Examination of Witnesses

Health Service Medical Supplies (Costs) Bill – in a Public Bill Committee at 9:28 am on 8th November 2016.

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Philip Kennedy, Dr Keith Ridge and Warwick Smith gave evidence.

Good morning. We will now hear oral evidence from NHS England, the British Generic Manufacturers Association and the Association of British Healthcare Industries. Thank you for coming this morning. Before I call the first Member to ask a question, I remind all Members that questions should be limited to matters in the scope of the Bill and that we must stick to the timings the Committee has agreed to in the programme motion. For this session, we have until 10.30 am. Will the witnesses please introduce themselves for the record?

Warwick Smith:

I am Warwick Smith, the director general of the British Generic Manufacturers Association and the British Biosimilars Association, which is a sector group.

Philip Kennedy:

I am Philip Kennedy, the chair of the Association of British Healthcare Industries. We represent the medical device technology sector in the UK.

Dr Ridge:

I am Keith Ridge, the chief pharmaceutical officer at NHS England.

Thank you very much.

Photo of Justin Madders Justin Madders Shadow Minister (Health)

This question is to Dr Ridge. The pharmaceutical bill has increased significantly in recent years—up another billion pounds in the last financial year. Could you give us some thoughts on why that has been the caseQ ?

Dr Ridge:

I am absolutely delighted to do so. Just to emphasise some of the increases, I have brought with me the “Prescribing Costs in Hospitals and the Community” report from the Health and Social Care Information Centre, which is now part of NHS Digital. That organisation routinely publishes information on a range of things, including prescribing and drug expenditure. In the 2014-15 report—the latest one—it says that the overall NHS expenditure on medicine in 2014-15 was £15.5 billion, an increase of 7.8% from £14.4 billion in 2013-14 and nigh on 20% from £13 billion in 2010-11. In 2014-15, hospital use accounted for nearly 43% of the total cost—that is up from 40% in 2013-14 and 32% in 2010-11. From 2013-14 to 2014-15, the cost of medicines rose by 7.8% overall but by 15.4% in hospitals. This is a particularly important fact: the cost of medicines in hospitals has risen by some 59.8% since 2010-11.

I hope that emphasises where we are in terms of expenditure on medicines. There are a number of reasons for that. One is around an ageing population, with people living longer and multi-morbidities—more than one disease. Of course, in many ways we are very grateful to the pharmaceutical industry. I would say this as a pharmacist: medicines are a truly wonderful thing. They are also the highest expenditure in the NHS after staff, but they have delivered some really important therapeutic gains over the years.

When you look to the future in terms of how medicines in the specialised areas will change in nature, particularly at the reasons around ergonomics, personalised medicine and the ability to be able to target medicines, that will affect expenditure, with development costs in among that, but it will also affect how the pharmaceutical industry will price medicines. So there is a raft of reasons, largely clinical but also technological, from the past. Going forward, we are going to see more of that. Of course, that is set in the context of the NHS financial position and the gaps set out in the five year forward view.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The new proposals suggest a £5 million threshold exemption for small companies. I wonder what your views of the appropriateness of the magnitude of that threshold are. Perhaps Mr Kennedy might lead on that because it is principally your bailiwickQ .

Philip Kennedy:

Yes. Thank you. I would like to welcome the question. From our perspective at the ABHI, 99% of the medical device industry is made up of small to medium-sized enterprises, which are absolutely vital to the lifeline of the industry as well as to the whole country and employ some 90,000 people. There are over 3,000 companies. The definition of SME within that is companies that employ 250 people or fewer or have annual turnover of £50 million.

In the scope of these proposals, we believe that the considerations of the SMEs in the sector are absolutely crucial, not only to the health of the industry, for which you would expect us to be extremely vocal, but to the effectiveness of the NHS being able to benefit from the innovation and the good working relationship it has with SMEs in the sector. We feel that the potential to put in a layer of bureaucracy and cost is not good for the NHS and certainly not good for the SMEs that are largely representative of the sector.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Q So what threshold would you have?

Philip Kennedy:

I would have £50 million, which I think is a European definition of SMEs.

Photo of Maggie Throup Maggie Throup Conservative, Erewash

I have another question for Mr Kennedy, and anyone else if they want to add to it. Is the definition of medical supplies under the National Health Service Act 2006 sufficient, or do you think it needs to be clarified furtherQ ?

Philip Kennedy:

Again, I welcome the question. The definition envisaged here is extremely broad. It is difficult to define exactly what is a medical device or a medical technology. I think that some of the wording is “or any product”. I understand the desire to give this a wide scope, but it is extremely important that we differentiate between a medical device or a diagnostic product and a pharmaceutical or a generic pharmaceutical. They are quite distinct industries, very different in their structure and scope. We would welcome a much tighter definition and a tighter definition for the companies that produce those defined products of the intent—of what exactly is being asked of them by the legislation.

