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Prescribing prices

Robert Peston | 09:07 UK time, Tuesday, 20 February 2007

The OFT recommendations (PDF link) on reforms to the UK drug pricing scheme will divide the pharmaceutical companies. The OFT’s conclusion that reform would release £500m of expenditure that could be used more effectively will concern many of them, if that £500m were reallocated by the NHS to non-drug treatments and services.

However some will welcome the move to what’s called a "value-based" scheme. Put simply, that would relate much more closely what the NHS pays for drugs to the revealed benefits for patients. Schemes of this sort already exist in Sweden, Australia and Canada.

In some cases, that would lead to drug companies receiving higher prices for particularly effective drugs - and would be seen by them as a strong incentive to researching new treatments, because they would have the confidence that they would be properly rewarded for those treatments.

So the OFT doesn’t believe that the UK’s world-leading position in pharmaceuticals would be put at risk by the introduction of this new purchasing system. It ought, in fact, to reward British companies like GlaxoSmithKline or AstraZeneca which set great store by their prowess in developing effective new medicines.

However the OFT’s shocking conclusion - and the one which some drug companies will contest - is that the NHS is paying up to ten times too much for certain medicines as measured by what could be paid for near identical medicines.

The competition watchdog highlights treatments for cholesterol, blood pressure and stomach acid as areas were some drug prices are ludicrously inflated.

The OFT’s most striking statement is that the current pricing system, called the Pharmaceutical Price Regulation Scheme, doesn’t ensure that “the price of medicines reflect the health benefits they bring to patients”.

It’s hard to think of a more savage indictment of the NHS.

Here’s why I’m persuaded the time for reform is probably nigh. Other countries around the world use the NHS’s pricing system as a benchmark for what they pay for drugs. But in many cases, they view the NHS prices as the maximum - and they use them as a basis for negotiating a discount.

This is not to argue that the current system is utterly hopeless. But one of its flaws is that probably relies excessively on GPs to be acutely aware of the different costs to the NHS of near-identical treatments and to prescribe the cheapest.

The OFT found that all sorts of other factors influence GP’s prescribing behaviour. So why put the onus on GPs to prescribe the cheapest drugs? It’s not what they are trained to do or instinctively drawn to do.

Surely it would be better to ensure that all the drugs available to GPs are priced at a level that property reflects their therapeutic efficacy.

Comments   Post your comment

At least part of the problem of extortionately priced drugs is caused by a broken patent system that provides little or no inventive to find better and more efficent ways to do research.

  • 2.
  • At 10:28 AM on 20 Feb 2007,
  • John Galpin wrote:

As an ex VP of R&D of one of the major players I am in complete agreement that there is a fundamental dilemma here for both the drug companies and their gloabal customers. On the one hand people want more effective drugs for ever more complex diseases ( believe me the easy stuff has been done), they want them now and they want them cheap. On the other hand they demand, policed quite properly by the various regulatory authorities, very high levels of efficacy and safety. This is the very opposite of fast and cheap. You only have to look at the write offs that the major players make for trials that failed and the number of biotech start up companies that fail to survive a decade to know that the risks are very high and the rewards, IF they come are very transient. Often there is only a short period of patent life left by the time regulatory approval has been gained for the few that make it. The profits made in that short period need to cover the NPV of all the losses plus fund the cashflow of the next ever more difficult round of R&D if new drugs are ever to be realised in the future.

Alternative financial models have been proposed eg extend the patent life for the commercial period of exploitation in return for lower per annum prices because the pharmas can then get the same return but over a longer period. Another alternative was one pharmas offer to the UN and I believe one or two governments to do contract R&D for that government on a disease solution with the UN or government taking the risk and owning the resulting intellectual property. Interestingly no one took up the offer.

To protect society Governments quite properly control access and time to market of drugs via their regulatory agencies. However they are now seeking to ignore the financial consequences of the demands their own agencies make and potentially risk limiting R&D to fewer and fewer diseases which are big enough and well understood enough to give the best potential for a return. Is this really in societies best long term interest?

Yes a different model may be needed but be careful to price in everything you want, which isn't just todays drugs for the top ten diseases.

  • 3.
  • At 10:36 AM on 20 Feb 2007,
  • Ian wrote:

How long before Blair, under instruction from his corporate pharmaceutical masters, crushes this report in the same way he quashed the SFO enquiry into BAe? Isn't it interesting that, for all its position as the "world-leader in pharmaceuticals", Britain suffers the worst health in Western Europe? Could it be, perhaps, that there is a chain of cause and effect here?

This is by no means a simple issue. But a lot of the problems are due to creating a rift between payer and patient. When you have paid in advance for the NHS and then - as a patient - need to make use of it, of course you are going to fight tooth and nail for the latest, most expensive, 'best' drugs.

