VPAG and Older Medicines
The Department of Health and Social Care DHSC has for many years being receiving a rebate from the manufacturers of branded prescribed drugs. This is intended to keep a cap on the growth in the medicines bill whilst allowing manufacturers to make sufficient profits to keep them supplying the NHS.
Previous schemes have included PPRS (prescription price regulatory scheme) which ran until the end of 2013 and VPAS (voluntary scheme for branded medicines pricing and access) which ran from 2014 till the end of 2023. These were both voluntary, but there are and were statutory schemes which manufacturers are entered into if they do not wish to join a voluntary scheme.
For the 2024 to 2028 VPAG scheme, medicines are classed as older if there is now more than 12 years since the first marketing authorisation for the active substance. These older medicines have two rebates. The first is the 10% basic rebate, and the second is the % top-up which can be up to 25%. Therefore ‘older medicines’ includes both the originator and follow-on branded generic medicines.
This top-up is calculated based on the difference between the current quarterly average selling price and the reference price, which is rounded to the nearest percentage point. The reference price depends on the brand’s launch date and is either the average selling price in the year before it became an older product or the reimbursement price less 12.5%.
Although DHSC will be sourcing its average selling price information from companies selling branded medicines, WaveData has been collecting pharmacy buying prices for branded medicines since 2000, and so has a sizable chunk of this information.
We decided to try and run an example calculation based on real selling price information for an older medicine. However, we don’t want to damage any company or individual and therefore will hide the brand and its manufacturer as far as is possible by calling it ‘Medicine X’.
The first time the originator form of the older medicine was sold in the UK was in 1997. This means that it became an older medicine in 2009. However, Medicine X was not yet available in 2009, which means that the reference price has to be calculated as reimbursement price less 12.5%.
The next question is, ‘Which reimbursement price?’ By 2024 competition between generics, branded generics and the originator have resulted in considerable reduction in selling and reimbursement prices.
The reimbursement prices for the originator in 2008 (the year before it became an older medicine) are more than double the reimbursement prices for Medicine X in 2024. So there has been considerable reimbursement price attrition of the intervening 16 years. If the DHSC chooses the higher 2008 reimbursement prices over the much lower 2024 prices as their reference prices, then:
This gives us percentage attrition for each pack of between 58% and 82% in 2023, and allows us to forecast quarterly discounts in 2024 of between 61% and 83%. Using the VPAG Top-up table this gives us a Top-up rebate of 0% on top of the basic 10% rate, which should please the manufacturer. If on the other hand the DHSC chooses the higher 2024 reimbursement prices as their reference prices, then:
This gives us percentage attrition for each pack of between -5% and 55% in 2023, and allows us to forecast quarterly discounts in 2024 of between 2% and 57%. The VPAG Top-up table shows that no Top-up rebate should be paid if the discount is greater than 35%. Our forecast for 2024 suggests that Medicine X will fall short of this in 4 quarters for a single pack, which means that the company will pay a Top-up rebate for that pack in addition to the 10% basic rate. For that pack’s quarterly 2024 sales, the company will need to return a Top-up rebate of 25%, 25%, 17% and 11% to the DHSC.
If the DHSC chooses not to collect all the sales prices as per the example above, but instead just to use full line wholesaler prices, then the calculations will be different. Equally the calculations will vary if the first marketing authorisation date is not known, or if historical reimbursement rates are missing.
We hope our attempt to get to grips with the VPAG Top-up will be helpful, but believe that with the competitiveness of the UK market, the Top-ups for many older originator products and branded generics will be very low.
Generic and Parallel Import sales are excluded from VPAG.
Scheme members have to report their sales, but if they don’t do this the top-up will be set at an assumed 25%.
There are also some exceptions, for smaller companies with sales below £6 million all sales are exempt, for medium sized companies with sales of between £6 and £30 million the first £6 million is exempt, and brands with sales below £1.5 million are exempt from the top-up.