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Earl Howe: My Lords, I am grateful to the Minister for that very helpful answer. It was, of course, intended to be a probing amendment; I did not intend to press it in any way. Nevertheless I have the feeling that the more distant NHS money becomes from the NHS, by definition the more distant it becomes from what is normally understood by "healthcare". Having said that, I recognise the need for flexibility and the need to break down artificial barriers. I also appreciate what the noble Lord said about the safeguards that will be built into the system. It has been an extremely helpful short debate and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Clause 26 [Powers relating to voluntary schemes]:

Baroness Hayman moved Amendment No. 54:

Page 20, line 44, after ("section") insert ("and sections 27 and 28").

The noble Baroness said: My Lords, we now turn to that part of the Bill, Clauses 26 to 31 and Clause 48, concerned with the purchase of NHS medicines. There are a large number of amendments to deal with and I apologise for the length of what I am about to say. I hope to clarify the government amendments and to speak also to the amendments tabled by noble Lords.

The overall purpose of the government amendments is to give greater clarity to our intentions for pharmaceuticals and the purchase of NHS medicines and to meet the concerns which were expressed in Committee and in the report of the Delegated Powers and Deregulation Committee.

Amendments Nos. 54, 55, 56, 58 and 59 make clear on the face of the Bill which of Clauses 26 to 31 apply to which manufacturer and supplier and under what circumstances. There was some debate about this in Committee.

Clause 26 gives the Secretary of State powers exercisable only in relation to those companies which are party to the voluntary scheme. These amendments to that clause add to the definition of the conditions to be met by suppliers and manufacturers who choose to be members of the voluntary scheme. They also make explicit the ways in which such membership will be handled in cases where a scheme member appears not to be complying with the scheme. If the Secretary of State decides that a supplier or manufacturer is not abiding by the terms of the voluntary agreement, he will write to that supplier or manufacturer giving reasons for his decision. The supplier or manufacturer will have the opportunity to respond and the Secretary of State will consider the response and reply with his decision. The importance of these changes becomes clearer when we look at the two amendments to Clauses 27 and 28.

Clause 27 replaces the power of Section 57 of the 1977 Act to limit the prices of medicines bought by the NHS. This clause is widely drawn because it is difficult, maybe impossible, to envisage all the circumstances when such an action might need to be taken. But, in all cases, the Secretary of State is obliged to consult with the industry body before embarking on any such action. A concern expressed in Committee was that Clause 27 might be applied to suppliers and manufacturers who were members of the voluntary scheme. That was never the intention of the Government. We wish to proceed, as I have said many times before, by co-operation and agreement with the pharmaceutical industry in this and to find a solution which recognises both the interests of the NHS and those of the industry and deals fairly with both. This amendment fulfils our commitment to a voluntary scheme and makes it explicit that those companies who are members of that voluntary scheme shall not be subject to the powers conferred by Clause 27.

Clause 28 allows the Secretary of State to make a statutory scheme. The application of a statutory scheme is the alternative to a voluntary scheme. It would apply generally if a voluntary agreement with the industry is not reached or specifically to companies which, for

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whatever reason, chose not to be members of that voluntary agreement. In Committee it was said that Clause 28 could be read to imply that the Secretary of State could apply a statutory scheme to those companies which were abiding by the terms of the voluntary agreement. This was not our intention and the proposed amendment to Clause 28 underlines that by giving explicit exemption to those companies which are members of the voluntary scheme.

The two amendments, Nos. 56A and 67A, tabled by the noble Earl, Lord Howe, have effects which are quite undesirable. The first amendment would add to the circumstances which could give a right of appeal. The appeal provisions recognise the recommendations of the Delegated Powers and Deregulation Committee in connection with the statutory scheme and the statutory provisions connected to the voluntary scheme to make provision for an appeal against a decision by the Secretary of State regarding the control of prices or profits, or the disclosure of information, to an independent tribunal.

The decision under appeal would be that the voluntary scheme was not effective in the company's case because of its conduct. But this is a voluntary scheme. It is based on co-operation and agreement between the Secretary of State and a supplier or manufacturer. Whether there is agreement between those two parties is surely a matter easily determined by the actions of the involved parties. If they cannot agree that they are in agreement, then I suggest that the agreement has failed and both parties have an equal right to leave it. This is not a matter for appeal on one side and not the other. We have made provision which provides for the position where a company is seen not to be complying with the voluntary scheme. The Secretary of State must inform the company formally of that view and take into account the company's response. Further, in his final response the Secretary of State must give his reasons; and, as always, he must act reasonably. I would expect--and I say this in no way to prejudge the outcome of the current negotiations with the Association of British Pharmaceutical Industry--that the voluntary arrangements will contain an agreed mechanism to allow for the resolution of dispute between companies and the Secretary of State. All this adds up, I would say, to more than sufficient protection. Perhaps noble Lords might consider the position were the Secretary of State to be given a parallel right of appeal against a company's decision that it was no longer a member of the voluntary scheme. Were he successful on appeal, the company would be forced to comply with a voluntary agreement. I suggest that that is a nonsense and that we should not go down that route as far as the companies are concerned.

