The Pharmaceutical Journal Vol 264 No 7078 p47
January 8, 2000 Business

Non-compliance leads to PPRS changes

Government dissatisfaction with pharmaceutical companies' compliance with the previous Pharmaceutical Price Regulation Scheme prompted changes to the new scheme and reserve powers in the Health Act 1999, according to a Department of Health report. Under the PPRS, pharmaceutical companies with annual sales to the National Health Service of more than £1m are supposed to submit each year an annual financial return (AFR) to the Department of Health detailing NHS sales and costs. However, between 1995 and 1997 about 40 per cent of companies had not submitted their AFRs within one year of the end of their financial years and one company had not submitted an AFR since 1990.

Prescribing of newer products has contributed to a rise in NHS spending on medicines

In the third report to Parliament on the PPRS, published on December 20, 1999, this continuing lack of compliance with the old agreement, which persisted despite protests by the Department to the Association of the British Pharmaceutical Industry, was cited as one of the reasons why reserve powers were included in the new Health Act. These would force any company which did not voluntarily sign up to the new PPRS to submit relevant details to the Department of Health.
Once AFRs are submitted, they are subject to verification and negotiation between the Department and the companies concerned. Aggregated figures for 1994 to 1996 show a ten-fold discrepancy between cost and profit estimates submitted by companies and those finally agreed by the Department. For example, in 1995, companies claimed to have made total profits of £49.7m on sales of £2.87bn but this was later adjusted to a figure of £398.1m, leading to a repayment of excess profits of £9.4m.
The report says that a 2.5 per cent across-the-board price cut imposed by the 1993 PPRS saved the NHS around £100m a year in subsequent years. A price cut of 4.5 per cent imposed by the 1999 PPRS is expected to save over £200m a year.
The report also examines the factors which have led NHS spending on medicines to increase from £3.3bn in 1992-93 (representing 11.2 per cent of total NHS spending) to £5.5bn (13.8 per cent) in 1998-99. The report says that between 1992 and 1998 the total net ingredient cost rose by 8.6 per cent, of which 3.2 per cent was attributable to an increase in the number of prescription items per head and to demographic factors such as an ageing population. The remainder was attributed to an increase in the average NIC per item, the largest part of which (4.8 per cent) was due to changes in prescribing from older, cheaper to newer and more expensive products.
Pharmaceutical Price Regulation Scheme: Third Report to Parliament. Department of Health. Available at www.doh.gov.uk/pprs along with the 1999 PPRS.