The cost of drugs is complicated by the fact that we know, in advance, that many of the more recent drugs don't actually work on the majority of people. But on the few for whom they are effective, they can save lives (e.g. Herceptin). Do we 'waste' money on the many to save the few? Or do we allow them all to die, knowing that a fraction might have been saved?

The PPRS is actually quite a sensible scheme. It rewards companies for investing in the UK, by allowing them an acceptable return on their investment. It also forces companies to reduce their prices each time the Scheme is renegotiated - by 7% in the 2005 Scheme. This is hardly trivial.

The problem, as you identify, is in the prescribing. Basically doctors are prescribing drugs that we simply can't afford. That's a rationing problem, not a drug company problem. Either we need to pay more individually (putting further strain on the big lie that the NHS is 'free at the point of entry'), or pay more collectively through taxation, or we need to accept that people will die because we are unable/unwilling to afford to give them the latest medicine. Tough choices ahead, that's for sure.

  • 5.
  • At 10:45 AM on 20 Feb 2007,
  • Paul Cooper wrote:

Surely, the problem here is that pharmaceutical companies have to bear the burden of research to develop new drugs. This research burden is costly and high risk - a lot of money may be spent on a new drug only to find at the last hurdle that it is unsuitable for use in humans. It strikes me as entirely wrong that research such as this is carried out by pharmaceutical companies at all. In most areas of technology, initial development work takes place within the government funded research community - Higher Education Institutions and Research Council Institutions - and it is only in the final stages of transferring research to applications that industry starts to bear the risk.

I would suggest that the developmeent of new drugs should be removed entirely from the pharmaceutical industry, and passed to a government funded institute - the MRC would be the obvious place. The publicly funded body would take drugs all the way from primary research through the testing stages, and, once the drug was proven effective and useful in humans, passed on to industry for production. This leaves plenty for the industry to do - proving a drug effective is not the same as being able to produce it in quantity, for example.

This would have several benefits:

1) Drugs would be developed for their benefit to humans solely.

2) The cost of drugs would reflect the difficulty of synthesis of the drug, not the cost of research.

3) Knowledge of the structure and effectiveness of drugs could be pooled, making the initial stages of research into new drugs more effective

4) Knowledge of unnsuccessful drugs would also be disseminated more widely, ensuring a) that research did not follow paths already shown to be unsuccessful and b) that research would know something of the properties of unsuccesful drugs in the event of their promising a means of treating a completely different disease (e.g. Viagra for treating a premature baby!)

  • 6.
  • At 11:00 AM on 20 Feb 2007,
  • Morten wrote:

"near identical medicines"

just curious: with a background in drug-delivery technology and medical devices, does "identical" refer to effect?

Kind regards


  • 7.
  • At 11:03 AM on 20 Feb 2007,
  • farooq wrote:

I worked in the NHS as a junior doctor for 18 months. It is an open secret that the NHS is one big giant cash cow for the Drug companies. Obviously there isn't a business model with cost effective leadership in place so therefore the Drug Companies can afford to mass produce their 'new' drugs for a giant monolith NHS. It's about time something is done to ensure taxpayers get a fair deal.

  • 8.
  • At 11:11 AM on 20 Feb 2007,
  • Allan wrote:

What many do not understand is that, if it wasn't for branded pharmaceuticals, there would be no generic substitutions. As Martin stated earlier the current patent systems allows for generics to come to the market after a relatively short time period freeloading on the R&D of the major pharmaceutical companies. If patent periods were longer then there would be more room for manoevre regarding pricing of drugs. If pricing becomes unrealistic then this will stifle R&D as incentives to produce new medicines will be reduced.

  • 9.
  • At 11:16 AM on 20 Feb 2007,
  • Michael Jaeger wrote:

The problem is not with the patent system but with the government who refuse to use the patent system as they ought to.

There are little-known provisions in the patent system called "Crown Use", whereby any government department can ask third parties to 'work' a patent (e.g., manufacture patented drugs) without the consent of the patent proprietor, on terms to be agreed with the patent proprietor.

Surely, if the OFT has concluded that drugs companies are charging too much for some drugs then they should use the Crown Use provisions to have the drugs manufactured by others and pay the patent proprietors' a reasonable royalty. After all, that's exactly why the Crown Use provisions exist!!

  • 10.
  • At 11:22 AM on 20 Feb 2007,
  • Druggie Boy wrote:

I totally agree - drugs are far too expensive.

It's almost impossible to keep my coke habit going on my benefits........

