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 branded medicines, climbing from 15.5% to 32.2% in the second half of 2025. This increase, coupled with the new 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 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, which applies to companies who choose not to join the voluntary scheme. The Statutory Scheme acts as a backstop. While in principle VPAG is a voluntary scheme, companies who choose not to join, are automatically covered by the Statutory Scheme instead.
It is important to note that both VPAG rebates and Statutory Scheme payment rates are calculated based on a branded medicine’s reference price and revenue sold to the NHS, not its profits. This distinction means companies bear significant financial burdens regardless, disproportionate to profitability.
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 headline VPAG payment 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, and after factoring in ‘older medicine’ payment rates, they may withdraw some medicines from the UK market as it’s no longer viable to sell them to the NHS at their current price. In the long term, this could hinder patient access to medicines, create supply issues or lead to price increases for the NHS over time.
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.
Patient outcomes in the UK already lag behind other developed nations, particularly in treatable mortality rates, showing the strain that underinvestment in medicines can bring.
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.
ABPI’s new report published – ‘Delivering a Voluntary Scheme for Health and Growth’
The ABPI’s latest report, ‘Delivering a Voluntary Scheme for Health and Growth’, published on 20th March 2025, highlights the urgent need to reform the VPAG and Statutory Scheme frameworks. The report underlines how the current system’s rebate levels deter investment in UK life sciences and threaten the government’s ambition to make the UK a global leader in healthcare innovation. It is supported by leaders of many pharmaceutical companies operating in the UK.
Key insights from the report include:
The rebate on medicines increased from £600–£800 million annually to £3.4 billion in 2025. This rise represents a significant financial burden for the industry and highlights flaws in the system.
The UK is now out of line with international norms, with VPAG and Statutory Scheme payment rates of 23.5%–32.2% compared to countries like France (5.7%) and Germany (7.0%).
Economic consequences: Industry analysis shows that UK clinical trials have fallen from 4th globally to 10th. Such losses could cost the economy £3 billion annually in terms of gross value added (GVA).
The report proposes solutions to create a mutually beneficial system:
- Align medicines spend with NHS budget increases to stabilise funding and avoid drastic rate hikes.
- Reduce rebate rates to levels comparable to other European countries, making the UK a more attractive market.
- Introduce a growth pact that combines rebate reductions with incentivisation for increased clinical trial volume in the UK.
The findings underscore the need for a predictable, sustainable pricing model that fosters collaboration between the government and the pharmaceutical industry to drive growth and innovation.
A Biopharma meeting with the Prime Minister on 2nd April suggested that a review of VPAG will be brought forward to June. This is an encouraging sign that the government is taking the industry’s views seriously and that there may be more positive news soon.
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.