Healthy Skepticism Library item: 8627

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Publication type: media release

OFT report recommends reform to UK drug pricing scheme
(UK) Office of Fair Trading 2007 Feb 20
http://web.archive.org/web/20070224163027/http://www.oft.gov.uk/News/Press+releases/2007/29-07.htm

Full text:

The OFT today recommended that the Pharmaceutical Price Regulation Scheme (PPRS) should be reformed, to deliver better value for money from NHS drug spend and to focus business investment on drugs that have the greatest benefits for patients.

Download the market study report (pdf 1 mb).

For more information see the PPRS market study page.

The NHS spends about £8 billion a year on branded prescription medicines. The OFT’s study identifies a number of drugs where prices are significantly out of line with patient benefits. These include treatments for cholesterol, blood pressure and stomach acid. Specifically, some drugs currently prescribed in large volumes are up to ten times more expensive than substitute treatments that deliver very similar benefits to patients.

The study recommends that the current ‘profit cap and price cut’ scheme, where companies are free to set their own prices within very broad profit constraints, be replaced with a patient-focussed value based pricing scheme, in which the prices the NHS pays for medicines reflects the therapeutic benefits they bring to patients. This would enable the NHS to obtain greater value for money from its existing drug spend. The OFT estimates that it would release in the region of £500 million of expenditure that could be used more effectively, giving patients better access to medicines and other treatments which they may currently be denied.

Over time, value-based pricing would give companies stronger incentives to invest in drugs for those medical conditions where there is greatest need. Because the health services in many other countries base their prices on those in the UK, additional benefits would arise internationally.

Many countries, including Sweden, Australia and Canada, have successfully implemented value based pricing and reimbursement systems. The OFT has drawn on that experience in designing a workable scheme for the UK that builds on existing NHS expertise.

John Fingleton, OFT Chief Executive, said:
‘This report provides a comprehensive assessment of the PPRS and identifies a number of areas where the scheme could be improved. Focussing prices on the needs of patients rather than on the costs of drug companies would be good for both patients and for business. It would allow more patients better access to more effective treatments, and it would focus drug company innovation and investment on the areas where patients need it the most, creating more valuable drugs in the future.’

The Department of Trade and Industry and the Department of Health now have 120 days to consider and respond to the OFT’s findings and recommendations.

NOTES

1. The PPRS is the method by which the UK Government seeks to control the prices of branded medicines. It is a voluntary scheme negotiated every five years between the Department of Health and the Association of the British Pharmaceutical Industry. The current scheme runs from 2005 to 2010.

2. The scheme comprises two main components:
profit controls (a cap of 29.4 per cent return on capital and floor of 8.4 per cent return on capital) that apply to all the branded products sold by a company to the NHS, and
price controls: freedom to set the initial price of new active substances but restrictions on subsequent increases to the list price and the one-off price cuts periodically agreed at the time of scheme renegotiations.

3. In practice, the profit cap has had little effect on company behaviour. Profit repayments were about 0.01 per cent of company sales between 1999 and 2004. Neither the profit cap nor the price cut helps ensure that the price of medicines reflect the health benefits they bring to patients.

4. The OFT market study into the PPRS was launched on 13 September 2005 (see press release 171/05). Its remit is to assess whether the PPRS provides the most effective means of meeting the stated aims of the scheme, which are to:
secure the provision of safe and effective medicines for the NHS at reasonable prices
promote a strong and profitable pharmaceutical industry capable of such sustained research and development expenditure as should lead to the future availability of new and improved medicines, and encourage the efficient and competitive development and supply of medicines to pharmaceutical markets in this and other countries.

5. At present, many alternative products are available in the biggest areas of expenditure, such as drugs for cholesterol, stomach acid or high blood pressure among others. Yet some are much more expensive, but little more effective, than others. Hundreds of millions of pounds per year are spent on such products, restricting funds available for other medicines. And yet resources are limited: the NHS is sometimes unable to afford new treatments, for conditions such as cancer.

6. In undertaking the study, the OFT:
worked with experts in the NHS in assessing the therapeutic benefits of a range of drugs
studied drug pricing systems in ten other countries, including Australia, Canada, Finland, France, Germany, the Netherlands, Spain, Sweden, Switzerland and the United States
conducted an unprecedented analysis of the workings of PPRS profit and price controls
jointly with NAO, surveyed 1,000 GPs concerning their prescribing behaviour
discussed the case for reform with key stakeholders in Government, industry and the NHS.