The government and pharmaceutical companies have agreed a new ‘breakthrough' five-year deal that will introduce a fixed limit on NHS spend on branded medicines.
The Department of Health (DOH) said the deal will allow the NHS to increase the availability and use of the "best branded medicines and most innovative treatments without risking a spiralling bill for the taxpayer."
NHS spending on branded medicines reached more than £12bn in 2011/12.
Under the changes, spending will remain flat for two years, followed by small increases of less than 2% in the following three years, marking a "significant saving for the taxpayer."
The previous agreement generated savings through an agreed price cut on branded medicines sold to the NHS but with no upper limit on overall cost.
However, under the new changes the bill for branded medicines will now grow at an agreed level. The NHS will spend up to the agreed amount and any cost above that level will be absorbed by the pharmaceutical industry.
The new pricing deal was reached through negotiations between the Department of Health and the Association of the British Pharmaceutical Industry (ABPI) on the Pharmaceutical Price Regulation Scheme (PPRS). This is a voluntary scheme which is usually negotiated every five years.
The current voluntary pricing scheme, the 2009 PPRS, comes to an end on 31 December 2013 and the new arrangements will be introduced from 1 January 2014.
Jeremy Hunt, health secretary said: "This agreement ensures NHS patients will receive the best and most advanced medicines in the world while managing the cost.
"UK pharmaceutical companies have responded to the challenges we face as a country, both in terms of the increased demand for medicines and pressure on public spending. I hope in return we have given them the certainty and backing they need to flourish as a sector both here and in the global market."
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