Scheme. By way of example, if the remaining companies are those that supply a high proportion of NAS or centrally procured vaccines (which are excluded from Eligible Sales) and other companies leave the VPAS, this is likely to result in a retrospective increase in the Payment Percentage for 2023 during the reconciliation procedure.
While the uncertainties in relation to the functioning of the VPAS may make the Statutory Scheme appear an attractive option, it is unlikely that payments under the Statutory Scheme will be materially less. DHSC has committed to maintaining broad commercial parity between the two Schemes and, therefore, to the extent that the projected Payment Percentage under VPAS is increased, it is likely that the Statutory Scheme will adopt a similar figure.
Any VPAS Scheme Member who wishes to leave the Scheme in 2023 must give notice to DHSC by the end of September 2022, unless an extension is granted by DHSC. The current uncertainties do not make this an easy decision, however DHSC has seemingly sought to provide some reassurance to Scheme Members by saying that, subject to broad commercial equivalence continuing between the schemes in 2023, it would work with ABPI with the aim of ensuring that the 2023 VPAS Scheme Members do not pay a disproportionate share of accumulated Under Payments up to the end of 2022.