England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
(Mr Justice Turner)

		Royal Courts of Justice Strand, London, WC2A 2LL
		6th November 2002

Lord Justice Simon Brown:

1. On 10 June 1999 the respondent Secretary of State made Regulations under powers conferred on him by the National Health Service Act 1977 restricting the circumstances in which certain drugs, most notably the appellants product sildenafil (Viagra), can be prescribed on the NHS for the treatment of erectile dysfunction (impotence). The effect of the restriction was to limit such prescriptions to those already being treated for impotence prior to September 1998, those suffering also from certain specified medical conditions, and those being treated by hospital specialists. Having promised to review this policy after a year, the respondent on 11 December 2000 began a full consultation process. On 10 October 2001, following that consultation, the respondent decided to maintain the same policy, a decision further explained in letters dated 18 January and 27 March 2002. On 4 January 2002 (just, therefore, within three months of the decision of 10 October 2001) the appellant’s sought judicial review to challenge the decision. That application was heard inter partes by Turner J on 18 April 2002 and refused. It was refused both on the merits and on the ground of delay. Laws LJ on 23 May 2002 “consider[ed] the applicant’s substantive points to be arguable, though difficult”, but adjourned the application rather than grant permission so as to leave open the delay point to be argued before the Full Court, ordering that if permission were granted the substantive judicial review should follow before the Full Court.
2. Having heard Mr Pannick QC’s argument on the merits we found it unnecessary to hear argument on delay or, indeed, argument from Mr Beloff QC on either point; rather we indicated that, in order not to shut out any attempt to take this challenge still further, we proposed to treat the application as an appeal and to dismiss it. What follows are my reasons for doing so.
3. The basis of challenge is Article 7 of Council Directive 89/105/EEC (the Transparency Directive as it is often called) which so far as material provides:

“Article 7

The following provisions shall apply if the competent authorities of a Member State are empowered to adopt decisions to exclude individual or categories of medicinal products from the coverage of its national health insurance system (negative lists).

1. Any decision to exclude a category of medicinal products from the coverage of the national health insurance system shall contain a statement of reasons based upon objective and verifiable criteria and be published in an appropriate publication.

2. Before [31 December 1989], Member States shall publish in an appropriate publication and communicate to the Commission the criteria which are to be taken into account by the competent authorities in deciding whether or not to exclude an individual medicinal product from the coverage of the national health insurance system.

3. Any decision to exclude an individual medicinal product from the coverage of the national health insurance system shall contain a statement of reasons based on objective and verifiable criteria. Such decisions, including, if appropriate, any expert opinions or recommendations on which the decisions are based, shall be communicated to the person responsible, who shall be informed of the remedies available to him under the laws in force and the time limits for applying for such remedies.

4. …”

4. The criterion notified by the United Kingdom to the Commissioner pursuant to Article 7.2 (albeit nearly ten years late) was this:

“A medicinal product or a category of medicinal products may be excluded entirely from supply on NHS prescription. It may alternatively be excluded except in specified circumstances, or except in relation to specified conditions or categories of condition, or specified categories of patient. A medicinal product or a category of them may be so excluded where the forecast aggregate cost to the NHS of allowing the product (or category of products) to be supplied on NHS prescription, or to be supplied more widely that the permitted exceptions, could not be justified having regard to all the relevant circumstances including in particular: the Secretary of State’s duties pursuant to the NHS Act 1977 and the priorities for expenditure of NHS resources.”

5. As I understand the appellants’ argument (see particularly paragraph 22(3) of Mr Pannick’s skeleton argument) they take no issue with the criterion but only with its application. Let me at once, therefore, quote what is relevant from the decision letter itself and the further letters expanding on its reasons.
6. The respondent’s letter of 10 October 2001:

“As you know the current system was introduced in 1999 to get a balance between treating men with impotence and protecting NHS resources to deal with other priorities including those with cancer, heart disease and mental health problems. Expenditure on impotence treatment drugs, at £25m a year, is above what we expected and continues to increase. I have concluded that the extra cost of allowing unrestricted prescribing might be many times higher and might involve diversion of funds from other NHS priorities.”

