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How to comment
Comments on the proposals can be sent
to
Trudi Rwababi
Generic Medicines
Room 133, Richmond House
79 Whitehall, London SW1A
2NS
e-mail generics@doh.gsi.gov.uk
until 31 October. E-mail responses
should be titled “generic consultation”. |
Final proposals for supply, pricing and reimbursement arrangements
for generic medicines under the National Health Service in England have
been
published by the Department of Health.
In essence, manufacturers will be allowed to set their own prices for
newly launched generic medicines, provided they are cheaper than the
patented brand, but further price increases will require departmental
permission if there are few manufacturers or if one manufacturer is
dominant. Drug Tariff prices for generics will be linked to the net
prices charged
to wholesalers and pharmacy contractors, with manufacturers and wholesalers
having to submit quarterly returns of their generic revenues, purchase
costs and transaction volumes.
The consultation paper setting out the new arrangements, which are
to come into force on 1 April 2004, says that the new scheme will be
voluntary,
but that any companies that fail to join it are likely to made subject
to statutory controls.
Why the market is to be controlled
The supply of generic medicines to the National Health Service
used to be a free market. At the end of 1998 failures to comply
with good manufacturing practice requirements led the then Medicines
Control Agency to revoke Regent-GM Ltd's manufacturing licence.
The company held a significant share of the generics market and
other companies were unable to fill the gap. The supply of generics
was disrupted for a year, accompanied by serious shortages of many
products and price rises of up to 600 per cent. Accusations of
profiteering were made. As a result, Oxford Economic Research Associates
was commissioned by the Department of Health to review the market.
In July 2001 the DoH proposed that the market
should be reined in by a system of reference pricing or central competitive tendering
(PJ, 28 July 2001, p109).
Since then, discussions between the DoH, the British Generic Manufacturers
Association, the British Association of Pharmaceutical Wholesalers
and the Pharmaceutical Services Negotiating Committee have led
to complete revision of the 2001 proposals. |
Manufacturers
The details of the scheme, as it applies to manufacturers, are to be
thrashed out between the department and the organisations that represent
generic manufacturers. It will apply to all generic medicines prescribed
in England under NHS arrangements. Three different pricing schemes
are proposed, depending on the prevailing market situation for different
medicines.
Companies will only be allowed to put up the prices of generic medicines
if they can prove that the rise is neccessary and reasonable |
Manufacturers will be free to set their own prices, and raise or lower
them at will, for medicines where there are a number of active manufacturers.
An “active” manufacturer is one that has supplied that medicine
for the previous 12 months. However, where prices of any specific product
or pack size change by 10 per cent or more between quarterly returns,
manufacturers may be asked to provide an explanation. They may also be
asked to explain successive smaller quarterly increases.
Tighter controls are proposed for products that are manufactured by fewer
than two or three companies and where one manufacturer holds a 40 per
cent market share or more. In these cases, price increases will require
departmental approval, subject to eight weeks’ notice. Approval
will depend on an auditable analysis of manufacturing and supply costs
supported by evidence that any increase in costs is not reasonably avoidable.
Manufacturers might also be asked to show that their profit margins on
other products sold to the NHS are fair and reasonable. Subsequent price
increases will not be allowed for 12 months.
The proposal for the pricing of new products is vague, but centred on
a suggestion that companies might be allowed to set their own market
entry price, subject to a maximum percentage of the original brand price
or its parallel import. Line extensions could be subject to the same
constraints. Wholesalers
The proposals relating to wholesalers are restricted to requirements
to provide quarterly statistical returns on their trade in generic
medicines.
Wholesalers will have to give the DoH quarterly details of the total
net sums paid to all generic manufacturers for each generic product,
broken down by strength, presentation and pack size, along with details
of sales volumes and any rebates that cannot be attributed to specific
products. Similar figures for sales to pharmacy contractors and dispensing
doctors will have to be supplied.
