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Logo of bmjThis ArticleThe BMJ
BMJ. 2007 August 11; 335(7614): 273.
PMCID: PMC1941899

Government pushes ahead with plan for cheaper drugs deal for NHS

Nicholas Timmins, public policy editor, Financial Times

Ministers want to switch the way the NHS pays for the £8bn (€12bn; $16bn) worth of branded drugs that it buys each year. They want to move to a system in which drug prices are based on the benefits they bring to patients—and it seems they want to do so quickly.

The radical move comes after a report from the Office of Fair Trading (OFT) in February that recommended such a shift from 2010, when the current 50 year old pharmaceutical price regulation scheme (PPRS) becomes due for its five yearly renewal (BMJ 2007;334:383 doi: 10.1136/bmj.39133.543438.DB) .

The industry had been expecting a response but not last week's announcement that ministers want a renegotiation now.

A “value based” scheme would aim to allow higher prices for drugs that are more effective—a move that the OFT argues would stimulate innovation. Lower prices would be paid for more marginal or less effective products and certainly for so called “me too” drugs that are close to products already on the market.

Such a scheme differs sharply from the PPRS, which, despite being called a price regulation scheme, in practice places controls on drug companies' profits rather than regulating the price of individual drugs. In its report the OFT argued that the change would provide better value for money while saving £500m a year—a figure the industry disputes.

The OFT set out various options for a value based scheme. Such a scheme could involve free price setting at a product's introduction, with adjustment up or down as evidence of its cost effectiveness emerged. Alternatively—or in addition—prices could be set at a product's launch, where there is enough evidence of its cost effectiveness, possibly shown at trial stage. And in the case of products that are in an already existing therapeutic class, comparison with the price of generic or off-patent drugs would also be taken into account. A wholesale shift would require a significant price setting bureaucracy.

Some drug companies are interested in the approach. But others warn that genuine breakthroughs are rare and that much pharmaceutical advance is incremental. Offering full market rewards only to “first of a kind” drugs would damage research, the Association of the British Pharmaceutical Industry (ABPI) believes, a view opposite to that of the OFT.

How quickly the new approach, in which the National Institute for Health and Clinical Excellence (NICE) would be likely to play a greater, price setting role—can be brought in remains to be seen. The ABPI's view is that the OFT's proposals are “unworkable in their current form.”

But one thing is certain. The old dual and conflicting role of NHS pricing, aimed at getting the health service a reasonable deal as well as supporting an industry that the government cares about deeply (the UK accounts for 10% of worldwide pharmaceutical research and development even though it makes only 3% to 4% of sales), looks to be over.

Other mechanisms would be needed to support the industry, such as last December's propositions from the Cooksey review of a single £1bn health research fund, public support for health technology assessment, and other measures aimed at cutting drug development costs and ensuring that the UK remains an attractive place to do pharmaceutical business.

Articles from The BMJ are provided here courtesy of BMJ Publishing Group