7. The respondent’s letter of 18 January 2002:

“… our best estimate is that the additional cost of removing the restrictions could be as high as £100 million, taking the total cost to around £125 million a year …

Degree of clinical need

It is true that my Department has always accepted that erectile dysfunction can be a distressing condition for men and their partners. The Standing Medical Advisory Committee did indeed make reference to a need for equity of access for these treatments, but they also commented that the diagnosis of erectile dysfunction depends on self-reporting and that there are no practical and reliable means of measuring severity objectively. The Committee also commented that some men and their partners tolerate severe erectile dysfunction well. On the basis of this advice Ministers concluded that it would be difficult to target treatment on those men most seriously affected without prejudicing our wish to restrain unmanageable pressures on NHS resources.

…

The broad balance of benefit and cost and effective use of available resources

We accept that sildenafil is effective and that it might achieve a relatively favourable cost per Quality Adjusted Life Year. However, as you know, the National Institute for Clinical Excellence was established to provide guidance to the NHS on the clinical and cost effectiveness of treatments. In this case, the issue is not clinical or cost-effectiveness but relative priorities for the use of NHS funds. We decided that it was not appropriate to refer the treatments to NICE. Arguments based on the criteria for referral of topics to NICE are therefore irrelevant to this case.”

8. The respondent’s final letter of 27 March 2002:

“As you know, the diagnosis of erectile dysfunction depends on self-reporting, and there are no practical and reliable means of measuring severity objectively. This means that it is difficult to target treatment on those men most severely affected, and that controlling the cost of treatment for erectile dysfunction on the NHS poses particular problems, which may not apply to other conditions. NHS funds are not unlimited. If £125 million is spent every year on treatment of impotence, money will necessarily be diverted from the treatment of other conditions.

The Secretary of State has made a judgment that the forecast levels of expenditure on impotence treatments cannot be justified, having regard to the resources available to the NHS, and the priorities for their expenditure, and has accordingly sought to restrict the cost to the NHS to an affordable level.

This exercise does not involve the artificial ‘relative assessment’ or ranking of NHS priorities for all ‘non-life threatening conditions’, contrary to the assumption underlying your letter. Nor is any such ranking of NHS priorities required as a matter of domestic or EU law. Rather, the criterion entails the making of an overall judgment as to what level of expenditure on impotence can be justified, in all the circumstances, having regard to (amongst other matters) the competing priorities for finite NHS resources. This is an essentially political judgment, that is not within the province of a reviewing court: see, for example, … R -v- Cambridge HA ex parte B [1995] 1 WLR 898, at p906.”

