Changes to medicines policy: what you need to know

Overview

Throughout 2025, tensions have grown between the life sciences sector and government because of negotiations on the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) and international trade talks with the US government. Industry has voiced concerns about the commercial medicines access environment and level of medicines spending in the UK as a total of health spending. These concerns have prompted some pharmaceutical companies to consider their UK investment, headcounts and partnerships with the NHS. 

Meanwhile, the government has sought to balance public finances while maintaining access to new treatments. The outcomes of both national and international negotiations are:

• a new trade deal on medicines with the US
• changes to NICE cost-effectiveness methodology, which will see an increase in medicines spending by the NHS
• a reduction in the VPAG rebate rate paid for by industry. 

Improving the pharmaceutical operating environment

The US-UK trade deal commits to improve the pharmaceutical operating environment in the UK, while preserving patient access.

On 1 December 2025, an agreement in principle between the US and UK on pharmaceutical pricing was announced. The deal sought to address challenges in the pharmaceutical operating environment in the UK. While the full details of the deal remain unpublished, we know that:  

• The US has agreed to exempt UK-origin pharmaceuticals, pharmaceutical ingredients and medical technology from Section 232 tariffs (imposed on imports that are deemed a threat to US national security) and will refrain from targeted UK pharmaceutical practices in any future section 301 investigations for the duration of the presidential term.
• This means that the UK will become the only country in the world to secure a zero per cent tariff on pharmaceutical exports to the US. This is expected to maintain investment and support the government’s aim, as set out in the Life Sciences Sector Plan, for the UK to become Europe’s leading life sciences economy by 2030. In turn, this could ensure patients have access to new innovative medicines on the NHS and that companies continue to choose the UK to launch new medicines.
• The deal will also secure preferential terms for the UK’s MedTech exports, meaning no additional new tariffs on MedTech. This aims to unlock further investments in the UK, in turn improving patient access to new innovations.
• The UK has secured mitigations under the US ‘Most Favoured Nation’ drug pricing initiative, to ensure patients in the UK continue to have access to the latest treatments. The ‘Most Favoured Nation’ initiative is a US government policy to lower the cost of medicines in the US to match prices in other developed countries.
• The government has committed to investing around 25 per cent more in innovative, safe and effective treatments – the first major increase in over two decades. Changes to NICE methodology will ensure that medicines that had previously been declined on cost-saving grounds may be funded.
• The US-UK trade deal also commits to changes to the VPAG scheme. In April 2025, a review of the scheme was announced after industry called for a solution to improve patient access to future innovations, expressing concern over the rebate rates for newer and older medicines. The DHSC has confirmed the 2026 VPAG repayment percentage for newer medicines as 14.5 per cent, which is a reduction of more than a third, from 22.9 per cent in 2025. Companies will also continue to pay an additional 1 per cent on top of the newer and older payment rates in 2026 as a pre-agreed voluntary contribution to support the industry-funded investment programme to improve the clinical trials and manufacturing landscape. Key drivers of this lower rate include falling costs from medicines going off patent, so that lower revenues can be absorbed by existing budget. Work will also take place between the Association of the British Pharmaceutical Industry (ABPI) and government to agree any future scheme.

Changes to NICE methodology will increase NHS medicines spending

To improve the environment for pharmaceutical companies operating in the UK, in line with the deal, changes to NICE methodology will increase how much the NHS is willing to spend on medicines. These are expected to apply to new medicines from April 2026, as well as some appraisals currently underway. NICE has suggested this will not impact appraisal timelines.

However, for any treatment currently undergoing appraisal that is not deemed cost-effective under current thresholds, where it could be cost-effective with the new thresholds, the topic will be paused until the new thresholds can be applied. To ensure cost-effectiveness comparison across treatment options, the increase in threshold is expected to be applied to all NICE evaluations (medicines, digital, MedTech and guidelines). Further clarity from government is expected on this point. There are two key changes:

1. NICE will increase the quality-adjusted life year (QALY) threshold from £20,000-£30,000 for each one additional year of perfect health (or an equivalent combination of additional life expectancy and health-related quality of life improvement) to new thresholds of £25,000 to £35,000 per QALY. 

This means that medicines previously not deemed cost-effective could now be approved for purchase by the NHS, so that a wider range of medicines are available to treat patients. While it does not necessarily mean the NHS will spend any more on the same medicines it already deems cost-effective and purchases, it is possible some existing medicines prices may rise having previously been held below price threshold.

As part of this change, the government is proposing to amend the National Institute for Health and Care Excellence (Constitution and Functions) and the Health and Social Care Information Centre (Functions) Regulations 2013 to grant a power to the Secretary of State for Health and Social Care to direct NICE with respect to the standard cost-effectiveness threshold that it uses in the development of its guidance. 

These changes would give ministers a limited power to set the relevant cost-effectiveness threshold through secondary legislation, while also enabling NICE to develop the methods it uses in its guidance. NICE would not be required to consult on any changes as a result of ministerial direction, which is a significant step change from current practice. This change would see greater government accountability for NICE and signals the potential of further cost-effectiveness changes in future. These changes are currently out for consultation until 13 January 2026. 

2. NICE will use a new value set for valuing health-related quality of life. This will be used alongside existing EQ-5D-5L questionnaires to assess health-related quality of life across mobility, self-care, usual activities, pain/discomfort and anxiety/depression. The responses are then converted into a value set number which comes from asking thousands of people to judge how good or bad different health states would be. These are then used by health decision-makers to compare different treatments. While the new value set has the potential to further impact the cost-effectiveness of medicines, uncertainty remains on this until implemented.  Following peer review of the value set in the first half of 2026, NICE will launch a consultation on changes to the methods manual including this new value set. 

Analysis – how could this impact the NHS?

