Pharma industry urges halt to further rises in record revenue clawbacks

The pharmaceutical industry is calling on the government to scrap plans to raise the statutory revenue clawback rate from 24.4% to a record 27.5%. Doing so is a fundamental first step to reassuring investors about the UK’s ambition to halt the contraction of UK life sciences, and to secure a positive outcome to critical upcoming negotiations with the industry.

A key Department of Health and Social Care (DHSC) consultation is underway on plans to raise the revenue clawback rate paid by companies subject to the Statutory Scheme for branded medicines from 24.4% to 27.5% [1]. The average Statutory Scheme payment rate across the last four years has been 10.6%, meaning the proposed rate is nearly three times what firms may have anticipated just a few years ago.

The rise is intended to mirror a similar record clawback rate rise from 15% to 26.5% announced last year under a related Voluntary Scheme (VPAS), which has been heavily criticised by the industry as broken following a post-pandemic surge in medicines used by the NHS [2]. Under the agreement, any medicine used by the NHS above a 2% nominal growth cap is fully subsidised by the industry and historically saw an average clawback rate of 7% prior to the pandemic.

In its response to the consultation, the Association of the British Pharmaceutical Industry (ABPI) said the planned rate rise sent the worst possible signal to global investors and boardrooms at a time UK life sciences are already facing significant challenges [3].

The UK's share of global pharmaceutical R&D has been declining over the past decade, falling from 4.9% in 2012 to 3.2% in 2022. There has been a 44% decline in patient access to industry clinical trials vs. 2017/2018 [4]. While improvements in specific areas due to limited NHS England access deals have been made, unwarranted variation in medicines access across the UK persists. Across the UK, use of medicines recommended by NICE in the NHS two years after launch is typically 64% behind other nations [5].

The industry is calling for the Statutory Scheme rate to be left unchanged to allow time for key negotiations between the government and industry on the new Voluntary Scheme. The ABPI has also asked for the existing rate to be sunsetted at the end of 2023 to prevent it from further depressing future long-term life science investment in the UK. A new, appropriate rate can be set at the end of the year once a new framework is in place.

Richard Torbett, Chief Executive of the ABPI said: “Hiking these clawbacks to such uncompetitive levels risks undermining the UK’s offer to global life sciences companies. The government must use this opportunity to send a clear signal that it understands the real challenges facing our industry, and show they are ready to work with us to fix this broken system and put the UK back on the path to innovation-led growth.”

The future negotiations between industry and government will be focused on delivering a new sustainable framework that supports the ambition of the Life Sciences Vision, delivers world-class patient outcomes, NHS financial sustainability, and a sustainable industry that can continue to invest in tomorrow’s medicines and vaccines. 

With key innovations coming down the life sciences pipeline targeted at addressing the UK’s key health missions such as dementia, cancer and cardiovascular, including obesity, any delay in access to medicines will have detrimental impacts on patient outcomes and loss of productivity in the economy.

Between 2019 and 2023, there will have been a 12% real terms decline in medicines spending at a time when the government has provided the NHS with an 8% real-term increase in funding. In effect, recent Government policy has led to disinvestment in medicines through the cap on growth for a decade.

The decrease in medicines spending is leading to very real impacts on UK patients. Compared to other leading EU countries (Italy, Spain, Germany, France), the UK has experienced the largest decline in its global share of new medicine launches between 2016-2021. And UK patient outcomes remain behind other countries. Data highlights how the UK ranks 17th out of 18 countries for life expectancy, worst for stroke and heart attack survival, and 16th out of 18 for five types of cancer.

Companies are making long-term decisions on the future of their UK ‘footprint’. In 2023, UK industry headcount is expected to fall by 6%. If this rate of decline is maintained up to 2028, it could equate to a reduction in UK headcount of over a third. This translates to 27,000 jobs and a lost annual GVA of £2.6bn at a national level.

Due to company planning cycles, disinvestment decisions at a global level are difficult to reverse, and the long-term implications for the UK have yet to be seen. Immediate action from the government to reverse these trends is urgently needed.