Government and industry reach new pricing deal to cut NHS drugs bill

BMJ 2008; 336 doi: (Published 26 June 2008) Cite this as: BMJ 2008;336:1455
  1. Andrew Jack
  1. 1Financial Times

    The government and the drug industry this week reached an outline agreement on a new contract for drug prices in the United Kingdom over the next five years. It is expected that the deal will cut the annual £9bn (€11bn; $18bn) drug bill in the UK’s health services by 5% by 2009.

    The announcement follows a year of intense and tough negotiations after the Department of Health said it was unilaterally cancelling the current pharmaceutical price regulation scheme (PPRS) halfway through its planned duration (BMJ 2007;335:273 doi: 10.1136/bmj.39300.405822.DB).

    The PPRS, which normally runs for five years, allows companies to set drug prices freely but caps their overall profits. The current scheme began in 2005, with a 7% price cut, and was supposed to end in 2010.

    Under pressure to cut costs at a time when the growth in the NHS budget is slowing, the government sought a fresh reduction of 10%, arguing that drug prices in Britain were among the highest in Europe.

    Partly aided by changing exchange rates, the industry claimed instead that British prices were nearer to the European average. It also expressed concerns that the government risked undermining the UK’s historical attractiveness for research and development investment by creating instability through reneging on the PPRS deal.

    The new contract entails a price freeze until the end of this year and then a minimum price cut of 2% in patented drugs at the start of 2009. There will also be bigger reductions in the price of branded drugs no longer on patent, providing an overall reduction of 5%. Further price cuts are possible in future years if the drug bill increases by more than 6.7% annually.

    In line with recommendations last year from the Office of Fair Trading (BMJ 2007;334:383 doi: 10.1136/bmj.39133.543438.DB), the government plans to ensure that prices paid for new drugs more closely reflect the value that they offer, although details are still being worked out.

    The new deal offers some sweeteners to the industry, which has long expressed concern—shared by many patients’ organisations—over “postcode prescribing” and the poor uptake of innovative drugs in comparison with the United States and other European countries.

    The health department said that it will develop metrics to allow comparison of different prescribing practices across the NHS and with health services in other countries. This should provide a “stick” to allow critics to name and shame primary care trusts that are not implementing recommendations of the National Institute for Health and Clinical Excellence and a “carrot” of pilot incentive schemes to encourage uptake of new drugs in the NHS.

    However, these details remain vague—and even once the new PPRS is finalised, towards the end of this year, it is unclear how far the government could be contractually held to implement these incentives, while the price cuts imposed on industry will be binding.

    The PPRS is technically a voluntary scheme, and the government this week also issued still tougher draft conditions in a formal statutory instrument that will apply to any drug companies that choose not to abide by its terms.


    • Andrew Jack is the pharmaceuticals correspondent for the Financial Times.

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