9. Those letters make it plain that the decision to restrict the use of Viagra was not based on its clinical or cost-effectiveness but rather on the Secretary of State’s assessing the need it addressed as having a lower priority than other calls on NHS funds, such assessment involving an essentially political judgment. But that, submits Mr Pannick, whilst certainly providing a sufficient answer to any domestic law challenge - see ex parte B - does not satisfy Article 7 of the Transparency Directive: the decision does not “contain a statement of reasons based on objective and verifiable criteria” within the meaning of Article 7.3. The central complaint advanced is that the respondent has conducted no analysis as to whether treatment for impotence should properly be regarded as constituting a lower priority than the treatment of other non life-threatening conditions (for example by dermatological products, laxatives and hormone replacement therapy); still less has the respondent explained why other conditions are treated but impotence not. The challenge, Mr Pannick submits, is not merely to the adequacy of the Minister’s reasoning but rather to his having conducted no analysis and provided no reasoning at all.
10. Although this argument only began to be articulated after the October 2001 decision (and did not finally crystallise until later still) - it was certainly never suggested throughout the consultation process following upon the initial decision enshrined in the June 1999 Regulations (which were not, of course, themselves challenged) - for present purposes I propose to take it at its highest: Article 7 either does or it does not require the Secretary of State to conduct the sort of analysis and provide the sort of reasoning for which Mr Pannick contends.
11. The Secretary of State’s criterion (see paragraph 4 above) expressly provides for excluding or restricting NHS prescriptions of a product where the “forecast aggregate cost” of not so restricting it (here £100 million) cannot be justified having regard to, amongst other things, “the priorities for expenditure of NHS resources”. The judgment, therefore, is about the treatment’s affordability in the context of competing priorities. Does Article 7 require not merely that this criterion has been properly notified to the Commission but also that in every case the judgment on affordability shall itself be explained? It is Mr Pannick’s submission that it does and that the Secretary of State must therefore provide a reasoned basis for not choosing to fund a treatment for one condition by comparing it with other treatments which are maintained. The Secretary of State submits the contrary, arguing that the application of the criterion in any given case, ie the forming of the judgment as to competing priorities and thus the affordability of the product, is entirely for the Secretary of State and does not itself require explanation by reference to some comparative analysis with other products for the treatment other conditions.
12. A central difficulty with Mr Pannick’s argument is in indicating just what sort of analysis and explanation he contends is required. It is a difficulty which troubled the judge below and which troubles me too. Whilst accepting the “impracticability of having a league table of priorities” and expressly disavowing the need for “a list ranking the relative priority of every treatment for every condition”, Mr Pannick was unable, or at least unprepared, to identify and illustrate what process short of that is called for. The closest he came to explaining the sort of analysis which he says is required by Article 7 was by reference to the work undertaken by the National Institute for Clinical Excellence (NICE) and the concept of Quality Adjusted Life Years (QALYs), both of which were touched upon in the respondent’s letter of 18 January 2002 quoted in paragraph 7 above. Mr Pannick drew our attention to the framework document by which NICE was established in 1999 and their published Guidance for Manufacturers and Sponsors issued in June 2001. The sort of appraisal processes undertaken by NICE, sometimes by reference to cost per QALY are, he submits, capable of being applied to enable comparisons to be made between different treatments for different conditions. He relies in particular upon a passage in the 2001 Report (paragraph 2.4.3 at p15) under the heading Forms of Analysis:

“The analysis should take the form of a cost-effective analysis or cost-utility analysis depending on the nature of the clinical problem being addressed. Whilst there is increasing application of contingent valuation methods in health economic evaluations, experience of the use of these methods in a cost-benefit framework is relatively limited in the health field. Clinical effectiveness measures are the most frequently used indicators of health gain. However, utilities can provide a comparative context for judging the relative value of health gain from interventions in different disease areas.”

It is the last sentence which Mr Pannick seeks to emphasise.

13. We also have in our papers the House of Commons Health Committee Report on NICE published on 20 June 2002. Paragraph 105 of the Report, under the heading Cost-Effectiveness and Affordability, states:

“A further area of confusion and concern over NICE’s remit and methodology relates to the issue of affordability. Although Lord Hunt [the Parliamentary Under Secretary and author of the letter of 18 January 2002] and NICE were clear that affordability was not an issue for NICE, but was rather a matter for Government, some witnesses felt that the boundary between cost-effectiveness and affordability was very blurred.”

14. Against that background the Committee included amongst their recommendations:

“(ff) We wish to record our view that the Government must work to achieve a comprehensive framework for healthcare prioritisation, underpinned by an explicit set of ethical and rational values to allow the relative costs and benefits of different areas of NHS spending to be comparatively assessed in an informed way. Such a framework would need to secure the input of the wider population as well as NHS patients and staff, policy makers and academics. Although we are not seeking a detailed response on this point, we would welcome an acknowledgement on the part of the Government that this is a key issue, and we would not be convinced if the Government were to argue that prioritisation were already subject to such a framework.”

15. The Government’s response to that was:

“At the broad level the Government has already established its key priorities through the priorities and planning guidance and its programme of National Service Frameworks, although it accepts that this does not form a comprehensive framework covering every area of NHS expenditure. The appraisal and guideline topics referred to NICE have been consistent with these priority areas.

