In a judgment handed down today, 10 July 2023, Mr Justice Turner refused permission for an application by the British Generic Manufacturers Association (BGMA) for judicial review of the refusal of the Secretary of State for Health and Social Care (SoS) to appoint it as a second “industry body” (in addition to the Association of the British Pharmaceutical Industry (ABPI)) for the purposes of negotiation of the next voluntary scheme controlling the prices of branded health service medicines. The result of this decision is that negotiation will involve only the SoS and the ABPI, albeit taking into account submissions from other industry bodies (including the BGMA) and other stakeholders.
Background to the voluntary scheme
Section 261 of the National Health Service Act 2006 (the NHS Act), allows the SoS to exercise certain powers where there is in existence a “voluntary scheme” made by him and the “industry body” for one or more of the following purposes: limiting the prices which may be charged by a scheme member for the supply of any health service medicine; limiting the profits which may accrue to a scheme member in connection with the supply of such medicines; providing for the payment of rebates calculated by reference to sales or estimated sales by scheme members. The NHS Act does not specify how a voluntary scheme should be made, but states at section 266(6) that “the industry body” means “any body which appears to the Secretary of State appropriate to represent manufacturers and suppliers”.
The first voluntary scheme was made in 1957 and, since then, the SoS has made successive voluntary schemes controlling the prices of branded medicines with the ABPI as the industry body. The current voluntary scheme – the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) – was negotiated between the SoS and the ABPI in 2018, took effect from 1 January 2019 and will come to an end on 31 December 2023 (unless extended by the parties). VPAS sets a cap on the total sales value of branded medicines to the NHS each year. The cap is subject to a permitted growth rate of 2% over a baseline value, with excess expenditure rebated by scheme members to the SoS. Rebate payments under VPAS are calculated by applying a VPAS percentage to the eligible sales of scheme members. The VPAS payment percentage is set at 26.5% for 2023; a rate which the UK pharmaceutical industry has criticised as excessive. The VPAS also includes mechanisms to control the maximum prices that may be charged to the NHS for a specific branded medicine and to limit the profits that may be made by scheme members from their NHS business.
Pharmaceutical companies may elect whether or not to participate in a voluntary scheme. However any company that does not participate in a voluntary scheme is automatically included in a parallel statutory scheme, currently established by the Branded Health Service Medicines (Costs) Regulations 2018. Whether it is more favourable to be a member of the relevant voluntary scheme or the statutory scheme, will depend on the product portfolio of the company concerned. However, for most companies manufacturing or supplying branded medicines, the voluntary scheme is viewed as more favourable.
The decision under challenge
In circumstances where negotiations for a voluntary scheme to succeed the current VPAS would commence in early 2023, the BGMA applied to the SoS to be appointed as an additional “industry body”, in addition to the ABPI. The BGMA argued that rebate payments under VPAS disproportionately affect the branded generic and biosimilar sectors, and the ABPI, who they characterised as focussing on the interests of innovator companies, could not represent their members’ interests. The SoS refused to appoint the BGMA as an “industry body” but offered it “observer” status in the negotiations, a role viewed by the BGMA as unsatisfactory in circumstances where it would not give them a right to veto any scheme otherwise acceptable to SoS and the ABPI.
The BGMA challenged the SoS’s decision, arguing that the SoS did not have a discretion to select the industry body with which he negotiates the voluntary scheme. If the SoS determines that a body is “an appropriate industry body” to represent a section of the industry (in this case, manufacturers and suppliers of branded generic and biosimilar medicines) as defined at section 266(6) NHS Act, even if for another purpose, he may not deny it the right to negotiate the next voluntary scheme on the basis that this is viewed as disadvantageous to the SoS’s negotiating position. In making this submission, the BGMA relied on a Memorandum of Understanding with NHS England and the ABPI from 2014 and the Scheme M agreement (which concerned the provision of information to the SoS on sales of unbranded generic medicines to the NHS) in which the SoS had recognised the BGMA as an appropriate industry body representing the generic and biosimilar industry.
Secondly, BGMA argued that if, contrary to its primary position, the SoS did have a discretion as to the industry bodies with which it negotiated a voluntary scheme, that discretion had to be exercised fairly and reasonably. In particular, the BGMA submitted that the discretion could not be exercised to select bodies which represent only one section of the industry.
The SoS opposed the BGMA’s application on the basis that he has a discretion regarding the appointment of an industry body for the purposes of negotiation of the voluntary scheme and that it was reasonable for him at least to take into account the likely success of the negotiations when exercising that discretion. The ABPI, as Interested Party, supported the SoS’ position, referring to the fact that it is well able to represent the interests of manufacturers and suppliers of branded generic and biosimilar medicines; 53 out of 67 of ABPI’s full members supply branded generic medicines and these account for a greater percentage of VPAS sales than those of BGMA members. Furthermore, in its role as negotiator of the voluntary scheme, it represents and widely engages with the whole branded industry including the branded generic and biosimilar sectors.
In circumstances where negotiations between the ABPI and SoS had commenced on 4 May 2023, proceedings followed an expedited timetable leading up to a one day rolled-up permission and substantive hearing on 27 June 2023.
Mr Justice Turner’s Judgment
Mr Justice Turner held that the finding of whether an entity was “an appropriate industry body” is context specific and therefore the previous conclusion that the BGMA was an appropriate industry body in other circumstances, was not determinative in the current situation involving a negotiation proceeding within significantly different parameters. Further, the Judge found that the SoS has a wide discretion when selecting an appropriate industry body for the purposes of negotiation of the voluntary scheme: the language of section 266(6) leaves significant scope for the operation of subjective appraisal by the SoS; there is no statutory obligation imposed on the SoS to commence negotiations or, having commenced negotiations, to agree a voluntary scheme; and, finally, if a voluntary scheme is agreed, there is no duty for any manufacturer to subscribe to it.
The Judge did not accept the BGMA’s case that the ABPI was incapable of adequately representing the entire branded pharmaceutical industry in the context of voluntary scheme negotiations. He referred to the efforts made by the Minister to ensure that the BGMA could participate as fully as possible in the negotiation process short of being a formal party enjoying a power of veto, including the offer of observer status made to BGMA and the Minister’s emphasis to the ABPI that it must represent the full scope of the sector; the ABPI’s interests (as reflected by its membership) in promoting the interests of branded generic manufacturers; and the all-industry engagement undertaken by the ABPI to prepare for the negotiations. Mr Justice Turner also accepted the submissions by the SoS and the ABPI that affording the BGMA full participation and a power of veto in the negotiations might result in disruptive delay and threaten a concluded agreement on the contents of a replacement voluntary scheme. Overall, the Judge was “satisfied that the Minister’s decision fell very comfortably within the parameters of Wednesbury reasonableness”.
Negotiations between the SoS and the ABPI for the next voluntary scheme have already commenced and may now continue in their current form, subject to the possibility that the offer of observer status may be re-extended to the BGMA. The parties are aiming for Heads of Terms to be agreed by summer 2023, although that may now be an ambitious target. In the context of concerns expressed across the branded pharmaceutical industry regarding the magnitude of 2023 VPAS payments, the ABPI is pressing for a fixed flat rate for rebate payments, applicable to the whole industry at sustainable levels, together with other features detailed within its Voluntary Scheme for Pricing, Access and Growth (VPAG) proposal.
The Judgment is available to read here.
The ABPI were represented by Arnold & Porter and Jemima Stratford KC and Tim Johnston of Brick Court Chambers.