| It used to be said that only two people understood the Pharmaceutical Price
Regulation Scheme and one of them was dead! The PPRS aims to control drug
company profits and prices in the UK, and teams from the Department of
Health and the Association of the British Pharmaceutical Industry are currently
negotiating a new deal, scheduled to come into force in October 2004.
In front of them is a variety of options, ranging from simply continuing
the current agreement, signed in 1999, for another five years, to abandoning
the PPRS altogether, and letting the NHS take on the industry over drug
prices.
Neither party in the negotiations will talk about the options but, on the
industry side, there is a sense of safety in a system that has become familiar
over nearly 50 years.
The PPRS covers around 80 per cent of all branded drugs used in primary
and secondary care in the NHS, but excludes generics. Under the present
agreement, any pharmaceutical company with annual sales to the NHS of over £25m
has to submit data to a 15-strong team at the DoH on its UK sales, costs,
assets and profitability. Each company is allowed to make a return on capital
of up to 21 per cent. If a company exceeds its profit target by more than
40 per cent it has to repay the excess, either as a lump sum or through
reductions in the prices of its drugs.
Under the PPRS, pharmaceutical companies can set their own prices for newly
licensed products when they first reach the market, and it is important
that they get the price right first time because they are unlikely to have
a second chance. Prices of drugs can only be raised — with DoH agreement — if
profits fall below 17 per cent.
When the current PPRS agreement was signed in 1999, the DoH imposed a 4.5
per cent reduction in drug prices, which the DoH calculates is saving the
NHS some £200m each year. Nevertheless, UK prices are now the highest
in Europe (partly because of the strong pound) with only Germany and Ireland
coming close.
Drugs bill rising fast
The NHS drugs bill has been rising fast, fuelled partly by the Government’s
own initiatives, such as the National Service Framework for Coronary
Heart Disease. At the same time the working environment of the NHS has
changed dramatically since the last PPRS agreement was signed in 1999.
As a result, there are those from both industry and NHS backgrounds who
favour the most radical option on the negotiating table: deregulation.
“Things have changed so much that talking about the PPRS is like
talking another language on another planet in a different universe,” says
industry commentator Roy Lilley, a founder member of the NHS Trust Federation,
now the NHS Confederation.
He would like to see more so-called “reverse auctions”, in
which NHS trusts tell companies how much of a product they need, and
get them to down-bid each other for the business. In return for the lower
prices he believes would result, he thinks that companies should get
longer patent protection for its most innovative products.
The question is whether, even with their newly acquired business acumen,
trusts would have the negotiating skills, or the desire, to take on the
pharmaceutical companies. American view
Also outspoken in its support for deregulation of price controls is
the American Pharmaceutical Group (APG) which represents the 11 US companies
with bases in the UK. In its response to the DoH consultation document
on the PPRS issued last autumn, the APG argued that less regulation
could help stimulate research in the UK and bring products to the clinic
more quickly.
“The result would be cost benefits for the NHS and taxpayer by providing
patients with early access to innovative medicines that reduce or eliminate
the need for more costly invasive and inpatient treatment,” said
the APG.
US pharmaceutical companies are more comfortable working in the deregulated
environment that operates in the US than with the PPRS in the UK. But
with Government figures showing US drug prices to be roughly double what
they are here, who would not?
So, if complete deregulation is unlikely to be acceptable to the DoH,
at least in the run up to a general election, what could be the most
likely outcome of the current discussions?
There is a widespread expectation that, as in other European countries,
the pharmaceutical industry will have to accept a cut in overall drug
prices when the new PPRS is signed, probably comparable with the 4.5
per cent they agreed in 1999. In return, companies will certainly hope
to be allowed to continue to set prices for new drugs. They only have
to look across the channel to France to see the delays in getting new
drugs on the market when companies are required to negotiate the price
of each new drug with the government.
Alan Jones, previously with Glaxo-Wellcome and now a health policy analyst
with ajc healthcare, points out that new drug prices are pretty realistic. “The
UK market is more price-sensitive than it used to be, and companies don’t
go for huge prices with new products. They tend to come in at prices
that are very similar to those of drugs that are already on the market,” he
says.
He believes that the industry might reasonably argue for higher prices
for new drugs with proven cost-effectiveness benefits at launch and,
in the future, those with pharmacogenetic data to support their value
in specific groups of patients.
“
For low volume, targeted products, the industry might reasonably argue
for a more relaxed approach to pricing,” he says.
Considerable room for manoeuvre also lies in the so-called grey area
around which each company’s profitability is calculated, based
on its capital expenditure, research and development, etc. More allowance
could be made for a firm’s R&D record, but the Government is
unlikely to increase the amount that companies can spend on promotion,
currently limited to about 7 per cent of NHS sales. Effect of NICE and parallel imports
In its consultation document, the DoH did not include two issues that
the industry would argue have taken a substantial toll on profitability:
the National Institute for Clinical Excellence and parallel imports.
But they are undoubtedly going to be raised in negotiations.
Pharmaceutical companies argue that “NICE blight” can seriously
delay the uptake of a new medicine while purchasers and formulary committees
await the results of technology assessments before giving products the
go-ahead. The parallel import trade has increased considerably since
the last PPRS agreement and now costs the industry an estimated £1.4bn
per year.
How the industry could be compensated within the PPRS for the impact
of NICE and parallel imports is unclear. But they will certainly feature
high on the ABPI’s list of reasons to make the new agreement more
industry-friendly. The “grey area” could become greyer; promises
could be made for further deregulation after the next election.
Indeed, there is no requirement for a new deal to come into force in
October. The Government could agree an extension of the current arrangements
this year and set up a review board to consider the future of the PPRS
within the new NHS. But that would mean even more people having to get
to grips with an archaic system which only a handful of industry financiers
and government accountants can truly say they understand. |
The
Pharmaceutical Journal