In the first week of March 2021, the NHS received approval to use the world’s most expensive drug, Zolgensma, which costs £1.79 million for a single dose. However, a single dose is all that is needed to treat babies and young children with the rare and often fatal degenerative disorder of progressive spinal muscular atrophy (SMA).

Although the headline figure is £1.79 million per dose, this is not the price the NHS will be paying. The developers of Zolgensma, Novartis, one of the world’s richest pharmaceutical companies, and NHS England have negotiated a discounted price after confidential negotiations.  

And this is often the way – the powerful position the NHS sits in as the provider of almost 100% of healthcare in the UK, means such deals can be struck. Such confidential deals are not the only way prices are controlled in the UK, however the powerful negotiating position of the NHS is a major factor that enables NHS patients, in the main, to receive the drugs they need for treatment and for the the cost of drugs to not spiral out of control.

How much does the NHS spend on drugs each year? 

The NHS spends billions on drugs each year and each year the costs rise. According to the most recent data from NHS Digital, in 2019/20 the overall drugs cost at list price in the NHS was £20.9 billion. This is an increase of 9.9% from £19 billion in 2018/19. The list price is before any discounts, so the actual cost of drugs will be lower. Hospital drug use accounted for just over half (55.9%) of the total at £11.7 billion (2019/20). 

How are prices set in the UK?

Pharmaceutical products in the UK are priced by the manufacturer and are not subject to direct price controls. 

Companies set the price of drugs based on a number of factors, including the number of patients it will benefit, how many similar drugs are on the market and the price of competing products.

Although there are no direct price controls in the UK, the price of pharmaceutical products are controlled via indirect processes, discussed below.

The prices that the NHS will pay for a pharmaceutical product are published monthly in the drug tariff. This price is known as the list price and is normally what pharmacists will be reimbursed when they dispense the product. 

However, many products are subject to confidential price negotiations with the NHS and the list price is not the price that is eventually paid.

How do prices in the UK compare to other countries?

It is not easy to compare drug prices across markets due to the complicated nature of rebates and discounts that operate, that are often confidential. It is however clear that drug prices in the UK are much lower than in several other developed markets and substantially lower than in the USA.

In 2017, the Commonwealth Fund investigated why health spending was so much higher in the USA, than in nine other developed markets, despite similar drug usage. Its conclusion was that “While drug utilization appears to be similar in the US and the nine other countries considered, the prices at which drugs are sold in the US are substantially higher.”  The report noted that the reasons for markets outside the USA having much lower prices included certain price control strategies, like centralised price negotiations.

One example of high prices in the USA compared to the UK is the cost of insulin. A report by the Rand Corporation published in November 2020 found that the cost of insulin in the USA was 8.9 times that of insulin in the UK.

A factor in drug costs in different countries is the practice of pharmaceutical companies to charge different prices in different countries for an identical product. Price negotiations are kept confidential and companies request that prices remain secret as part of the discount agreement with a government.

This practice has been highlighted recently, however, with regard to the Covid-19 vaccines, as in late 2020/early 2021 there were a series of revelations about vaccine prices.

A senior health official in South Africa revealed that 1.5 million doses of the Oxford/AstraZeneca vaccine just purchased for use among health workers would cost $5.25 a dose, more than twice what the European Union is paying at $2.15.

This comparison was possible due to Belgium’s budget secretary inadvertently revealing the EU’s negotiated prices for every major vaccine on Twitter in December 2020. The EU had undertaken to keep the prices confidential in return for discounts.

How does the NHS keep prices low?

For a pharmaceutical company, the NHS in the UK is the country’s market; the private healthcare market is tiny in comparison to the NHS. If the NHS won’t buy your products then you have no real market share. Such centralised buying power gives the NHS the upper hand to a great extent in pricing negotiations and discounts based on volume sales.

On top of this buying power, prices are controlled through a number of indirect methods, including: a voluntary agreement between the industry and the government that covers the profit that company’s can make on drugs; and for new drugs, an assessment by the National Institute for Health and Care Excellence (NICE) of cost-effectiveness prior to a recommendation for use.

What agreements are there between the pharmaceutical industry and the NHS?

In the absence of direct price control mechanisms, successive UK governments have for many years relied on agreements with the pharmaceutical industry and market competition to keep drug costs from spiralling out of control for the NHS.

