10% drug price cut in the UK

By Andrew Jack and Nicholas Timmins

A cut of 10 per cent in the prices the NHS pays for prescription medicines is being sought by the government in a deal it plans to conclude with the pharmaceutical industry by the middle of the year.
Alan Johnson, the health minister, told the Financial Times that he planned to generate substantial savings in the drugs budget during talks to be completed by June on the Pharmaceutical Price Regulation Scheme, the agreement that covers the price to the NHS of branded drugs.
Government officials are believed to have staked out an initial position with industry to cut the £11bn annual medicines bill by at least 10 per cent, or about £1bn.
The demand is part of the health department’s efforts to make savings of 3 per cent a year, imposed by the Treasury as part of the comprehensive spending review announced last year.
Pharmaceutical industry negotiators have expressed surprise and frustration at the demand. They agreed to an average 7 per cent cut in medicine prices in 2005 as part of the last renegotiation of the PPRS, which was meant to run until 2010.
The industry says the five-year deal provides predictability and stability in pricing, encouraging investment in new drugs.
It is concerned that the department is interested only in the narrow issue of reducing medicine costs, without taking account of the savings drugs can provide in health and social care costs, and the damage that lower prices could do to investment in research and development in the UK.
The industry may endorse calls to remove “branded generics” – drugs that are already off patent – from the PPRS. But in return it will seek higher prices for innovative drugs and much quicker uptake by the NHS of new products, arguing that the UK lags behind other countries in adopting new pharmaceuticals.
Aside from Mr Johnson’s desire to save money, the PPRS is under pressure from two reports from the Office of Fair Trading. One called for the scheme to move from its present basis – where it largely controls profits – to an approach based on value, where the amount the NHS pays would be much more closely related to the benefit the drug produces. That would probably produce higher prices for some drugs, but lower ones for others. The other report criticised medicines distribution.
There have also been demands for a review after a legal judgment last year that ruled in favour of GlaxoSmithKline against the department, in arguing that the PPRS was not an informal agreement but a formal legal contract.
Mr Johnson told the House of Commons health select committee late last year that pharmaceuticals was one of the areas he was targeting for savings.
Stressing the requirement to secure efficiency savings of 3 per cent a year, he said: “We have reopened negotiations with the pharmaceutical industry on the PPRS” and, along with improved procurement and spreading best practice in the NHS, the PPRS was “a very big and important part” of achieving the savings.