At the detailed level, any useful framework would need to be populated with empirical data on costs and benefits for a large number of individual treatments and conditions. Such information is not routinely available for all treatments and is unlikely to become available in the foreseeable future. Achieving a comprehensive, empirically-based framework could therefore only be achieved in the long term. The establishment of NICE could, however, be seen as an important first step in that direction.”

16. It seems to me that NICE’s present remit is rather with a treatment’s cost-effectiveness than its affordability. True, assessment of QALYs may assist in determining which treatments are cost-effective, showing, for example, whether a treatment for a particular condition that has a higher unit price is actually more cost-effective than a cheaper treatment because it is significantly more efficacious. QALYs cannot, however, assist the Secretary of State in deciding which diseases or conditions should be regarded as the higher priorities for the NHS and therefore in determining whether, given its limited resources, the NHS can afford to provide a particular treatment. That, essentially, is what the respondents were saying in their letter of 18 January 2002.
17. Of course the time may come when, perhaps pursuant to the Health Committee’s recommendation (ff) quoted above, the Government formulates “an explicit set of ethical and rational values” so as “to allow the relative costs and benefits of different areas of NHS spending to be comparatively assessed in an informed way”. As the Government’s response indicates, however, that could only be achieved in the long term. Meantime it seems to me inescapable that affordability, in the sense of choosing between competing priorities as to where funds should be allocated, must be regarded as a political decision to be taken by Government. Until “an explicit set of ethical and rational values” is established, any ranking of NHS priorities otherwise than on a political basis would indeed be “artificial” as the respondent’s final letter of 27 March 2002 suggested.
18. With these thoughts in mind I return to the central question arising on this appeal: does Article 7 require the Secretary of State, before he can restrict the prescription on the NHS of any product, to conduct the sort of analysis of competing priorities which the Health Committee contemplates may one day become possible? In my judgment the answer to this question is plainly not. Nor do I think that it requires any other form of analysis and explanation. It is not to be thought that the Directive ever intended such an exercise to be undertaken and that for the last 14 years the United Kingdom (and doubtless other Member States too) has been in clear breach of its terms. On the contrary, as Buxton LJ’s judgment (which I have had the opportunity of reading in draft, and with which I wholly agree) explains, the objective and scope of the Directive is altogether different. The transparency required is in the published criteria and they themselves are objective and verifiable.
19. On reflection, it is perhaps unsurprising that the appellants’ argument should have surfaced so late in the course of their prolonged campaign to get this restriction lifted. That, however, is by the way. Having heard no argument on the issue of delay I say nothing about it save only to note that authorities like R -v- Secretary of State for Trade and Industry (ex parte Greenpeace) [1998] EnvLR 415 (upon which Turner J below relied so heavily) will clearly now need to be re-examined in the light of the recent House of Lords decision in R -v- London Borough of Hammersmith & Fulham (ex parte Burkett) [2002] UKHL 23.
20. As earlier indicated, this appeal is dismissed.

Lord Justice Buxton:

21. I agree. I venture to add a few words in relation to Directive 86/105/EEC, which, as Mr Pannick accepted, was the only available source of an obligation of law that might rest on the Secretary of State.
22. In my view, the exposition of the Directive in the applicant’s argument started at the wrong place. We were taken first to article 7, and asked to apply its literal wording to the case as seen by the applicant; and only then shown the recitals and parts of the EU Treaty that give the Directive its force and authority; and thus reveal its meaning and reach.
23. The Directive is specifically stated to be concerned with transparency. How that concern is manifested in the field of the pricing of medicinal products is shown in the recitals to the Directive, which refer to member states having adopted price controls over and restrictions on the marketing of medicinal products for the objective of promoting public health, an objective that is seen as legitimate provided the measures also encourage the research on which public health depends. The warning is however sounded that disparities in such measures between member states may hinder or distort intra-Community trade. That the latter is the principal concern addressed in the Directive is underlined by the vires of the Directive being found in article 100a [now article 95] of the Treaty, which falls in the chapter dealing with approximation of laws. The way in which the Directive addresses transparency and the approximation of laws is then stated:

