NHS pays £500m too much for prescription drugs

BMJ 2007; 334 doi: (Published 22 February 2007) Cite this as: BMJ 2007;334:383
  1. Susan Mayor
  1. London

    The UK health services are overpaying by about £500m (€740m; $980m) a year for prescription drugs, says a government report published this week. This is because of the current system for pricing drugs in the United Kingdom, it says, and it calls for the pricing scheme to be changed to reflect the benefit of drugs to patients.

    The report, from the Office of Fair Trading, a body that protects consumers' interests in the UK, found that many alternative products were available in the areas of greatest NHS expenditure, including drugs for raised cholesterol concentrations and high blood pressure.

    Several drugs currently prescribed in large volumes were up to 10 times more expensive than alternatives that the researchers considered delivered very similar benefits to patients. They argue that hundreds of millions of pounds are spent on the more expensive products each year, restricting funds available for other drugs.

    On the basis of its findings, which included a survey of 1000 GPs on their prescribing habits and a comparison with drug prices in 10 other countries, the Office of Fair Trading argued that the current drug pricing system, the pharmaceutical price regulation scheme, should be reformed, to deliver better value for money to the NHS and to focus business investment on drugs that have the greatest benefits for patients.

    The report recommends changing to a patient focused, value based pricing scheme, in which the prices the NHS pays for drugs reflects the therapeutic benefits they bring to patients. It argues that this would enable the NHS to obtain greater value for money from its existing drug budget. The authors estimate that this would release in the region of £500m of expenditure that they say could be used more effectively.

    John Fingleton, chief executive of the Office of Fair Trading, said, “Focusing 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.”

    However, the drug industry argued that the current system provided good value for money to the NHS. Richard Barker, director general of the Association of British Pharmaceutical Industry, said, “As a country we pay less per head for medicine than most major European countries.”

    He added, “We've seen the drug bill actually fall since the last renegotiation of the pricing scheme, so the NHS is not overpaying for medicines.”

    Other mechanisms—including guidelines from the National Institute for Health and Clinical Excellence and budget control by primary care trusts—ensure that value for money is maintained and that generic drugs are widely used, the association argued.

    The pharmaceutical price regulation scheme is a voluntary agreement negotiated every five years between the Department of Health and the Association of the British Pharmaceutical Industry. It includes profit and price controls, allowing companies the freedom to set the initial price of new active substances but restricting subsequent increases. The report found that neither the profit cap nor the price controls had helped to ensure that the price of drugs reflected the health benefits they bring to patients.

    Ike Iheanacho, editor of the Drug and Therapeutics Bulletin, an independent review of medical treatments, welcomed the report as “the first really detailed probing into the pharmaceutical price regulation scheme.”

    He considered that the scheme was anomalous: “On the good side it has provided a way of keeping some control over the overall drugs bill. But on the bad side there is little correlation between what the NHS pays and the value of individual drugs to patients or to the NHS as a whole.”

    Dr Iheanacho added, “This means the NHS pays through the nose for certain products, even if the scheme controls drug spending overall. In contrast, a value based scheme would price drugs according to their benefit to the NHS.”

    Several countries, such as Sweden, Australia, and Canada, already use value based pricing and reimbursement systems. The Office of Fair Trading drew on this experience in designing a scheme for the UK that builds on existing NHS expertise. The Department of Trade and Industry and the Department of Health have 120 days to consider and respond to the report's findings and recommendations.

    Joe Collier, professor of medicines policy at St George's, University of London, and one of a wide range of experts consulted by the report's authors, welcomed the findings. “This will end years of conspiracy in which the prices of medicines were agreed in secret in a pact between the pharmaceutical industry and government. At last this has been exposed, with the proposal of resolution.”

    He thought it likely that an independent pricing commission, with UK wide representation, would be set up to assess the value of drugs to the NHS and recommend prices to the health department if a value based system is established.


    • The Pharmaceutical Price Regulation Scheme: An OFT market study can be found at

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