UK Drug Rebate Rise and VPAG: A perfect storm for Pharma
Introduction
The UK's pharmaceutical industry is bracing itself for a significant shake-up. The government has announced a substantial rise in the Statutory Scheme payment rate for newer branded medicines, climbing from 15.5% to 32.2% in the second half of 2025. This increase, coupled with the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG), could create a ‘perfect storm’ for pharma companies selling into the UK marketplace.
What do the changes mean for pharmaceutical companies, and why are they being made?
Voluntary or statutory
For years, the pharmaceutical industry has operated under two parallel mechanisms in the UK for branded medicines sales to the NHS:
- The Statutory Scheme, which applies to companies not choosing to join the voluntary alternative.
- The Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG), a collaborative agreement between the government, NHS England, and pharmaceutical companies represented by the ABPI.
The Statutory Scheme rate has evolved over recent years. The average payment rate between 2019 and 2022 was 10.6%, but it spiked to 27.5% in 2023. The newly proposed 32.2% cap will result in an average of 23.8% across 2025, aligning it with the VPAG rate of 22.9% for the same period.
This rise is a significant departure from international norms. Comparable schemes in countries like Germany, France, and Ireland range from 5.7% to 12%, placing the UK at the upper extreme.
Why are these changes happening?
The UK government argues that these increases are essential to align the Statutory Scheme with the VPAG rates, ensuring that the two remain "broadly commercially equivalent." The goal is to manage branded medicine expenditure rigorously while keeping pharmaceutical companies engaged with the UK health system. However, critics, including the ABPI, argue this approach jeopardises investment in life sciences and contradicts government ambitions to position the UK as a global leader in healthcare innovation.
A new era with VPAG
The introduction of VPAG in 2024 marked a shift from its predecessor, VPAS. The new scheme brought a detailed methodology for calculating industry rebates:
Product-by-product assessment: Medicines are classified as "New Active Substances," "Newer Medicines," or "Older Medicines," each with distinct rebate and exemption criteria.
Small and medium-sized companies: To encourage smaller players in the market, exemptions or reduced rates are granted to companies with sales under £30 million.
Focus on Innovation: New Active Substances within 36 months of authorisation are exempt from rebates to incentivise rapid market introduction.
These changes aim to maintain NHS sustainability and improve access to innovative medicines. However, the higher payment rates and complexity in rate calculations could present challenges for pharma companies trying to manage their portfolios effectively.
The impact on Pharma companies
The ABPI has labelled the UK market as "fundamentally broken," citing the extreme scale of the payment rates and their detrimental effects on the sector. The association argues that these measures are unsustainable and could deter future investment in UK life sciences.
Implications for Business Strategy
Financial strain: Pharmaceutical companies are facing escalating rebate costs, which for many will mean significantly reduced profits and result in re-evaluations of market strategies.
Reduced investment: High rebate rates may lead companies to prioritise other global markets with lower pricing controls and better return on investment potential.
Portfolio optimisation: Businesses may focus more acutely on new active substances that are exempt from payments or adjust supply strategies for older medicines to minimise liabilities.
Considerations for the NHS
While the NHS benefits from reduced expenditure on branded medicines, this short-term win might come at the expense of long-term innovation and the availability of cutting-edge treatments for patients. The UK already spends only 9% of its healthcare budget on medicines, compared to France’s 15% and Germany’s 17%.
Understanding the drug rebate rise
The rise in drug rebates, combined with the complexities of VPAG, paints a challenging picture for the pharmaceutical industry:
The Statutory Scheme rate is unprecedentedly high, and further increases are projected, reaching an estimated 26.4% by 2027.
VPAG attempts to foster innovation and balance NHS predictability with industry interests, but the concessions may not be enough to offset rising costs and tighter margins.
One way to address this issue lies in what the ABPI terms the "fourth shift" in the NHS's 10-year plan. This shift calls for a recalibration in how the UK views and invests in innovative medicines and vaccines—not as an expense but as a vital asset. Medicines and vaccines hold the potential to prevent disease, enable early treatment, and deliver better outcomes, directly supporting the other three shifts of moving care from hospital to community, transitioning from analogue to digital systems, and prioritising prevention over treatment.
Embedding this fourth shift may allow the development of an NHS that meets future demands, improving access to cutting-edge treatments while positioning the UK as a global leader in healthcare innovation.
Moving forward with confidence
Despite the challenges, there are opportunities to thrive in the evolving UK pharmaceutical market. That’s where CHASE comes in.
Our bespoke insights service delivers in-depth analysis and strategic guidance, helping pharmaceutical companies navigate the complexities of the UK marketplace. From optimising your portfolio to identifying key market opportunities, we can provide the insight you need to succeed in the UK healthcare landscape.
Contact us to learn how we can help you adapt to a rapidly changing environment while achieving sustainable growth in the UK pharmaceutical market.