These changes are intended to ensure that patients have access to the latest treatments and devices, and the UK remains competitive on the global life sciences stage. However, they also have implications for NHS leaders owing to the increased number of medicines being approved by NICE increasing spending at a time of pressure for the system. The availability of more new medicines could also increase demand on health services, subject to the types of medicines being approved.  

While the financial impact of increased spending is unlikely to be immediate, members will be concerned that there will not be additional funds for the NHS to cover the expected medicines spending increase of £1.5 billion, and any further increases in future.

This will instead need to be found in the money allocated in the 2025 Spending Review, which includes commitments of up to £10 billion investment in NHS technology and digital transformation by 2028/29. Further clarity is needed on where this money will come from, and how cuts to frontline services will be mitigated. NHS England has suggested initial spending increases can be funded from existing budgets, but additional funding would be needed in 2028/29.

The NHS budget in England is under significant pressure from rising demand, coupled with ongoing strike action. We are concerned that any increase in medicines spending that is funded within existing planned NHS budgets presents risks to the quality of services to patients, could result in difficult decisions about what the health service needs to cut back on and could have implications for the delivery of the government’s three shifts for the NHS. This includes the analogue to digital shift where additional Spending Review funding was confirmed. 

Should additional medicines spending have to be funded from existing NHS budgets, this could risk some services having to be cut back. If this affects services that give patients access to medicines, it could also have a knock-on impact for the pharmaceutical industry with increased variation in uptake. 

With the potential of increased ministerial direction to NICE to change cost-effectiveness thresholds in future, there is also concern that this could be the start of further medicines spending increases.

In terms of increasing patient demand for treatments, it is estimated that the threshold increase will allow an additional three to five medicines to be recommended each year. The cost impact, while subject to the types of medicines being approved, is estimated to result in an increase in medicines spending as a percentage of GDP from 0.3 per cent to 0.35 per cent, which accounts to £1.5 billion by the end of 2028.  

NICE currently recommends 91 per cent of the medicines evaluated which equates to approximately 70 a year. It should be noted that of those approvals, in 2024/2025, just under half (43 per cent) were optimised restricting access to narrower patient populations than those described in a medicines marketing authorisation and uptake of NICE-approved medicines is variable. 

While NICE has set out clear timelines for the implementation of these changes, subject to public consultation, questions remain over the organisation’s capacity to manage increased medicines approvals alongside implementation of 10 Year Health Plan commitments, including an expansion of the technology appraisal process to cover devices, diagnostics and digital products. 

Alongside NICE capacity, this announcement comes at a time of financial and capacity pressure and shifting medicines optimisation responsibilities across the system. With medicines already the second highest area of NHS spending after staffing, prior to these increases and variation in uptake of NICE-approved medicines, medicines optimisation functions have an important role to play in ensuring the best outcome for patients and the best value for the taxpayer, however they are experiencing changes. 

We know from our State of ICSs report that integrated care boards (ICBs) are concerned about the impact of ICB cost reductions on the delivery of medicines optimisation functions, with some responsibilities expected to be transferred to providers over time, and integrated care systems retaining strategic oversight as part of their strategic commissioning responsibilities. We will work to ensure the views of NHS leaders, who will have a role in implementing these changes, are reflected in upcoming consultations.

A further area requiring consideration is the decision to reduce the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) rebate rate to 14.5 per cent in 2026, from a 2025 rate of 22.9 per cent. The VPAG scheme ensures the NHS does not overspend its allocated branded medicines budget, with the pharmaceutical industry committed to returning NHS overspend in the form of sales rebates which are paid to the Treasury. 

The VPAG scheme also includes an investment programme enabled by £400 million of additional industry funding to improve aspects of the UK life sciences ecosystem including horizon scanning, medicines manufacturing and building clinical trials capacity.

The planned reduction in the rebate rate means that industry will pay back less when it exceeds the allocated VPAG allowed growth level. While this puts the UK life sciences sector in a more competitive position to attract investment, there has been limited public assessment on the impact this could have on the NHS. The intention of this reduction is to make the UK a more attractive destination for clinical trials, manufacturing investment and the early launch of new medicines. 

The government has stated that the lower rate can be achieved as a result of falling costs, including from medicines going off patent allowing for new generics and biosimilars to be available to patients on the NHS. Exact detail on the cost implications of this rebate reduction is not yet available and we will be pressing the government for clarity. 

Finally, the decision introduces a new value set for valuing health-related quality of life. This is welcome but uncertainty remains on how this may further impact the cost-effectiveness of medicines. There are questions over whether this goes far enough, particularly where medicines may have wider impacts, such as saving money by avoiding downstream demand or by getting people back in to work. 

For too long, the focus on the value of medicines has been on its net cost and not the wider value a health intervention can bring to patients, society and the health system, particularly for the long term. These factors should be important considerations when considering the value of an innovation and ensuring maximum value is being realised for every pound spent. This new value set, alongside the 10 Health Year Plan, Life Sciences Sector Plan and review of the VPAG scheme, present an important opportunity to reconsider how medicines are valued. 

How we are supporting members

• Throughout both national and international negotiations, we have consistently called for clarity on how any increases in medicines spending will be funded. We will continue this work through both our policy and external affairs work, raising the unanswered questions, including the assessment the UK government has made of the impact of rising medicine prices on the NHS and engaging with national payers and policy leaders to ensure the views of health leaders, who will be responsible for absorbing much of these changes, are heard.
• We are working on a new project to support the uptake of existing NICE guidance to ensure the benefits of treatments are fully realised and systems are supported to reduce variation in medicines uptake.
• We will also be responding to the DHSC consultation on changes to NICE regulations cost-effectiveness threshold, to ensure the views of NHS leaders are represented within this consultation.