Photo of James Berry James Berry Conservative, Kingston and Surbiton

We have had a submission from the British In Vitro Diagnostics Association, which says that if its products are included within the definition, it does not envisage that the new Q information required under clause 6 would be too burdensome and that much of the information that it would be required to provide is information that companies record anyway. Do you disagree with that analysis?

Philip Kennedy:

I do disagree with that. From our members’ perspective, the data, as we understand it—we would greatly seek some clarity on exactly what data are being requested—are not routinely collected, particularly for small companies. Of course we collect data for tax purposes, productivity and all the usual parts of running a business, but data on profitability at a product level would be a huge additional burden for companies that are relatively small in scope. They would not normally do that. Even if the information was available, I am not sure how it would be analysed and reported on effectively, to give the information that is sought. We are happy to collect data to run our businesses, but the definition of what is being asked here is something that we would greatly appreciate clarity on.

Photo of Jo Churchill Jo Churchill Conservative, Bury St Edmunds

My question is to Dr Ridge and to Mr Kennedy. I have a concern about how the Bill might have an impact on pharmaceutical companies’ research and development, particularly in the light of medical innovations and how they are moving on. We do not want to stop that innovation with things such as pumps and so on. We know that we are trying to reduce the viscosity of insulin to get the pumps to work more effectively. How does this cover the case? Is it a medicine or an innovation? Can you give me a little more of your thoughts of how we pin things down? On the personalised front, are we future-proofing? Good legislation should be adaptive, I would argue, so that we do not revisit this.

Dr Ridge:

In the first instance, I should make it clear that NHS England is very supportive of the proposals in the Bill and, indeed, the £5 million cut-off point around SMEs. We are also very supportive of innovation in the UK. For example, we have recently launched a scheme around innovation acceleration and the like. We want to see a thriving pharmaceutical and medical devices industry—that is, life sciences—more generally. There is no doubt about that.

The Bill will make a contribution to the financial challenge I mentioned. I am sure that in due course, with this pharmaceutical price regulation scheme due to expire at the end of 2018, there will be a negotiation in the normal way. NHS England will want to play its part around that.

The world is changing and personalised medicine is an important development for us all, but it needs to be delivered in a way that is both effective and affordable. This way of filling a bit of a problem between the PPRS voluntary and statutory scheme in the short term will also perhaps give us a basis for a further negotiation, I am sure, in the context of many things, including personalised medicine.

There is a lot more to do around getting best value and outcomes from medicines more generally in a variety of care settings, whether in hospitals, care homes or whatever it might be. We spend a lot of money on medicines and are going to be spending more, but we do not always see best outcomes, in many ways because of the way medicines are used. NHS England is looking carefully at how to optimise medicines and their use, and that will include personalised medicine.

Philip Kennedy:

If I can clarify your question, I think it specifically related to insulin and the cost of that. It may be more appropriate that Mr Smith answers around pharmaceutical development by plan.

Photo of Jo Churchill Jo Churchill Conservative, Bury St Edmunds

Q I suppose the question was more about how the burden could be minimised, from the comments that you made, referred to earlier. I am concerned that we do not cut off that important pipeline, particularly of personalised medicines. It is about where we are taking ourselves in the future, whether in generic or pharmaceutical industries.

Philip Kennedy:

We at the ABHI have worked on a number of initiatives with the Government on the accelerated access review, with the vanguard programmes and also with Lord Carter, in terms of our response to the challenge to reduce costs within the NHS. We believe that a thriving, innovative R and D landscape for SMEs is the way to do that. Indeed, there are plenty of examples already whereby significant savings could be effected by looking at the lifetime costs of ownership of products and also the patient pathway design.

We are actively engaged in a number of areas with the Government to do that. We feel that the proposed legislation is not necessarily helpful, adding another layer of data collection that is not advancing the cause. If anything, the risk is that it thwarts innovation and increases cost, and that would not be an outcome that anyone would welcome, either within the industry or the NHS.

Warwick Smith:

It may help if I give a couple of comments on data collection, from the point of view of the generic industry. We have had voluntary arrangements in place for 15 years to provide the Department of Health with data, so it can see the actual price being charged in the market and thus set the pharmacy reimbursement price. That arrangement came around due to past difficulties. We decided, in agreement with the Department and subsequently NHS England, that transparency is the best way to deal with these issues. For the large tranche of generic products that face competition, we submit data quarterly to the Department showing the net cost of each product we sell. That allows the Department to monitor what is happening and set the reimbursement price.

