The Pharmaceutical Journal
Vol 270 No 7230 p6
4 January 2003

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Drug price competition has little effect on NHS buying, PPRS study finds

Price competition is not a major driver of the market for branded pharmaceuticals within the National Health Service, according to a new study of how the Pharmaceutical Price Regulation Scheme works.

The study was conducted following the renegotiation of the PPRS in 1999 and covers the part played by prices in the scheme up to the end of 2000. It was conducted in seven parts, run jointly by the Department of Health and the Association of the British Pharmaceutical Industry.

The study found that the market for selling branded pharmaceuticals to the NHS is fragmented into many sub-markets. Of these, 61 per cent had a dominant firm supplying more than 40 per cent of that sub-market in 2000, a slightly lower figure than in 1995. The average time for a second product to appear in a new sub-market is three years (range 0–9 years), with a third product likely to appear within another year.

The study found that, for branded pharmaceuticals, price competition is muted. Later entries to a sub-market are normally lower in price than the first product, but the incumbent normally maintains the largest market share and price cuts in response to a new competitor are rare. No well-defined relationship between price and volume of prescribing was found in the study. Prescribers choose drugs on the basis of clinical efficacy, safety, tolerability and convenience to the patient, the report says.

The only area where price competition appears to have a significant effect is in hospitals, which account for just under a fifth of the market. Here competitive tendering is more common and the use of generics is greater.

A summary of the results of the study were published as part of the sixth annual review of the PPRS, issued by the Department of Health on 19 December 2002. Overall, the report says that the PPRS is working as intended. Most companies which are party to the scheme have submitted their required annual financial return within the agreed timetable. No price rises have taken place without the Department's approval. Neither the Department nor the Association of the British Pharmaceutical Industry has yet taken up its option to call for an interim review of the 1999 PPRS.