A U.K. government proposal to raise mandatory rebates that drug companies are required to pay to bolster the National Health Service has sparked criticism from an industry trade group, which argues the move will undermine efforts to make life sciences a key pillar of the economy.
At issue is a program called the statutory scheme, which was created several years ago and is one of two initiatives in which the government uses rebates to cap the cost of brand-name medicines for the NHS. However, the programs have grown controversial, partly because the rebates had historically been in the single-digit percentages but rose sharply during the Covid-19 pandemic.
Medicines represent the second highest proportion of NHS spending, and were worth approximately $27 billion in England in the 2023 to 2024 financial year, $18.6 billion of which was on spent brand-name medicines, according to the government. Price control schemes are used to cap the cost of brand-name medicines, but prices of generic drugs are usually left to the marketplace.
Now, though, the government again wants to raise the rebates in the statutory program from 15.5% to 32.2% of sales for medicines in the second half of this year. In explaining its proposal, the Department of Health & Social Care pointed to sales data from the second and third quarters in 2024 showing higher-than-expected sales growth for newer medicines.
If approved, the mandatory rebate owed by drug companies would effectively reach 23.8% over the course of this year. This is roughly in line with the 22.9% rebate for a comparable voluntary program, which is negotiated with the government by the Association of the British Pharmaceutical Industry. If companies opt of the voluntary program, they are added to the statutory scheme with mandatory rebates.
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“Not proceeding with the proposed updates risks the integrity and stability of both schemes, which would likely negatively impact the certainty of NHS expenditure on medicines, as well as creating a volatile commercial and investment environment for pharmaceutical companies,” the Department of Health & Social Care said in outlining its proposal.
An ABPI spokesman explained that companies are asked to decide whether to opt in or out of the voluntary program each October without knowing the upcoming rate, because rates are negotiated in December. This makes it difficult for companies to determine which program to choose when forecasting sales and rebate expenses.
“This is why the (government) rate forecasts are so important and why people are agitated that they were so wrong for 2025” and are now boosting the rate for the statutory scheme, he said. The government attempts to keep the two schemes broadly similar, but the statutory scheme can be updated at any time, although legislation is required to formalize changes.
The spokesman added that most drug companies choose the voluntary program, but rebate hikes in recent years have prompted some to switch to the statutory scheme with its mandated rates. The trade group estimated that only about 2% of all branded medicines are currently subject to the statutory scheme because the voluntary program generally has better terms and slightly lower rebate rates.
The average statutory payment rate between 2019 and 2022 was 10.6%, but jumped to 27.5% in 2023, according to the trade group, which maintained that the sudden boost for the statutory program set a new record for rebate programs in the U.K. The industry organization argued the hike is evidence that the prescription drug market is “fundamentally broken.”
“We need an urgent ministerial commitment to work with industry to get the U.K. back to an internationally competitive position,” said ABPI chief executive Richard Torbett in a statement. He pointed out that comparable sales rebate rates in Germany (7%), Ireland (9%), and France (12%), and show that “the U.K. is outside international norms with its policy.”
The trade group further argued that limited government spending on brand-name medicines at levels far below what is needed by the NHS has led to “long-term disinvestment in medicines.” Meanwhile, cost for pharmaceutical companies have increased “exponentially,” a reference to industry arguments that expenses for drug discovery and development increase on a regular basis.
For its part, the Department of Health & Social Care attempted to acknowledge the concerns. In announcing its latest rebate, government officials noted a need to provide “predictability” and, toward that effort, will incorporate new data. For now, they indicated that rebate rates for the statutory program will be set at 24.7% next year and then increase to 26.4% in 2027.
