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1 March 2007
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01 March 2007

In a new report the Office of Fair Trading recommends money-saving changes to the way the NHS buys branded drugs. Paul Snell examines the reactions

With the National Health Service struggling to balance its finances, it is no wonder health chiefs are exploring every avenue to reduce costs.

And you can imagine their eyes lighting up when the Office of Fair Trading (OFT) announced last week that the NHS would be able to release up to £500 million if the Pharmaceutical Price Regulation Scheme (PPRS) was reformed (News, page 7).

The 50-year-old PPRS is a voluntary agreement between the government and the Association of the British Pharmaceutical Industry (ABPI). It controls the profits that drug companies can make from the sale of branded drugs to the NHS. The scheme allows companies to set the prices for their drugs, but also initiates price cuts when terms are renegotiated every five years.

The OFT says there is a "compelling case" for moving away from this system, to one called "value-based pricing". Under this scheme manufacturers would continue to set prices for drugs but they would be subject to reviews of their cost-effectiveness. The OFT also suggests the creation of an independent pricing authority, a "medicines pricing commission". But this would be a long-term option requiring legislation.

Drug company reaction to the report has been mixed. The ABPI maintains the health service is getting a fair deal. "The broad assertions the OFT has made are wrong," says director general Richard Barker. He points out that medicine costs are 21 per cent lower in real terms than 10 years ago and still account for the same amount as in 2005 - around 11 per cent of NHS costs. He also says the UK has lower prices for the newest, most effective drugs compared with other major European countries.

John Young, managing director of Pfizer, says: "We are concerned the OFT has been selective and partial in its presentation of clinical evidence. We call on the government to reject the proposals." The "theoretical" savings are based on an "outdated snapshot of the relative price and volume of two medicines alone". And, he adds, with value-based pricing newer, more effective medicines would be tied to the prices of cheaper, older comparatives.

AstraZeneca and GlaxoSmithKline are more supportive of changes to the PPRS, although they emphasise that any reform should not discourage the development of new medicines.

Changes to the scheme may, however, be academic if those supplying drugs are not aware of their cost. The OFT's report says awareness and sensitivity of drug prices are still fairly weak among GPs. Because of this there are "strong arguments" for centralising buying, to assess costs and improve price negotiation.

Any reform to the PPRS would not kick in until 2010 - not ideal when the NHS is already facing a £500 million deficit. But the OFT concedes that reform will not happen overnight: "New institutions cannot be introduced without a risk of undermining the quality on which a successful approach depends."

SMmar2007

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