The second amendment would place the Secretary of State in a potentially very interesting position. Under the proposal, the Secretary of State is only entitled to decide that the voluntary scheme ceases to apply to a company if that company increases the prices of health service medicines without approval or fails to record, keep and supply information needed for the voluntary scheme. I remind noble Lords that the voluntary scheme is

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intended to deliver medicines to the NHS at reasonable prices by having regard to the profits made from their sale by a supplier or manufacturer. This amendment would allow a company to make excessive profits, refuse to make an appropriate payment to the Secretary of State and still remain a member of the voluntary scheme. That cannot be right.

The cumulative effect of these five government amendments is to bring some extra clarity to the Bill. They confirm our commitment to a voluntary scheme and protect the position of those companies which are members of that scheme: they will not be subject to any of the powers conferred by Clauses 27 and 28. In Committee, the noble Earl, Lord Howe, said that the enactment of new compulsory powers of price and profit control which could operate indiscriminately against saints and rogues alike was inappropriate. I believe that we have divided the saints from the sinners by these amendments and I hope that the noble Lord will accept that.

As I have just said, in dealing with the industry it is our hope that we may continue through co-operation and voluntary agreement. To this end negotiations are currently taking place with the Association of British Pharmaceutical Industry. But the Bill allows for two further eventualities: first, where a voluntary agreement is not reached--although I think that unlikely--and, secondly, where a voluntary agreement is reached but one or more companies do not abide by its terms. Amendments Nos. 63 and 64 deal with this area.

Clauses 27 to 31 enable the Secretary of State to deal with these two cases in a way which is equitable, both to the industry and to the NHS. Our intention that companies who abide by the terms of the voluntary scheme will be unaffected either by the alternative statutory scheme or by price controls has also been made explicit on the face of the Bill through earlier amendments. Clause 27 allows the Secretary of State to limit any price which may be charged by any manufacturer or supplier for the supply of any health service medicine after consultation with the industry body. That power would apply only in the absence of a voluntary scheme or in the case of suppliers and manufacturers not complying with a voluntary scheme. Amendments Nos. 63 and 64 to Clause 29 mean that the Secretary of State must consult the industry body before making any provision to enable and facilitate the introduction of such a price limitation. This requirement to consult also applies to the amended Clause 29(2) which extends the requirement to record, keep and provide information to the Secretary of State. I hope that these amendments will be welcomed by the House.

The extensive Amendment No. 67 deals with several concerns expressed so far throughout the passage of the Bill and by the Delegated Powers and Deregulation Committee. In its consideration of Clauses 26 to 29 the committee concluded,

    "that, as presently drafted, the power of the Minister to give directions is not circumscribed by sufficient safeguards that this power will only be used in an appropriate manner. In taking powers to ensure that prices are fair and reasonable to the NHS and to companies, the Government has an obligation to ensure that those powers are of themselves fair and reasonable. We invite the House to consider amending the Bill to make provision for an appeal

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    against a decision by the Secretary of State regarding the control of prices or profits, or the disclosure of information, to an independent tribunal (either on the face of the Bill or by way of a requirement to provide an appeal in the regulations), in a process which is speedy and as open as commercial confidentiality allows".
In our debate at Committee stage the noble Earl, Lord Howe, pointed to the extra advantage of providing a mechanism for the swift resolution of disputes between companies and the Department of Health which an appeal system would afford. That point is well taken. The existing PPRS lacks such a mechanism and that has been one of its weaknesses.

The noble Earl also spoke of his concerns in connection with the Secretary of State's power to require companies to provide any information which the Secretary of State required for the purpose of enabling the scheme to operate. The problem was that on the face of the Bill the Secretary of State seemingly had the power to require any information. I offered my assurances to the noble Earl that the voluntary scheme itself would determine what was required for its effective operation and we intended that the information required would be in the voluntary agreement that we sought to reach with the industry. I recognised that Clause 26(3) was wide in terms of the information that could be sought and, with the permission of the Committee, took the matter away for further consideration. Amendment No. 67 has been drawn to meet the recommendations of the Select Committee and the concerns expressed at Committee stage. It will enable the Secretary of State to provide for a right of appeal by an affected supplier or manufacturer against decisions of the Secretary of State specific to a particular supplier or manufacturer to require information, to limit any price or profit, to refuse his consent to a price increase, or to pay any amount by way of excess profits, prices or penalties. An appeal will represent a very considerable additional safeguard to members of the pharmaceutical industry covered either by the voluntary arrangements or the statutory scheme.