Providing those data is not a big issue for the majority of our members because it is run from their invoicing system. I cannot speak for Mr Kennedy’s members, who I think have a different profile. My members go from global companies to small start-ups, but they all have to run an invoice system, and they can generate the data from that.

Let me make a couple of points about the use of the data. We are not unhappy with the proposals in the Bill. The way in which the data are used is really important, because it is easy to get the wrong end of the stick. For example, if you look at the profitability of one product, it might be subsidising another, so taking an overview of what is going on and understanding the market is important.

Let me add just one more point. We understand why the extension of the statutory scheme’s scope to allow subsequent payments to be made is in place. We understand that it mirrors the arrangement in the PPRS negotiated by colleagues from the Association of the British Pharmaceutical Industry, but we feel that charging a payment for generic and biosimilar products—the price of branded generics that fall within that scheme will already have dropped by 70% or 80%, and it may be 50% for biosimilars—is double jeopardy. The NHS is getting its money through competition and then charging additional costs on that. It has been suggested to us that we should put up our prices, but I do not think that is the way to go.

Dr Ridge:

Again, NHS England is very supportive of the proposals in the Bill. We feel that it is important to have end-to-end transparency associated with, in this case, pharmaceuticals. At the end of the day, we want to see a very robust reimbursement system for one of the commissioners of health services. We feel that that will be supported further by the information set out in the Bill. However, I agree with Warwick that it is important to sustain a market around generics, in particular.

Thank you. A lot of people wish to ask questions, so I ask the witnesses to try to keep their answers a little shorter.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

I would like to ask Mr Kennedy a couple of questions. Obviously, the Bill extends the National Health Service Act 2006 to medical supplies. As someone who comes from a surgical background, my concern is that the Medicines and Healthcare Products Regulatory Agency controls the quality of drugs, so there should not be a change in quality with price, but for medical supplies—I am just thinking of the surgical gloves I have interacted with—there is a huge range. If we are just pushing on price, do we have a mechanism that you are confident in to ensure we do not end up pushing down the quality of medical supplies—I mean some of the basic thingsQ ?

Philip Kennedy:

Yes. We get back to the question of what is the point of having a very broad and all-encompassing definition of a medical device with within the scope of what is proposed here. The data collection on all those items—whether specialised gloves that are used in a certain area or a routine glove on a ward—is overly onerous and does not achieve the end, so we are back to the central question. The issue of the safety and quality of devices is very much regulated by a CE mark. If a product has a CE mark, it has gone through the necessary quality and safety checks.

I believe that the addition of medical devices and any other items was relatively late in the consideration. In that regard, I wonder whether there has been a proper assessment of the impact that that would have. We would welcome further work on the potential impact. It is very clear for pharmaceuticals, but extremely unclear for medical devices.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q Products may have passed a CE mark, but I am conscious that, when we tried different surgical gloves, there were some makes where you were going through two or three in an operation, which means your benefit in cost has gone.

The Bill is not just about data collection; it extends the provisions on enforcement of price control to Scotland and Northern Ireland. We already have central procurement, which has helped us control prices. This is one of my anxieties. Do you think both of those moves are reasonable?

Philip Kennedy:

Again, we question why the scope is being widened to Scotland and Northern Ireland at this particular juncture, given that, as you said, existing mechanisms are already in place and are effective, in our view. The competitive market for surgical gloves—not to pick on that, but since you raise it, it is always one that is easy to understand—means that competitive tendering can put in a quality matrix, a price matrix and a delivery and service support matrix. None of that is possible by simply asking companies to take six years’ worth of product data and analysing crunch profitability. It does not move the intent forward in any way in terms of having to save costs.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q Do you think there would have to be another body to take quality further, in the way the MHRA does with drugs, if this were going to come in, to avoid people going down to bare-minimum quality?

Philip Kennedy:

As I say, we have an extremely productive dialogue with Lord Carter and the Department of Health on the forthcoming review of the procurement landscape. Huge efficiencies can be gained in restructuring that. We would prefer to look at that work in terms of assessing quality versus price, value, lifetime ownership and pathway design, as I mentioned earlier, where more significant savings could be realised for the NHS. Indeed, it would be good for industry to continue to develop products that have a higher quality threshold. Perhaps they cost more, but they would save significantly more than focusing on data that just look at existing product and existing price.

Medical device development is a very iterative process, unlike pharmaceuticals, which perhaps have a 25-year patent that protects something. One of our members has 80% of its revenues in products that only came to market in the last two years. That is where the efficiency, the quality and the cost-saving argument comes through. We surely want to encourage that as an economy.

