[Ip-health] OFT report recommends reform to UK drug pricing scheme

[Michelle Childs]

The UK's competition authority, The Office Of Fair Trading has today
published a report setting out reforms to the UK  branded drug pricing
scheme. It made two significant findings:
1)That the NHS is paying too much for certain drugs when cheaper
alternatives are available (These include treatments for cholesterol,
blood pressure and stomach acid.).

2)The present scheme should be replaced with ' 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' The OFT has
drawn on similiar systems in Sweden, Australia and Canada for this model.

As  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.'


See below for background plus link to copy of the report. Note The OFT
cannot impliment these changes, they are recommendations to the Department
of Health which runs the pricing scheme , which also has an industry
support role as can be seen by the fact that two of  the three purposes of
the scheme are related to industry growth and exports:

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.

Michelle

http://www.oft.gov.uk/News/Press+releases/2007/29-07.htm
OFT report recommends reform to UK drug pricing scheme

29/07    20 February 2007

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 454
kb).http://www.oft.gov.uk/NR/rdonlyres/7C7A7CC1-F320-4978-AC64-F67F9AB67B6C=
/0/oft885.pdf

The NHS spends about =A38 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 =A3500 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.





--
Michelle Childs -Head of European Affairs
Consumer Project on Technology in London
24, Highbury Crescent, London, N5 1RX,UK.
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