Community pharmacies
A new way of setting Drug Tariff prices for generic medicines is proposed.
Ultimately, the tariff price is likely to be based on a simple formula
related to the volume-weighted average price of all manufacturers of
each product. This means that all current tariff prices will have to
be altered, which the DoH accepts could lead to significant changes.
To reduce the impact of this, the new price formula may be phased in.
The scheme acknowledges that pharmacies generally manage to buy generics
at prices below those set out in the Drug Tariff and that they should
be able to keep a share of the profit from doing so. Two ways of achieving
this are proposed. One is a delay between factory gate price cuts and
subsequent reductions to the tariff price. The other is to cut tariff
prices by less than the fall in the volume-weighted average price.
Like wholesalers, pharmacy contractors are to be required to submit data
to the DoH so that it can determine the margin achieved on generic dispensing.
Again, two possible mechanisms are proposed. First, is to require a sample
of contractors to submit copies of their invoices, probably quarterly,
either to the Department or to an agreed third party. Data from these
invoices would be used to generate a database of prices and volumes which
allows differentiation between independent pharmacies, small chains and
integrated chains.
The alternative suggestion is that figures for the total turnover and
margin (including non-NHS business) of a sample of pharmacies could be
compared to data from the Prescription Pricing Authority to enable statistical
calculation of the margin achieved on generics dispensed.
This second method is already being piloted by the Department and is
described as “simple to operate at minimal cost”.
The proposals are unlikely to be seriously challenged by the representatives
of the affected groups because the Pharmaceutical Services Negotiating
Committee, British Association of Pharmaceutical Wholesalers and the
British Generic Manufacturers Association have all been in joint talks
with the Department. The consultation document represents the outcome
of those talks.
PSNC chief executive Sue Sharpe said: “The proposals have three
elements of particular importance to pharmacy: the price tracking mechanisms;
the link between those prices and the Drug Tariff; and recognition that
pharmacies must have incentives to purchase wisely for the NHS. The last
of these elements marks a shift from the explicit government objective
in the 2001 paper of reimbursing community pharmacies as closely as possible
to what they have actually paid. This is the outcome of the negotiations
with the department. The amount of the incentive, what is needed to keep
a competitive market, and how it links with other details will be part
of the new contract funding discussions.”
Steve Dunn, chairman of the BAPW, said that wholesalers were signed up
to the proposals. “Most people will support the decision to move
to greater transparency,” he said. But, he argued, the real risk
lies in what is absent from the document. “How is the department
going to recalculate the Drug Tariff, for example,” he added.
This will be an issue for pharmacy interests generally, according to
Mr Dunn, because generics are reasonably profitable for both community
pharmacies and wholesalers “If the recalculation removes from the
supply chain money that funds activities that are not directly reimbursed,
then those activities may stop,” he said. “The real issue
is the law of unintended consequences. A well intentioned decision to
manage the supply chain so that the NHS gets transparency could make
services non-viable.”
Mr Dunn is particularly concerned that careless repricing could narrow
the range of products that wholesalers offer. He said: “There is
a huge range of products, the vast majority of which are unprofitable.
Full-line wholesalers hold about 3,000 generic lines, but 80 per cent
of sales come from only 400 of them. If it becomes uneconomic to distribute
some generic products, then wholesalers will focus on the profitable
ones.”
Warwick Smith, director of the BGMA, said that it was good that the DoH
wanted to retain a market mechanism that was driven by competition and
was transparently based on ex-factory prices. What is still unclear,
he said, is how the link between ex-factory prices and the Drug Tariff
will work.
It is not clear what the future might hold for generics pricing and reimbursement
in Wales and Scotland.
Phil Parry, chairman of Community Pharmacy Wales, said that he was waiting
to see proposals from the Welsh Assembly.
Frank Owens, chairman of the Scottish Pharmaceutical General Council,
said that the matter is currently under review.
The proposals, which are available on the internet,
do not apply to hospital supplies of generic medicines. |