Photo of Julie Cooper Julie Cooper Shadow Minister (Health) (Community Health)

This question is probably to Mr Smith. Generic supplies to the NHS in the UK provide some of the cheapest medicines in the developed world. Do you think that the approach to control the cost of generics is the right one, given that it is a minority of individual items that have come to the public’s attention because profits have soared significantly? Q

Warwick Smith:

I am on record as saying it is the least worst system in Europe. There is no perfect system. What we have found, comparing what we have in the UK and elsewhere in Europe, is that competition is a much better way of controlling price than intervention. We produce lower prices in the UK than in the rest of Europe. We have had an issue, as you say. I think fewer than 2% of our products have made the front page of The Times. We agree that there should be data available to investigate whether those prices have a justification or not, and intervention perhaps by the Secretary of State or, at the end of the day, by the competition authorities. However, for the majority of products, as the Secretary of State said on Second Reading, the system works extremely well. We have spent time trying to come up with better systems and we cannot.

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

ThisQ is a question for Dr Ridge about the analytical capacity of the Department to look at the extra data you are going to be collecting. I was a little worried that, in The Times investigation, given some of the emails and responses from officials, they did not really appear to be on top of what was happening in terms of prices. My question is to seek reassurance as to the capability within NHS England sensibly and intelligently to analyse the extra data that will be collected under the Bill to know what is going on.

Dr Ridge:

I am glad you make the point that I am from NHS England as opposed to the Department of Health. However, I am aware that the Department of Health has an analytical team in a particular bit of the Department that focuses entirely on issues associated with medicines and reimbursement. Indeed, the reimbursement policy responsibility sits with the Department of Health. Having been associated with that team for a number of years, and having previously been the Department of Health’s chief pharmaceutical officer, I am fully aware of the capability of that team. It is substantial, although I am sure that the head of that team—I can see him in my head now—will be considering whether he needs more resources to deliver what is required.

On the issue of price gouging and the 2% figure quoted by Warwick, it seems to me that at some point someone has to intervene in these things when you are into several thousand per cent. price rises. Although the intention would never be to do that first off—I am sure there would continue to be competition—there has to be a mechanism to do that.

Warwick Smith:

To add to that, it is important to realise that the officials who were named in The Times were not part of that team. They were performing a more mechanical function to do with producing lists. The Bill ensures that the team reporting to the Secretary of State has powers of investigation and intervention. As Dr Ridge said, that is necessary and we agree that it is necessary.

Photo of Kevin Foster Kevin Foster Conservative, Torbay

In looking at any piece of legislation, one must consider whether there is an alternative. My question is directed at Mr Smith in particular. To put a scale on this, although we accept that it concerns a minority of manufacturers, we are talking about 262 million quid a year for 50 drugs that have increased significantly in price. Given the voluntary range and references to past difficulties, do you see any sensible alternative to dealing with the minority of companies that have adopted that type of approachQ ?

Warwick Smith:

The focus needs to be first on transparency, so that those officials whose job it is to monitor these prices and set the reimbursement rates can see the data. Not all companies currently submit data. Our requirements do not include all products, and we think they should. We have proposed to the Department that they should include all products and that there should be powers to insist that all manufacturers provide those data. The Bill does that—it gives them those powers. That is the first important step to transparency. Once the officials in the team that Dr Ridge referred to have those data, they can monitor what is happening and put questions. They will have powers to investigate and the Secretary of State will have the power to act. We all thought that the Secretary of State had those powers, but it appeared—through a piece of drafting that none of us had noticed—that he did not. So the Bill will fill the gaps in a system that we think is the right system but had some gaps in it that none of us had spotted, frankly.

Photo of James Davies James Davies Conservative, Vale of Clwyd

I want to return to the medical supplies issue, if only because this is perhaps the more controversial aspect of the Bill. I met with Coloplast yesterday evening. It is concerned about the potential impact of the control of prices and information disclosure requirements on investors. To what extent do you think that investment is at risk as a result of the provisions of the Bill? Further to that, you have suggested that all medical supplies, or reference to them, should be removed from the Bill. Failing that, what reassurances would you like to see, bearing in mind that there are already information-gathering powers in the 2006 ActQ ?

Philip Kennedy:

Yes, of course those have not necessarily been enforced or used in practice. Coloplast is a large US multinational. It is active, but it is not actually a member of the Association of British Healthcare Industries, I believe. I could understand its anxiety that a more bureaucratic system that could cut prices or onerous data collection over a long period would frighten investors off. Anything that does that in our sector would not be welcome. However, I think it is less onerous for the larger companies, which would have more substantial resources to crunch data and produce the type of information that Mr Smith has talked about being readily available. That is not really our concern. Our concern would be for the smaller businesses, which simply do not do this, and about the disproportionate impact on them. However, I take the concern that Coloplast and other US multinationals, which have invested heavily in the UK life industry, the life science sector, over the years, would have in seeing this legislation as not attractive to them as investors.

