| Direct-to-pharmacy distribution (DTP)
schemes that have cropped up over the past year appear to be here to
stay. The Office of Fair Trading has not asked Pfizer and other manufacturers
to unpick their DTP arrangements as many people have been hoping it would
(see Panel below).
Instead the OFT has opted for a number of recommendations
for the Government to consider — proposals that, it says, will
ensure costs to the NHS and service to patients are not adversely affected
by changes in the market.
Options considered by the OFT
The Office of Fair Trading alluded to several possible
outcomes when it launched its market study into UK medicines distribution
earlier
this year. These included:
• Giving the sector a clean bill of health
• Referral to the Competition Commission
• Initiating a Competition Act 1998 (CA98) investigation
• Making recommendations to the Government
The OFT has opted for the last option. It says: “We
have chosen not to open an investigation under the CA98 at this
point.
While we have identified some concerns with DTP schemes and reductions
in the number of wholesalers, these arise largely because current
pricing arrangements under the PPRS are set up in the context of,
and reflect, the traditional wholesale model. Our view is that
the most appropriate way to deal with this is to enhance the PPRS
so that it can accommodate different distribution methods.”
Furthermore, the OFT does not believe that its concerns over Pfizer’s
exclusive distribution deal are sufficient to warrant action under
CA98.
Pfizer UK commented: “Pfizer has always maintained that its
model is in full compliance with all applicable EU and UK laws
and is pleased to note that the OFT report contains no recommendations
for further action or referrals on competition grounds.”
The OFT adds: “We have also decided not to refer the market
to the Competition Commission … because we consider that the
concerns identified are best dealt with by recommendation to the
Government.” |
Nevertheless, the OFT makes no bones about what
detrimental impact DTP could have on the cost of drugs to the NHS, as
well as on levels of service
to both pharmacies and patients particularly with respect to Pfizer’s
exclusive distribution deal with UniChem.
And, although Pfizer’s
DTP arrangement may remain in place, the OFT says it might have to intervene
if other manufacturers go down the sole-distributor path, exacerbating
competition concerns within the sector. Cost to contractors and the NHS
The OFT admits that DTP arrangements have the potential to cost the
NHS hundreds of millions of pounds a year. It says: • DTP gives manufacturers the ability to decrease discounts to pharmacies,
which could lead to significant cost increases to the NHS
• DTP will reduce or remove the distribution cost cross-subsidy (where
high
volume/value products subsidise the distribution costs of low volume/value
products) associated with the traditional wholesale model. Higher costs
for manufacturers of low value/volume medicines could be passed on to
the NHS
• Different DTP systems that require pharmacies to appoint different
wholesalers are likely to result in some increase in pharmacy administration
costs
It is not clear under the existing Pharmaceutical Price Regulation Scheme
(PPRS) whether the Department of Health is able to require, monitor or
enforce assurances that the adoption of DTP schemes by manufacturers
will not result in increased cost to the NHS, says the OFT.
Even so, the OFT believes that the key to ensuring the NHS and pharmacists
are not left out of pocket lies with the PPRS, changes to which are currently
being negotiated by the Department of Health. Accordingly, the OFT recommends
that the Government makes changes to the PPRS that will ensure the discounts
currently obtained by pharmacies are safeguarded.
The OFT proposes two possible options on this front. The first proposal
would see the NHS list price of medicines reduced to reflect the removal
of discounts offered by manufacturers to pharmacy. “Our proposal
would effectively alter the level in the supply chain at which the transaction
price of medicines is constrained,” the report explains.
This option
would require changes to pharmacy reimbursement as the reimbursement
price would not be expected to contribute to retained profit. The OFT
says that the issue could be resolved by direct payment from primary
care organisations to pharmacies based on prescription volumes or some
other adjustment to the current reimbursement mechanisms.
The second option would be for the NHS to seek an agreement from manufacturers
to offer a minimum discount on sales to pharmacies, within the PPRS
framework. The OFT considers this the simpler option, not requiring
the same level
of changes to PPRS or pharmacy reimbursement. Effect on service levels and competition
It is likely that DTP schemes will lead to reduced service levels to
pharmacies and, potentially, patients, the OFT states. And while the
OFT admits that DTP schemes could provide some benefits, for example,
more targeted product and service support from manufacturers and reduced
patient exposure to counterfeit medicines, it says that such benefits
are difficult to quantify.
Furthermore, the report says: “We reach no view on whether the
traditional wholesale model is the most efficient way of providing satisfactory
service standards or whether current service standards are in any sense
optimal.”
And the OFT’s solution is to expect greater clarity on what service
level the NHS is paying for from a manufacturer when it negotiates product
prices under the PPRS. It recommends that the Government seeks agreement
from manufacturers on minimum service standards. “Any deterioration
in service levels should be reflected in the prices paid for medicines
by the NHS,” the OFT suggests.
Exclusive distribution arrangements, the OFT says, may in the longer
term lead to one wholesaler having significant market power. It warns
manufacturers that reduced competition in the wholesale/distribution
sector could ultimately affect their ability to obtain competitive bids
for distributing their medicines.
The OFT concludes: “We believe our recommendations safeguard against
increased costs to the NHS and ensure service standards to pharmacies
and patients will be maintained, while allowing manufacturers the commercial
freedom to choose the distribution arrangements they consider to be most
efficient and best suited to their portfolio of medicines.”
But, despite not calling a halt to the recent distribution changes, the
OFT has highlighted enough issues around the new supply models, including
Pfizer’s sole-distributor arrangement, to suggest that it will
not allow manufacturers free reign from here on in — indeed the
OFT has said that it would take another look at the situation if other
manufacturers follow Pfizer’s lead or if competition is unduly
affected. |
The
Pharmaceutical Journal