Drug Pricing

UK Office of Fair Trading launches study

The Office of Fair Trading (OFT) in the UK has launched a study into the Pharmaceutical Price Regulation Scheme (PPRS) just months after the scheme was renewed for a further five years to 2010^1,2. The investigation could lead to recommendations that the government overhaul the scheme, which indirectly regulates drug prices by capping the profits that companies can make on sales of proprietary medicines to the National Health Service (NHS). The NHS spends around £7 billion annually on these products.

The OFT will assess whether the scheme, a voluntary UK-wide five-year agreement between the Department of Health (DoH) and the pharmaceutical industry, meets its aims, namely:

• securing the provision of safe and effective medicines for the NHS at reasonable prices;
• promoting a strong and profitable pharmaceutical industry capable of such sustained R&D expenditure as should lead to the future availability of new and improved medicines; and
• encouraging the efficient and competitive development and supply of medicines to pharmaceutical markets in the UK and other countries.

The OFT launched the investigation after a previous study into the impact of public procurement on competition found that certain areas required further investigation³. The OFT says that the PPRS also relates to two of the themes - healthcare and interaction between government and markets - that it had identified as priority areas for work in its 2005 annual report.

The study is expected to last at least until spring 2006. It could prompt: recommendations that the government consider changes to the scheme; a referral to the Competition Commission for further investigation; enforcement action by the OFT; or the scheme being given a clean bill of health.

The PPRS caps company profits after deducting R&D allowances. It also limits the amount companies can spend on marketing. The current PPRS came into effect in January 2005 and involved a 7% price cut. This was aimed at saving the NHS £1.8 billion over the next five years to 2010, but that was criticised as unnecessary by the industry^4,5.

The Association of the British Pharmaceutical Industry (ABPI) said it was ‘surprised’ at the study as it had had no prior warning⁶. It said that it would cooperate as necessary, adding that the PPRS provided stability for the industry.

Generic medicines

Separately, the DoH has launched two further consultations on the reimbursement of generic medicines under the PPRS⁷. The first will address i) the proposed revised arrangements for removing standard branded generic medicines in oral solid dose form from the PPRS and ii) the products in this form currently on the market that would be removed from the PPRS by the application of the DoH's definition of standard branded generics. This consultation is open until 24 October 2005. A second consultation will take place in 2006 to address non-oral sold dose standard branded generic medicines.

References

1. OFT studies - Pharmaceutical Price Regulation Scheme, 13 September 2005, www.oft.gov.uk/Business/Market+studies/price.htm

2. OFT press release, 13 September 2005, www.oft.gov.uk/News?Press+releases/2005/171-05.htm

3. Assessing the Impact of Public Sector Procurement on Competition, OFT, September 2004, www.oft.gov.uk/News/Press+releases/Statements/2004/procurement.htm

4. The Pharmaceutical Price Regulation Scheme 2005, DoH, November 2004, www.dh.gov.uk/PublicationsAndStatistics/Publications/PublicationsPolicyAndGuidance/

5. The Regulatory Affairs Journal - Pharma, 2004, 15(12), 917-918

6. Personal communication, ABPI, 16 September 2005

7. Generic Medicines: A Further Consultation, 12 September, www.dh.gov.uk/Consultations/LiveConsultations/