Photo of Martyn Day Martyn Day Scottish National Party, Linlithgow and East Falkirk

The Scottish Government have used payments from the PPRS towards a specific fund for access to new medicines. Does the panel think that a similar model would be good elsewhere in the UKQ ?

Dr Ridge:

From an NHS England point of view, the ring-fencing of moneys to support medicines, which I guess is what you are referring to, is not a position we have previously supported. We largely want to retain the position whereby NHS England and clinical commissioning groups are able to determine their own priorities, in terms of how available funding or savings are used. That is where we are on that. Priorities vary, as you know, from locality to locality and the ability to utilise moneys in a way determined locally strikes me, and strikes NHS England, as being the way to go.

Photo of James Berry James Berry Conservative, Kingston and Surbiton

Q Dr Ridge, are there any disadvantages with the Scottish system, which is different from the one you run in NHS England?

Dr Ridge:

I am not sure that it is particularly for me to comment on that.

Photo of James Berry James Berry Conservative, Kingston and Surbiton

Q No, but why are we not adopting the Scottish situation? There must be some disadvantages if we are not following it here.

Dr Ridge:

I can see that some people would say that ring-fencing funding to support, for example, the uptake of innovative medication is one way to approach this, and some would say that that would have some advantages, but we have taken the view that it is up to NHS England and the CCGs how they utilise their funding.

Photo of Maggie Throup Maggie Throup Conservative, Erewash

Q Coming back to the information side of the Bill, I have a question for Mr Kennedy and Mr Smith. What information do your members currently provide to the Government? Can you describe how it is used?

Philip Kennedy:

Members within the ABHI produce a range of information for competitive tendering through the NHS supply chain, for example, whereby tenders are filled out with a request for information, not only the price of the offer but the credentialing of the offer in terms of adherence to environmental policy, service support or ongoing maintenance of spares and supplies. In that respect, data are provided. Also through drug tariff, a number of products that are prescribed are reimbursed, particularly in the ostomy business. We mentioned Coloplast earlier. There is a huge amount of data exchange for submission to drug tariff and then approval on drug tariff. One of the readings made reference to the fact that some of this information is already provided, for a tax perspective, but of course as somebody who has run an SME for 16 years, I can tell you that, although there is a requirement to put in a level of detail in a company tax return for a small business, you would not put in the level of detail that is perhaps envisaged—it is unclear what exactly is envisaged—in the Bill.

Warwick Smith:

In primary care, for the majority of generics, our members provide quarterly data on the volumes and net receipts that they have received for those products, simply filling in a spreadsheet sent to them by the Department of Health, which is then merged together by officials. The Department uses those data to determine the reimbursement price for those medicines. Once that price is fixed, community pharmacies source from generic manufacturers, trying to get the best deal possible because they make a margin on dispensing generics. That is what keeps the price down.

There are a smaller number of products where we do not provide data, where we think we should provide data, so again, the reimbursement price is set according to what is actually happening in the market and not based on what can sometimes be misleading prices lists or something like that.

In secondary care—because, again, my members are essentially producing the same product—there is competition managed by the commercial medicines unit, which is currently part of the Department of Health. It runs regional tenders to set the price that should be charged. Those figures are circulated to hospital trusts, which then use them for procurement.

Photo of Maggie Throup Maggie Throup Conservative, Erewash

Q So your concern is really more about where this Bill extends to and what data will be required?

Warwick Smith:

Absolutely. On the data, the concern is whether it is practical to collect some of the data being sought here. Once a medicine goes to a wholesaler, we do not know where it will go in the marketplace. It is very difficult to put costs against a lot of individual medicines because they are shared costs. You can create formulae, but they are often misleading. We think that it is important to get that level of detail right. We are not saying these powers should not be in the Bill. What we are saying is that, when using those powers, the Secretary of State should take account of those issues, which, frankly, are too far in the weeds to be in the Bill but need to be considered when it comes to implementation.

Photo of Justin Madders Justin Madders Shadow Minister (Health)

Q Mr Kennedy, you have talked about the difficulties your members have in providing this information. Is it the profitability element that your members are unable to strip out at the moment?

Philip Kennedy:

Specifically on profitability, I can give an example from my own company that produces capital equipment for operating theatre rooms. We have a UK business and an export business. At any one time, there are large tenders arriving in either the UK or export, on which we would cover our fixed overheads and then perhaps bulk buy more supplies to fulfil a particular tender. So, at any one time, it is extremely difficult to look at a 12-month period for a particular product or market and say that is the profitability of that product, because it does not take into account the overall cost of running the business throughout the year. To be able to do that for a business of our size would be challenging with three accountants—one paying people, one paying suppliers and one doing our books for statutory purposes. To add another person or two to analyse the profitability, to comply with new legislation, even the potential of the new legislation, would be extremely difficult. It is not the profitability per se—transparency is not the issue for us—it is the time it would take to take it down to a product level and make it a meaningful assessment of cost and profitability.