  • 11.
  • At 11:40 AM on 20 Feb 2007,
  • Daimaur wrote:

This report may have a basis in fact, however it glosses over some important details.
The government controls the PPRS NOT the drug companies.
The return permitted on investment is at the lower end of the scale achieved by other industries. If BAE had to work on the returns permitted in the pharmaceutical industry, they would not invest at all.
The UK government is the monopoly approver of drugs and is (almost) the monopoly buyer, prices are agreed with them so they are not a surprise at all.
The comparison between "branded" and generic drugs pre-supposes that there is the same body of evidence to support the generics.
With the statins, there was guidance issued by PCTs to use one in particular, because of cost, when the data in support of the drug were simply not there. This is a total failure to observe what the government is promulgating "eveidence based medicine".
If a pharmaceutical company had tried to promote a drug on the basis of "we are the same type of drug" thus we are the same, the government would have punished them.
As ever with this government, you cannot win if you stick to the rules and anyway they do not apply to government departments.

  • 12.
  • At 12:48 PM on 20 Feb 2007,
  • Brian Vallance wrote:

The prices the NHS pays to the Pharmas is quite intriguing. During the Herceptin court case/marketing campaign last year it was repeatedly quoted in the press as costing the NHS 10,000 GBP/patient/year. That is 1250 Euros/patient/MONTH.

At the time I asked at my local (Greek) pharmacy what was the price here, where drugs are sold unsubsidised on a cost+fixed margin basis. (You claim it back from IKA - Greek NHS).The cost of Herceptin was only 120 Euros per MONTH without any subsidy/surcharge.

The quoted NHS price had been inflated by a clear factor of TEN.

Someone, clearly, is on a very fat profit margin (kickback?) indeed in the UK.

  • 13.
  • At 01:30 PM on 20 Feb 2007,
  • Robert wrote:

It is blue sky reasearch that is really risky and deserving of rich rewards. At the moment there is too much incentive simply to fiddle with old drugs to make newer versions that are barely more effective and potentially more risky but which can be patented and sold at a premium. NICE has tried to deal with this issue but is too often forced to give in to pressure from various groups even where it finds the scientific case for the added benefits of such drugs to be slim to none-existent.

And I still can't believe the pharamaceutical industry makes so much of the cost of R&D when it spends far more on marketing drugs than it does on developing them.

The more we can reward true effectiveness the better.

  • 14.
  • At 01:41 PM on 20 Feb 2007,
  • Konstantinos Lykopoulos wrote:

A one sided look at the issue - using a soft target and designed to grab headlines.
The whole story would read very differently if we compared how much Britain is benefiting by the PPRS incentives to pharma companies versus the £500m that could potentially be saved on drugs...

  • 15.
  • At 07:55 PM on 20 Feb 2007,
  • Derek wrote:

The whole thing has to be reviewed on a macro level. You simply cannot pick on one area such as spending on the pharmaceuticals.

Would it work to introduce a payment scale for certain conditions - if you are overweight / diet full of fats, and you don't change within 2 months of diagnosis - pay higher price for the cholesterol reducing drugs. Likewise, if you smoke and suffer asthma, pay more for the inhalers. If you can afford a premium to take a branded product over a generic, pay the difference.

Cannot continue to develop a pill popping - no responsibility - system. The high spends treatments are rarely drug treated alone.

  • 16.
  • At 10:15 PM on 20 Feb 2007,
  • Richard wrote:

This new idea is great!
It will not save the NHS any money, but as a prescribing doctor I shall not need to give a second thought to the cost, I shall simply prescribe the most expensive alternative knowing that it is the most effective.

  • 17.
  • At 01:31 PM on 21 Feb 2007,
  • Tony Legge wrote:

While we are at it why don't we make sure that prices are displayed on all drugs and appliances so that the general public realises costs before just throwing them away - Seems to work in France!

  • 18.
  • At 10:42 AM on 22 Feb 2007,
  • Rich wrote:

Richard (Message 16)

Does it follow, therefore, that the most expensive is the most effective?

  • 19.
  • At 02:13 PM on 22 Feb 2007,
  • Ben wrote:

For my two cents, I find this debate rather odd when you consider that the UK is actually rather good at saving money on drugs. We buy more generic medicines at cheaper prices than any other major Western European country.

France and Germany are desperately trying to trim their drug budgets.

So if the UK's system ain't broke, don't try to fix it. Rewarding innovation in pharma is a complex problem that has more to do with technology and bureaucracy than the way the UK pays for its drugs.

  • 20.
  • At 06:28 PM on 13 Jul 2007,
  • wrote:

The pharmaceutical industry employs over 70,000 people and develops life-saving medicines which are exported around the world.
In the UK, we have destroyed our manufacturing sector and consistently have a negative balance of trade. Fortunately, this is mitigated by the pharmaceutical industry which contributes £3.5 billion.
The OFT can implement its half-baked value based pricing system, if it wants to destroy one of our strongest industries. Frankly, they should get a life. The author, John Fingleton is not medically qualified. He is bureaucrat that will never come close to inventing cures for cancer.Perhaps, he should leave the pharmaceutical industry to concentrate on what is important

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