The government and the pharmaceutical industry have reached a new voluntary agreement that will determine the prices paid for branded medicines in the UK.

The voluntary scheme for branded medicines pricing, access and growth (VPAG), agreed by the government, NHS England and the Association of the British Pharmaceutical Industry, will run for 5 years until 31 December 2028, and will succeed the current VPAS scheme.

Medicines represent the second highest proportion of NHS spend, worth £19.2 billion in England in the 2022/23 financial year. Some £14 billion of this was branded, with the industry paying the NHS back £2 billion in rebates that year.

The new agreement, however, sets a yearly cap on the total allowed sales value of branded medicines to the NHS each year. Sales above the cap will be paid back to the government via a levy. The level of annual allowed growth in sales of branded medicines will double from 2 per cent in 2024 to 4 per cent by 2027.

Payments to pharmaceutical companies that participate in VPAG will be made under two “affordability mechanisms”. One scheme covers sales of newer medicines and the other sales of older medicines. The aim is to balance both the level of risk held by industry and government, and the level of scheme payments associated with different stages of the lifecycle of a given medicine.

The detail of each scheme is set out in the VPAG Summary Heads of Agreement. The first quarter of the 2024 will be a transitional period for medicine prices, while from 1 April onwards the differentiated payment mechanisms between newer and older medicines will apply.

NHS England will consult on an update to the commercial framework for new medicines within the first 18 months of the 2024 voluntary scheme.

The agreement also includes a new joint government-industry programme – the Life Sciences Investment Programme - to strengthen the UK’s global competitiveness in health and life sciences and drive innovation-led growth.

Pharmaceutical companies will provide additional funding on top of the core 2024 voluntary scheme payments to support implementation of the programme. The estimated £400 million payment will be split across the five years of the scheme. The programme will target investment in 3 focus areas:

• clinical trials (around 75 per cent of the funding allocation)
• health technology assessment (around 5 per cent)
• manufacturing (around 20 per cent).

“This is a tough deal which underlines the essential role innovative medicines and vaccines will play in addressing the health challenges of the future,” said Richard Torbett, ABPI chief executive. “The industry supports this agreement, despite its restrictions, as it provides important support for patients and the NHS and commits to giving them access to the transformative treatments they need.

“Allowing the sector to grow faster than it has under the previous scheme should increase the UK’s international competitiveness over time. Importantly, it also recognises the pressing need to invest more in building NHS capacity to partner with industry on science and research to support innovation and economic growth.”

The deal includes commitments that will see NHS England establish a data driven approach to the use of medicines, ensuring the latest medicines are reaching patients with the highest need as quickly as possible; supporting wider commitments to reduce health inequalities.

The development of a Local Formulary National Minimum Dataset will provide a tool to address variation in the implementation of NICE guidance to improve equity in access to clinically and cost-effective treatments.

The agreement also details how NHS England will work with companies to create a new Patient Support Programme (PSP) database to encourage local NHS services to partner with manufacturers and encourage the wider use of novel approaches to patient support following treatment.