There is a voluntary agreement, renegotiated every five years, between the Association of British Pharmaceutical Industries (ABPI) and the Department of Health which covers the vast majority of branded products, i.e., those still covered by patents.  

Under this scheme, originally known as the Pharmaceutical Pricing Regulations Scheme (PPRS), the industry members agree to a variety of measures to control prices and spending by the NHS. The primary control is the payment mechanism, whereby members of the scheme make payments ‘back’ to the NHS if growth in NHS spend on branded medicines supplied by the scheme’s members exceeds an agreed percentage.

In January 2019, the PPRS was revised and renamed the Voluntary Scheme for Branded Medicines. The cap for increase in costs to the NHS was set at 2%. If in any of the next five years, the rise in drug spending by the NHS is above 2%, then the industry that has signed up to the scheme is required to pay back the NHS the overspend. This scheme is in place until 2023.

Around 80% of branded products are covered by the voluntary scheme. Branded products not covered by the scheme are included automatically in a statutory scheme, which also has a payback mechanism.

Although both the voluntary scheme and statutory scheme, exert tight control over price increases – these need prior approval from the Department for Health and justifications for the price increases – there is a lot of flexibility for the pricing of products containing new active substances. Theoretically there are no controls on prices of these new active substances for 36 months following market approval. However, these new innovative products are also subject to NICE appraisal (see below).

What products aren’t covered by the voluntary or statutory scheme?

Generic medicines, those that are not protected by patents, are not covered by any price control scheme. UK governments have relied on market competition to control the prices of these products. This has worked to a large extent, generic versions of best-selling branded products are sometimes 90% cheaper than the original branded products.

In addition, for a section of generic products (category M) there are maximum reimbursement prices set and if the wholesaler/manufacturer price for the product is above this, a pharmacist would be unlikely to dispense it as there is no profit for them. This exerts control over this section of generic products.

There has been a problem, however, with relying on market competition for generic products that are outside of category M, mainly the category A products, which have no government controls on them. 

Although a product may be old and classified as a generic, it will not necessarily have many or in some cases any competitors on the market. A few years ago, some manufacturers took advantage of this situation and hiked the price of a generic product year-on-year knowing that there could be no comeback.

There have been cases where prices for some generics rose dramatically leading to a sudden increase in NHS costs. An article in Pharmaphorum reported that dramatic price increases included the anti-epilepsy drug phenytoin sodium, the price of which was reportedly increased by up to 2,600%.

The Competition and Markets Authority (CMA) has investigated these cases of dramatic price hikes. A change in law in mid-2017, however, should have closed the ‘loophole’ in the existing legislation that prevented the control of prices of unbranded generics supplied by companies that are members of the voluntary scheme for branded products.

Despite the change in law, an investigation by the Pharmaceutical Journal published in November 2020 found drug tariff prices for Category A generic medicines, found that the prices of many had risen by very large amounts. The figures showed that the NHS had paid an additional £76m in the previous two years. Prices had more than doubled for 33 Category A products between July 2018 and October 2020. For example, packs of 28 risperidone 6mg tablets saw the largest increase, from £2.68 to £49.21 per pack — an increase of 1,736%.

The CMA is conducting investigations into the pricing of just four Category A drugs: hydrocortisone, nitrofurantoin, phenytoin and lithium-based drugs.

What other ways does the NHS control prices?

New innovative products are assessed by NICE (National Institute for Clinical Effectiveness) for cost-effectiveness, using measures of improved ‘quality of life’ compared to existing therapies. If NICE considers that the drug’s effect on quality of life is not great enough to justify its price tag, then the drug is not recommended for use by the NHS.

The decisions by NICE often lead to discussions and negotiations with the manufacturers and the result is often a deal under which the NHS pays a lower price for the drug.

In particular, new medicines that NICE considers to be cost-effective, but which would cost more than £20 million in any of its first three years on the market are subject to price negotiations, in an effort to reduce the price. Unless a deal is reached, then NICE can delay access to the drug.

The novel drug Zolgensma was subject to negotiations and now they are complete, NICE is able to publish draft guidance recommending treatment with the drug.

Another recent example of negotiation for prices is AstraZeneca’s oral therapy for chronic lymphocytic leukemia (CLL), Calquence, which NICE recommended for use by the NHS in March 2020 after negotiations. 

