Global Insight Perspective | |
Significance | The U.K. government is pushing for a 10% price cut on the medicines covered by the PPRS and wants the industry to agree by the middle of 2008. |
Implications | Additional price cuts could be implemented before the current PPRS runs out, throwing the traditional five-year price stability out of the window. |
Outlook | The institution of the 50-year old PPRS is probably approaching the end of its life in its current form, as the government will be looking at better value for money in drug pricing. |
U.K. health minister Alan Johnson is determined to strike a deal with the pharmaceutical industry by June 2008 that will decrease the prices that the NHS pays for branded prescription medicines by an extra 10%. In an interview with the Financial Times, Johnson pledged to significantly reduce the drug bill in the negotiations. A 10% price cut for pharmaceuticals covered by the PPRS is expected to generate savings of at least £1 billion annually.
The price cut is part of the Department of Health's (DoH) drive to achieve "efficiency savings" of 3% over the next three years, as set by the Treasury. In addition to the DoH's saving targets, the pressure to contain NHS spending is high as the health budget has been set to grow by 4% annually over the next three years, down from 7% annually over the last five years.
The PPRS controls drug prices in the United Kingdom and is negotiated by the government and the Association of the British Pharmaceutical Industry (ABPI). The scheme is the centre-piece of the government's efforts to control NHS drug expenditure, and operates through a combination of the price cut mechanism and profit controls. The PPRS covers all branded licensed drugs sold through the NHS, including vaccines, in-vivo diagnostics, blood products, dialysis products, branded drugs supplied through tendering, branded drugs that have fallen off-patent and biologics. The current PPRS, which was signed in 2005 and was supposed to apply until the end of 2009, included a 7% price cut at the outset (see United Kingdom: 4 November 2004: Department of Health Confirms 7% Price Cut for Branded Drugs).
Outlook and Implications
In effect, the government is re-negotiating the terms of the existing PPRS, as it warned it may do last summer (see United Kingdom: 3 August 2007: DoH Intends to Renegotiate Drug Pricing Scheme in U.K.). Negotiations on additional price cuts to the current PPRS are sure to prove unpopular with the pharmaceutical industry as they will squeeze profits even further. The APBI is likely to fight the plan and argue that the stable prices guaranteed by a five-year agreement is paramount to pharmaceutical research and development (R&D) investment in the country (see United Kingdom: 20 February 2007: ABPI Defends PPRS After New Report Says NHS Paying Too Much for Pharmaceuticals).
The DoH's bold demand is motivated by the need to contain NHS spending. The government could also be taking advantage of the controversy surrounding the PPRS after an Office of Fair Trading (OFT) report urged major reform of the scheme. The consumer watchdog recommended pricing through an approach based on health impact rather than the cost to the manufacturer, and feels this method could save the NHS £500 million annually.
The government is shaking the 50-year old PPRS institution and this could be a hint that major reforms lie ahead in the pricing of medicines in the United Kingdom. The move towards value-based pricing would rely heavily on the evaluation of drugs' cost-effectiveness by the National Institute for Health and Clinical Excellence.