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“Spiralling” Government tax threatens to add millions to local NHS budgets

  • Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) has increased by more than five-fold in the past two years. Negotiations currently on-going for next five-year period.
  • Reduced generic and biosimilar competition will result in NHS missing out on billions of pounds of savings.
  • Each of England’s 42 integrated care boards (ICBs) face an increase of £37million on average every year for the next five years.

A “spiralling” Government tax on medicines is threatening to add tens of millions of pounds annually to the already stretched individual budgets of England’s integrated care boards (ICBs), as well as increase shortages in supplies of vital drugs to patients.

The warning comes in a white paper report from the British Generic Manufacturers Association (BGMA) - the trade body for off-patent UK prescription medicines, whose members supply 4 out of 5 NHS medicines.

The report prepared by consultancy Conclusio is based on discussions with local NHS leaders and looks at the potential impact of the Government’s Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) on ICB budgets. It concludes that each of the 42 ICB’s face having to find an additional £37million annually for the next five years from their budgets due to the rocketing VPAS rebate rate which has increased by more than five-fold in the past two years.

ICBs are statutory NHS organisations which are responsible for developing plans for meeting the health needs of the local population, managing the NHS budget, and arranging for the provision of health services in a geographical area.

According to the report, because of the high VPAS rate, every year, each ICB in England will face substantial rises in what it pays for branded generics and biosimilars due to reduced competition. In many cases, this increase will wipe away any projected surplus. While sizes of ICB vary, the report calculates that £37m is roughly 10-20% of ICBs’ entire pharmaceutical spend.

VPAS is an agreement between the Department of Health and Social Care (DHSC), NHS England (NHSE) and the Association of the British Pharmaceutical Industry (ABPI). It requires companies selling branded medicines to the NHS of a value above £5 million to pay a percentage of these sales back to DHSC whenever the overall branded market sales grow at higher than the allowed rate. For the current VPAS period, the allowable growth rate is set at 2% per annum and the payment percentage (levy) in 2023 is 26.5%, which is over five times what it was just two years ago.

The scheme covers medicines that are marketed with a brand name. In addition to the drugs sold by originator companies – those who invent and patent medicines – the scheme also includes manufacturers and suppliers of off-patent branded generic and biosimilar medicines. All biosimilars and some generics are required to be branded by the Medicines and Healthcare products Regulatory Agency (MHRA) for clinical reasons.

Generic and biosimilar medicines provide competition to originator products when a patent expires. So, the NHS moves from only having a single source of supply on a medicine to multiple providers and this competition means the price paid can drop by as much as 90%, delivering vital savings. Overall, generic, and biosimilar saves the NHS £15billion a year via competition.

Negotiations between DHSC, NHSE and ABPI are currently underway for the next VPAS which will run from 2024 to 2028. Presently, nearly half the current scheme is made up of branded generics and biosimilars which face a double whammy of having their prices constrained by competition as well as having to pay the increasing VPAS levy on their revenues.

The impact of the rapidly rising VPAS rate is significant. Research by Professor Alistair McGuire, London School of Economics (LSE), and the Office of Health Economics (OHE) showed that the NHS would pay £7.8bn in higher medicine prices over the next five years, if the VPAS levy stays at the current rate. This is because of product withdrawals and a decline in new off-patent product launches, reducing competition. This would be over and above any revenue that central government will get from collecting the VPAS rebate.

Mark Samuels, chief executive of the BGMA, said: “The VPAS rate has spiralled, rocketing to 26.5% with every chance it could go higher in the future. For off-patent medicines such as branded generics and biosimilars, this is an unsustainable position as companies cannot afford to keep absorbing an increasing rate on top of having their prices constrained by competition.

“Manufacturers are already having to make very difficult decisions as to whether they can continue to maintain supply of products.

“In addition, future UK launches are in jeopardy. More than 85 biological medicines will lose their exclusivity in the next five years including blockbuster products such as cancer medicine Keytruda and wet macular product Eylea. These represent a great savings opportunity to the NHS, but they won’t fulfil their savings potential if competition is reduced because fewer companies enter the market.

“The reduced savings will undoubtedly be felt at the frontline of delivery and is likely to add even further strain on already thinly stretched local NHS budgets.”

As well as a reduction in savings, the report also states that an increase in medicines shortages is inevitable as a result of a more volatile market stemming from fewer suppliers, potentially less stock being earmarked for the UK and product withdrawals. This will likely not only increase the prices that the NHS pays, but also impact pharmacy contractors’ cashflow position, with pharmacists spending up to a third of their working week mitigating shortages as opposed to supporting the NHS in advising patients and prescribing specific prescription treatments.

There is also a danger that reducing access to preventative treatments may mean people will be less able to manage chronic conditions and more likely to need costly, acute hospital treatment, resulting in potentially worse patient outcomes.

Professor Ash Soni OBE, Non-Executive Director, Sussex ICB and President, National Association of Primary Care said: “I’m not sure that VPAS is widely understood within ICBs, nor is its potential implication for budgets; however, off-patent medicines are vital to providing not only savings but increasing patient access. As VPAS negotiations continue, an approach that is balanced and equitable for all parties will help.

“Having access to off-patent medicines is a key factor for ICBs in achieving their strategic objectives. It behoves everyone around the negotiating table to determine a future VPAS that sustains the availability of medicines, keeps the independent pharmacy sector and primary care buoyant, and generates a range of transformational savings and efficiencies.”


For further information about the BGMA please contact Jeremy Durrant on 07792918648 or email

About the British Generic Manufacturers Association (BGMA)

  • The BGMA comprises members of the generic manufacturing supply industry, who account for approximately 85% of the total UK generic market by volume.
  • They supply 4 out of 5 drugs used by the NHS.
  • BGMA members include eight of the ten largest medicine suppliers to the NHS.
  • A key feature of the strong generics industry in the UK is that it introduces competition to the supply of prescription medicines, making them more affordable to the NHS and enhancing their availability to patients.
  • According to NHS figures (NHS Digital), more than a billion items are prescribed generically every year. The competition provided by generic medicines saves the NHS around £ 15 billion annually.

About Conclusio

Conclusio is A market access and engagement agency creating strategic partnerships between the NHS and its supply chain where innovation can flourish.

Read now

NEW REPORT: Seeing Red: Is VPAS Good for the Nation's Health?

Download the report here (PDF)