Photo of Justin Madders Justin Madders Shadow Minister (Health)

Q Do you not factor that in when you are putting tenders in in the first place?

Philip Kennedy:

No. We work in a competitive market—

Photo of Justin Madders Justin Madders Shadow Minister (Health)

Q So you would tender for something you might make a loss on.

Philip Kennedy:

Absolutely we might, because we may feel that to keep the factory running that month, we need to make a loss, or if we see potential revenue for further purchases from that particular trust, either in service contracts or future hospital builds, we may decide to take a lower price point for that tender.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Q Or the other way round—what the market will bear. That is our concern.

Philip Kennedy:

Or what the market will bear. Of course, in recent years, with the funding concerns, the price is only really going in one direction and that is putting a huge squeeze on niche product manufacturers. The other thing about the medical device sector, which goes back to the point about definition, is that there are some very specialised small businesses that work only within a certain sector. It is difficult to ask them to produce swathes of data to the same extent as a larger generic manufacturer or, indeed, large ostomy company that is quite accustomed to producing data for drug tariff.

Photo of John Glen John Glen Conservative, Salisbury

This question is to Mr Kennedy and to Mr Ridge. With the data on the cost of medicines going up by over 7.5% in the last year—at a time when we have aggressive efficiency savings of £21 billion, or whatever it is, over the next few years—something needs to be done. To Mr Ridge, I am concerned that this is not radical enough. If we are really going to deal with the expected increases in medicine costs, we have got to do something more about innovation and the way that the NHS embraces Q innovation, so that we do not rely on Mr Kennedy’s members to provide what the NHS needs, which is wholly necessary at the moment, but the NHS could take more ownership of that. I would like you to reflect on that.

Mr Kennedy, in terms of the distribution of sales between what goes into the NHS and what goes into exports, surely one of the big justifications for the Government moving this forward is the fact that the rigour of the challenge, and the regulatory challenge, in the NHS—before medicines and devices that apply to the NHS—validates a considerable volume of export sales. I understand your difficulty in quantifying where your fixed costs are distributed over your NHS sales and exports, but nonetheless there is a massive advantage to supplying the NHS in terms of validating markets outside. How do you respond to that?

Dr Ridge:

I am glad you asked that question, because the contribution of a particular component of the Bill is guesstimated at £88 million.

Dr Ridge:

Quite. There is a bit more to it than that. Some of the things are worth my referring to. You may be aware that NHS England and the National Institute for Health and Care Excellence are currently consulting on fast-track proposals around access to innovative medicines where the evidence is clear that they are particularly clinically and cost-effective and, in technical language, cost less than £10,000 per quality adjusted life year. Alongside that are budget impact and affordability proposals, in that if the medicine adds an extra £20 million or more in terms of impact on the NHS, then NHS England—which is strengthening its commercial capability, and rightly so, including bringing the commercial medicines unit into NHS England, as well as strengthening staff who have commercial capabilities—will enter into a commercial discussion about access to and payment for that particular medicine.

Clearly, we want access as widely as possible. The fast-track procedure will mean that, for example, NICE will produce final guidance much more quickly—I think that 10 to 11 weeks more quickly is the figure—and that funding for medicine will be made available from NHS England in 30 rather than 90 days. However, there is an affordability issue in all that, so there is a balance to be struck between supporting UK plc and the economy more broadly and guaranteeing access to new and innovative medicines in a way that is as affordable as possible, in the context that I described earlier and that everybody is familiar with.

There are other things that are less high-profile. For example, how do we make the best use of chemotherapy; can we manufacture it? Injectable chemotherapy has to be prepared in hospital pharmacies. Traditionally, it has been prepared in a way where it is a milligram per kilogram dose, so every dose is tailored for individual patients. There are ways to make dose bands of chemotherapy available. That way, we can rationalise manufacturing it at local level and making it more efficient.

On the primary care side, 25% of the current drugs bill is around specialised commissioning and 75% is primary care and medicines that CCGs commission that are used in hospitals. One thing we are in the process of establishing is something called regional medicines optimisation committees. Those regional committees will have two main tasks. One will be around standardisation and optimisation of medicines use and supporting CCGs to do that. They will also be looking at how evaluation of medicines can be lifted from the local level to at least the regional level, so that we can refocus staff who are currently doing evaluation tasks at a local level on to other things, such as optimisation and producing better outcomes. There has been a long-held issue about the duplication of effort at a local level, which can undoubtedly affect access to medicine. So there is a range of things in addition.

