The Pharmaceutical Journal Vol 267 No 7171 p585-589
27 October 2001

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Pharmacists should share benefits of reducing generics prices

Community pharmacists should share the benefits of reducing the prices paid for generic medicines in order to maintain a competitive market, according to their representative bodies.

A response paper on the Department of Health's proposals for the supply and reimbursement of generic medicines (PJ, 28 July, p109) pours cold water on the Department's two main proposals — reference based pricing and compulsory competitive tendering. It says that they would distort a competitive market that actually has a good performance record, would not offer value for money for the National Health Service in the long-term, and that their benefits have been overstated and the risks understated. The response paper was prepared by an economic consultant and submitted by the Pharmaceutical Services Negotiating Committee, the National Pharmaceutical Association, the Company Chemists Association and the Co-operative Pharmacy Technical Panel.

The paper suggests that the best way forward would be a benefit-sharing arrangement whereby the reimbursement price for generics should reflect the price paid (including discounts) plus an adjustment factor. This factor would, in essence, split the difference between the Drug Tariff price and the price actually paid and reward pharmacists for their efforts in reducing prices.

Speaking for the pharmacy organisations, Sue Sharpe and John D'Arcy, the chief executives of the PSNC and the NPA, respectively, said that a robust response to the Government's proposals was necessary, as was putting forward a constructive counter-proposal. However, benefit sharing would have to be seen as part of the overall funding of pharmacy and was inextricably linked to negotiation of a new pharmacy contract and the result of the Office of Fair Trading's inquiry into control of entry.

The response paper says that the reference based pricing scheme is poorly targeted on the problems identified with the current arrangements and that it is disproportionate and would weaken pharmacists' incentives to seek competitive prices.

Competitive tendering is also given short shrift, described as replacing a competitive market with a monopolised one. There would be a risk of higher prices in the event of any failures in the tendering process and in the longer term contracting might be bypassed altogether, it says.

The British Generic Manufacturers Association has expressed a preference for a reference based pricing system, but only if there is considerable further discussion about how such a scheme would work.

Paul Duke, general secretary, BGMA, said that the association's principal concerns are that any new scheme should cover all products and all suppliers in the generics marketplace. The scheme would have to ensure that there are sufficient incentives for wholesalers and pharmacists to continue using generics.

The BGMA believes that the current maximum prices scheme has caused problems for some of its members and has reduced competition. It is opposed to competitive tendering, which it thinks would undermine competition, force concentration among suppliers and lead to higher prices and shortages in the long term. Competitive tendering cannot work unless demand for generics can be adequately forecast, the BGMA says, and one of the lessons of the problems during 1999 is that demand is unpredictable. It is also concerned that pilot schemes for tendering might invite loss-leading bids resulting in problems if tendering was extended.

The Association of the British Pharmaceutical Industry has also expressed a guarded welcome for a reference based pricing system. However, it suggests that if such a scheme is established, it would need to obtain pricing information from a wider range of manufacturers than at present and from both full- and short-line wholesalers.

The British Association of Pharmaceutical Wholesalers has proposed that a scheme similar to the Pharmaceutical Price Regulation Scheme, which covers the sale of branded medicines to the NHS, should be established for generic medicines. The PPRS controls the overall level of profits companies can make on their sales to the NHS while allowing relative freedom of pricing for individual products. The BAPW wants to see prices for generics reviewed every two years. Reimbursement for pharmacists would be based on a capped price.

Maximum prices The Government is to extend the existing maximum price scheme for generics for a further year while discussions on new options continue.

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