Intended for healthcare professionals

Rapid response to:

Editorials

The Pharmaceutical Price Regulation Scheme

BMJ 2007; 334 doi: https://doi.org/10.1136/bmj.39136.464421.BE (Published 01 March 2007) Cite this as: BMJ 2007;334:435

Rapid Response:

Economic perspective on prescription pricing

Dear Editor,

In our personal lives spending decisions reflect the relative worth
we put on the products or services that we buy. Those companies that
deliver the value that customers seek thrive. If companies overcharge,
others enter the market: consider the impact that low cost airlines such
as Ryanair have had on the cost of air travel. But in healthcare there is
marked information asymmetry and arms length purchasing. National Health
Service (NHS) purchasers are rarely able to weigh up in detail the merits
of competing drugs. And patients themselves do not have to trade off cost
against benefit as they themselves pay no more for an expensive drug than
a cheaper alternative. For any market to work well purchasers need to be
well informed. In the case of pharmaceuticals, Government has a clear role
to obtain and share relevant information about drugs’ relative clinical
effectiveness.

In Joe Collier’s editorial (1) on the recent Office of Fair Trading
review of the Pharmaceutical Price Regulation Scheme (2) he applauds the
recommendation that drug prices should be negotiated at launch for each
drug individually using robust evidence of the product’s perceived
clinical value.

An independent expert commission may be well placed to identify
drugs’ relative clinical worth, presumably much in the way that the
National Institute for Health and Clinical Excellence tries to guide
health purchasers. But economic theory suggests that once relevant
information is shared with purchasers, markets are best placed to
determine price. So to ask the proposed commission to also negotiate on
price seems inappropriate.

Government should be working to eliminate other barriers to the
efficient operation of a market in pharmaceuticals. It could facilitate
parallel imports if drug companies attempt to price discriminate in
markets across Europe. It could encourage new entrants to boost
competition as it is doing in the provision of NHS medical services
themselves. It may also like to consider reform to the system of patent
protection that keeps prices high as Stiglitz, the Nobel laureate, has
suggested in this journal (3). Only then shall we be confident that the
NHS is paying an appropriate price for drugs on patients’ behalf.

1. The Pharmaceutical Price Regulation Scheme
Collier J BMJ 2007 334: 435-6

2. http://www.oft.gov.uk/advice_and_resources/resource_base/market-
studies/price-regulation accessed 23rd March 2007

3. Scrooge and intellectual property rights
BMJ, Dec 2006; 333: 1279 – 1280
Joseph E Stiglitz

Competing interests:
None declared

Competing interests: No competing interests

26 March 2007
Timothy D Heymann
Reader in Health Management
Tanaka Business School, Imperial College London