Dr Ridge, I do not wish to go too far away from the scope of the Bill.

I was very tolerant, but I would be grateful if questions and answers focused on the Bill, rather than general problems of funding in the NHS. I think you had a second question, John.

Photo of John Glen John Glen Conservative, Salisbury

Yes. My question to Mr Kennedy was directly relevant to the Bill.

Philip Kennedy:

To clarify, in your scenario, this will enable companies to export more effectively, because of the rigour that would be needed.

Photo of John Glen John Glen Conservative, Salisbury

Q One justification for the Bill and the Government intervening to deal with access costs in the NHS is the understanding that, as a consequence of supplying the NHS, there is a boost to the export potential of some of your members. I wanted you to clarify whether you perceive that to be the case.

Philip Kennedy:

It is extremely important that there is a healthy domestic competitive market in the UK, to help SMEs export. I was in the States last week—the largest single export market for medical devices—with colleagues from the Department for International Trade, and the week of conversations and dialogue was around innovation: “What are you doing in the NHS that is effectively adopting innovation?” They were not asking us, “What is your rigour of data collection on current supplies of medical devices?” They want to know how a system that is spending 8% of GDP is getting better outcomes than a system that is extremely fragmented, spending something like 17% of GDP and getting worse outcomes: “What are you guys doing that’s better than what we’re doing? What is so innovative in your sector?” We took 15 companies that were showcasing technologies and products that have been adopted and are working in the NHS. It was not about the rigour of data at all. I do not think that was relevant to the conversation.

Thank you. We really should get back to focusing on the Bill.

Photo of John Glen John Glen Conservative, Salisbury

My question did, with respect; I just did not get an answer to it.

If you wish to add something very briefly, do, but I am conscious that other people want to come in and we are running out of time.

Philip Kennedy:

I am happy to answer your question differently.

Photo of John Glen John Glen Conservative, Salisbury

Q It is quite simple. The Bill will allow us to intervene to reduce the cost to the NHS. The way in which that is justified by the Government is that an export potential is derived from the validation of supplying the NHS. Is that justified, in your opinion?

Philip Kennedy:

The validation of supplying the NHS helps companies to export.

Can we move on?

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q I want to ask Dr Ridge and Mr Smith about a couple of things that I thought would be in the Bill but are not. One is repurposed off-patent drugs, which we have debated in the House before. There is a potential for their price to go up within the generic set-up. My concern is that, because they do not get relicensed, they will then be tweaked and suddenly sold back to the NHS for their new purpose at 10 grand a pop instead of 50p.

The other one is specials. I have been written to by the British Association of Dermatologists. Patients with particular skin conditions, such as some of the pretty distressing forms of psoriasis, require formulations to be made up. Again, there is quite a different system in Scotland, which uses an NHS producer to do that. In England, initially only one quote was required, which could be from a sister company, and the prices have turned pretty eye-watering. It estimates that some products cost eight times the price in England as in Scotland. Do you not think some of those things should be included in the Bill?

Dr Ridge:

From an NHS England point of view, we, too, are concerned about specials and what appear to be excessive prices associated with certain specials. They are, of course, unlicensed medicines, which makes it a little bit more difficult in terms of being dealt with in the way I think is envisaged in the Bill. For example, I would have thought that the information-gathering powers will be relevant here, too, to ensure that we continue to get best value for money in this case for specials or for unlicensed medicines generally. I know that a team at the Department of Health are looking at that routinely—and more power to their elbow.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q Is it not the case that, because the price is so ridiculous, the CCGs are not funding it, so the patients are not getting their ointments or cream or whatever?

Dr Ridge:

There are CCGs that raise this with us, too, in terms of what appear to be outrageous prices associated with specials. It is something that needs to be addressed and I believe that the information powers will begin to do that in a way that is even more robust than the Department—

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q Would the information definitely apply to people who produce specials? That is not mentioned anywhere in the Bill.

Dr Ridge:

I think so, but I look to others who might know better than me. It is certainly something that we feel needs to be addressed even more robustly. Whether the Bill is the right place or not is another matter altogether, I guess.

On the repurposed off-patent drugs, from my point of view, speaking in the role I do, I think that somehow we need to provide at least confidence to prescribers to be able to utilise medicines such as tamoxifen and others in a way that supports them in use in what would be an unlicensed purpose. Indeed, one of the things I have asked the regional medicines optimisation committees to do in due course is to give some thoughts about that, to support prescribers in that process. When they are repurposed and then come back at a higher cost, again, that is something I feel does need to be addressed. I agree with you.