“the objective of the Directive is to obtain an overall view of national pricing arrangements, including the manner in which they operate in individual cases and all the criteria on which they are based, and to provide public access to them for all those involved in the market in medicinal products in the Member States……as a first step towards the removal of these disparities it is urgently necessary to lay down a series of requirements intended to ensure that all concerned can verify that the national measures do not constitute quantitive restrictions on imports or exports or measures having equivalent effect thereto.”

24. In legislating in this field the Council will no doubt have had well in mind the decision of the Court of Justice in Case 238/82 [1984] ECR 523 (Duphar). The applicants showed us an answer given by the Commission to a question in the European Parliament which seems to bear out that assumption. Duphar wrestled with what was seen as the very difficult issue of whether national measures on availability of medicines within (monopoly purchaser) state health schemes fell within article 30 of the Treaty because they were capable of indirectly affecting intra-Community trade (see on the latter point e.g. Case 8/74 Dassonville, cited by Mancini A-G in Duphar at p. 547). The particular difficulty in that connexion of cost-reduction measures, such as that in issue in Duphar, was that if caught by article 30 they fell outside the list of permitted grounds of restriction provided by article 36, because their primary objective was budgetary: see the judgment in Duphar at paragraph 23.
25. The Court of Justice solved that problem by holding that the special needs of state health schemes meant that limitations on purchases were not to be regarded as necessarily falling under article 30, provided that

“the choice of the medicinal preparations to be excluded [is] free of any discrimination to the detriment of imported medicinal preparations. To that end, the exclusionary lists must be drawn up in accordance with objective criteria, without reference to the origin of the products, and must be verifiable by any importer [Duphar, para 21]”

The Court gave, in paragraph 23 of its judgment, some examples of what such objective and verifiable criteria might be. These did not include the simple cost of providing a particular treatment; but it is impossible to think that that consideration could not qualify, bearing in mind that the case itself was all about restrictions on budgetary grounds.

26. It is this objective, and this requirement, as stated by the Court in Duphar that, as its recitals indicate, is almost certainly carried over into Directive 89/105. Once that is appreciated, the requirements of article 7 fall into place. For the criteria to be “verifiable”, all that is necessary is that they should be published and available, in particular to would-be importers, to satisfy themselves that they do not contain disguised restrictions on intra-Community trade. And the measures are “objective”, in the sense used by the Court in Duphar, if they are based on a legitimate aim, that of improving the economics of the state health system.
27. The criterion adopted by the Secretary of State in this case fully meets those requirements. And that is all that the Directive requires, that the criteria used by the member-state should meet its, fairly modest, objectives. What the Directive plainly does not require, and what would be wholly inappropriate in view of its objectives, is that each decision applying the criteria should be subject to the detailed scrutiny and exposition of the merits and economics of particular medicinal products that the applicants seek to achieve in this case. Quite apart from the uncertain limits and dubious practicability of that approach, to which my Lord has drawn attention, the Directive does not even verbally encompass it unless the wording of article 7 is applied to the state’s decisions rather than to the criteria on which those decisions are based.
28. Some additional support for this latter view may be obtainable from the fact that on the initiative of the European Parliament the originally proposed text of Article 7, which required member-states to “state in detail the reasons” for a decision, was replaced by the expression “contain a statement of reasons based on objective and verifiable criteria”: see OJ No C94 of 1988, p62, cited in the preamble to the Directive. I do not rely on this point, on which we heard no argument, but to common law eyes at least it would appear illuminating.

Lord Justice Carnwath:

29. I agree with the judgments of Simon Brown and Buxton LJJ.
ORDER: Permission to apply for judicial review granted. The substantive application is dismissed, the appellant to pay the respondent's costs, to be assessed if not agreed. Permission to appeal to the House of Lords refused. (Order not part of approved judgment)