AZ is reported to have agreed a confidential discount to Calquence’s $5,000-plus monthly price to enable it to secure NHS use of the drug in CLL, which is the most common type of blood cancer in adults in the UK.

The Zolgensma and Calquence situations are examples of the powerful negotiating power the NHS has to negotiate prices. 

If a product does not meet NICE’s criteria for cost effectiveness, a drug can still be made available via a Patient Access Scheme if the manufacturer makes a new commercial proposal. Where the clinical data supporting the drug’s application for NICE approval are uncertain, then NICE may recommend a Managed Access Scheme. NHS patients can gain access to the drug and the company will collect real world data on the drug that can then be incorporated into a reappraisal by NICE. 

After the Voluntary or Statutory scheme or NICE has influenced product price, there are several other forces that control prices still further. NHS England and individual NHS organisations (hospital trusts, CCGs etc.) also undertake negotiations with manufacturers for discounts, such as those based on volume use. In November 2018, NHS England negotiated five deals with five manufacturers to get a cheaper version of one of the most expensive drugs used in the NHS, adalimumab, used to treat rheumatoid arthritis.

A final control is the increasing use of national and regional procurement groups and a focus on medicines optimisation. These groups work together to coordinate medicines procurement. Groups work to streamline formularies (a list of products recommended for use often within a Trust or CCG area) across the country and look at the most cost-effective prescribing policies. To remain on formularies and recommended in prescribing policies, companies often have to adjust their prices.

What happens when the drug pricing mechanism doesn’t work?

Recent years have seen a number of situations where the drug pricing mechanism has failed and NHS patients have been unable to access certain drugs.

The failure in 2018/2019  to agree a price for Vertex’s Orkambi, to treat cystic fibrosis, resulted in many patients being unable to access what was the only treatment for this condition. Vertex was refusing to reduce its price for the product, which the NHS says it could not afford. Finally after protracted negotiations, NHS England announced in October 2019 that an agreement had been secured that would allow patients to be given the drug by the NHS.

As already noted, in other cases, generic manufacturers have taken advantage of a loophole that existed for generic product prices and priced the product so high that the NHS has restricted its prescribing. This has led to patients either not receiving the drug or buying overseas where the drug is much cheaper.

What will happen to drug prices post Brexit?

On 1st January 2021, the transition period ended and the UK was officially outside the EU. Mark Dayan, policy analyst and head of public affairs, Brexit programme lead, at the Nuffield Trust, wrote in his blog in March 2021 about the impact of Brexit on various aspects of the UK medicines and life sciences industries, including the potential impact on pricing. The impact could be substantial as by 2018, 75% of NHS medicines, and most clinical consumables, came from or via the European Economic Area.

The UK and EU are separate markets with respect to clinical trials approval, medicines authorisation, medical devices assessment, testing of batches, and every aspect of customs. Dayan notes that companies “will pay a price in paperwork and costs each time their operations cross between the two.”

When previously a company would have a plan for development and marketing of a product in the EU including the UK, these companies now have to come up with a separate plan for the UK. This is effectively adding more complexity and additional paperwork – there is a possibility, notes Dayan, that this could mean products are introduced later, or even not at all, or come with a higher price. 

Another target could be the UK’s rigorous cost effectiveness standards applied by NICE. These have received considerable criticism from pharmaceutical companies in the past and have led to protracted pricing negotiations in many cases, as already noted. 

Dayan notes that because there will still be costly barriers to imports into the UK, especially around customs and tax, there will be an incentive to attract new products by looking harder at these cost-effectiveness standards. Lobbyists and politicians might, according to Dayan, “push for looser cost effectiveness policies,” which would lead to the NHS paying over the odds for products  and “swallowing NHS funds that could have saved more lives elsewhere.” 


Dear Reader,

If you like our content please support our campaigning journalism to protect health care for all. 

Our goal is to inform people, hold our politicians to account and help to build change through evidence based ideas.

Everyone should have access to comprehensive healthcare, but our NHS needs support. You can help us to continue to counter bad policy, battle neglect of the NHS and correct dangerous mis-infomation.

Supporters of the NHS are crucial in sustaining our health service and with your help we will be able to engage more people in securing its future.

Please donate to help support our campaigning NHS research and  journalism.                              

Comments are closed.