Warwick Smith:

I cannot help any more than Keith on specials. My instinct is that they would be included in the Bill, but they are not among my membership, so I have not taken any interest in that.

As far as repurposing is concerned, it is a term that sometimes gets used in two different ways. Dr Ridge mentioned tamoxifen, which I think was on Radio 4 this morning. We are working with the Department, NHS England and various charities to find ways to grant new indications on old licenses, so clinicians are comfortable about using medicines that were first licensed for different uses.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

That was the basis of the Bill we debated last November.

Warwick Smith:

And, frankly, that is happening. As we sit here today there are regular meetings going on. The problem is, if you ask a company to do the research work to prove that new use, it bears all the costs.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

To be fair, it is not usually the company that finds the new use. Repurposes are nearly all academic and clinical discoveries rather than—

Warwick Smith:

That is why they are working with charities to find a way to do this.

We have got to get back to the Bill. We have got a number of issues that Members have indicated they wish to be called on and we have only got four or five minutes.

Warwick Smith:

Very quickly, Chair, to finish Dr Whitford’s point, that is a good thing if we can make it work properly, and progress is being made. I absolutely agree that a change of a drug’s status to find a way of increasing its price with no clinical benefit is not something that should be supported. The Bill gives the powers properly to investigate changes like that and for the Secretary of State to take action. As I said earlier, we thought he had those powers. We signed up to his using those powers. I believe that he has used those powers, which we now discover he does not have.

Thank you. Two more people have indicated, and I hope to get both in.

Photo of James Berry James Berry Conservative, Kingston and Surbiton

Q I will be very quick. We have had submissions from suppliers and trade associations, and they made the point that there are a number of powers in the 2006 Act that have not been used and that this Bill merely extends those powers. Is the logical conclusion of your argument that you do not agree that the Government should have had the powers in the 2006 Act in the first place because they are too burdensome on your industry?

Philip Kennedy:

We support the existing legislation and its current use.

Philip Kennedy:

But the certainty and clarity for how it exists is there. Increasing the uncertainty and the scope does not serve the medical device sector. We very much support its application elsewhere, but for the medical device sector, which is different and unique for all the reasons I have expressed, we would seek other mechanisms by which to achieve the end.

Photo of Jo Churchill Jo Churchill Conservative, Bury St Edmunds

Q Thank you for that answer on the off-patent or repurposed drugs, Mr Smith. Perhaps putting them in the British National Formulary might help. What is the one thing, gentlemen, that you would do to get better value for the NHS? If costs have gone up by 59% since 2010—I think that is the statistic you threw in at the beginning—we have to do something. What is the one thing you would do to make the NHS provide better value for drugs?

Dr Ridge:

The one thing.

Photo of Jo Churchill Jo Churchill Conservative, Bury St Edmunds

Yes, you are allowed only one, and you have got only two minutes.

Dr Ridge:

The Bill undoubtedly makes an important contribution, but it is only a contribution. From our point of view, we need to focus much more on getting best value out of the considerable expenditure on medicines, and that means adopting an approach around optimising the medicines used and working closely with patients, clinicians and others to get to the point where people take their medicines and we deliver the right outcomes. That needs to be surrounded by a framework, at a national level at least, that is commercial in nature, in terms of the ability to work with industry and secure the best value for the NHS.

Philip Kennedy:

From a device technology perspective, I would say that the one thing we would support and encourage is a wider adoption of technology. The accelerated access review, published only a couple of weeks ago, is a good start in that direction, and we support its findings. We feel that significant efficiencies and cost savings are to be had in a wider-scale adoption of technologies, and we would support any effort in that respect.

Warwick Smith:

We should ensure that we use new, innovative medicines when they produce the most cost-effective, best clinical outcome for patients. Where that is not the case, and where the generic is still the gold standard, we should ensure through the medicines optimisation programme, which Dr Ridge mentioned, that we use generics. A 1% swing to generics in prescribing and dispensing saves the NHS £172 million per year. It is a very easy thing to do.

A final, quick question, Mr Madders. You have got one and a half minutes for the question and answer.

Photo of Justin Madders Justin Madders Shadow Minister (Health)

Q Dr Ridge, where does the rebate currently go, and where would you like it to go in the future?

Dr Ridge:

The rebate, as I understand the financial flows, comes into NHS England, and it informs NHS funding more generally. I would say what I said previously: we find ourselves in a health system that is becoming even more devolved in nature in England. I worked in Scotland for five years, and it is rather different there. Therefore, we should give organisations the flexibility to use the rebate in a way that they deem fit for their local priorities.

Thank you very much. As there are no further questions, I thank Dr Ridge, Mr Kennedy and Mr Smith for coming this morning. We are now going to move on to the next panel.