The addition of subsection (4D) in this amendment requires some explanation. It provides:

    "A requirement or prohibition, or a limit, under Sections 26 to 29 may only be enforced under this section and may not be relied on in any proceedings other than proceedings under this section".
A concern of the pharmaceutical industry has been that the effects of either a voluntary agreement or a statutory scheme may inadvertently go wider than intended and enable third parties to seek recovery of excess prices. This matter was aired at Committee stage by the noble Earl, Lord Howe, and the noble Lord, Lord Clement-Jones. It is agreed that the intention of either a voluntary agreement or a statutory scheme is clear: to ensure that the prices paid by the NHS for its medicines are fair and reasonable. There is no reason to extend this requirement beyond the proper business of the NHS. It is certainly not the business of the NHS to influence the prices paid by third parties for their medicines, although in view of earlier debates perhaps the noble Earl believes that we should also meddle in that. An amendment refining the definition of a health service medicine was suggested and I said then that I was unsure whether it was appropriate or that it should be on the face of the Bill. We have now decided that an

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explicit statement to the effect that the operation of Clauses 26 to 29 shall have no effect beyond the operation of Clause 30 is the best way to proceed. I am confident that this will remove the problem to which I referred.

Amendment No. 100 to Clause 48 takes account of another recommendation of the Delegated Powers and Deregulation Committee. Clause 30(6) provides for an increase in financial penalties arising from contraventions under Clauses 26 to 29. At Committee stage the noble Earl thought it wholly wrong for Parliament to give a blanket power to the Secretary of State to enable him to set any amount as a penalty. That sentiment was strongly endorsed by the noble Lord, Lord Clement-Jones. I agree. Therefore, this amendment ensures that the Secretary of State cannot proceed in these matters other than with the approval of Parliament. We hope that these measures will be used infrequently over the lifetime of the Bill. Nevertheless, it remains sensible to circumscribe the use of Clause 30(6) in this explicit way.

At Committee stage the noble Earl also suggested an amendment so that there should be consultation with the industry body about the regulations to impose penalties payable because of non-compliance by a company. I said at the time that it was entirely proper that the industry body should be consulted over matters of detail relating to the sales of medicines to the NHS but that the amendment as proposed might not be the best way of extending the consultation process. Amendment No. 68 accommodates the purpose of the noble Earl's amendment and makes the matter explicitly clear: the Secretary of State must consult the industry body before making regulations under Clause 30.

Clause 31 deals with the way in which the Secretary of State is to exercise the powers conferred in earlier clauses. Subsection (1) allows the Secretary of State to make regulations and issue directions. Amendments Nos. 69, 70 and 71 by introducing and defining "specific" make it clearer that directions are specific to an individual supplier or manufacturer in contrast to regulations which are general. Amendments Nos. 75 and 76 separate the existing composite definition of what is meant by the term "health service medicine". The definition incorporates the words "medicinal product" with the meaning of those words by reference to Section 130 of the Medicines Act 1968 being given in brackets. Instead, they would be defined in a free-standing definition. The amendments incorporate no change of meaning.

I turn next to Amendments Nos. 72 and 73. At Committee stage the noble Baroness, Lady Sharp of Guildford, moved an amendment to ensure that any statutory scheme of price regulation that was introduced took account of the importance of research and development in that industry. The importance of the pharmaceutical industry and nurturing its research and development capacity was a recurring theme of our debates. Certainly, it is not an area in which I wish to disagree with the central importance of that point. Amendments Nos. 72 and 73 are tabled to make clear on the face of the Bill that the costs of research and development are an important component of reaching a

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decision on the reasonableness of prices. I believe that the amendments as worded meet what was asked in the noble Baroness's amendment and reassure both this House and the pharmaceutical industry that the Government understand and value the importance to the NHS as a whole of research and development.

I turn to Amendment No. 73A. I understand what the noble Earl has in mind with his amendment: to make clear that the Secretary of State in exercising powers under Clauses 27(a), 28(1) and 28(6)(a) must have regard to the right of suppliers and manufacturers to make a reasonable profit from business with the NHS. But I suggest that Clause 31(4) shows that the Secretary of State must already act by

    "reference to the prices or profits which would be reasonable in all the circumstances".
I hope that the noble Earl agrees that the point is therefore covered and that it is unwise to add words to legislation that do not bring to it any new meaning or add to clarity. With my apologies for the length of my remarks, I commend these government amendments to the House.

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