Jumping the Gun

For more than half a century, drug prices in the United Kingdom have been set by the Pharmaceutical Price Regulation Scheme (PPRS), a "cost plus" profit control plan developed in 1956 to ensure that the National Health Service (NHS) has access to "quality branded medicines at reasonable prices, and promotes a healthy, competitive pharmaceutical industry." Over the years, this complex system has evolved to the point that pharma companies are now free to set the price for their product, as long as profits do not exceed a predetermined level.

Sarah Houlton

The PPRS is usually renegotiated every five years, with the current deal set in January 2005. But last August, the UK Department of Health sent shock waves through the pharma industry when it announced that it would scrap the current agreement and begin renegotiation a couple of years early.

Now it appears that the Association of the British Pharmaceutical Industry (ABPI) and the British government have come up with a solution that isn't as bad as the industry had feared. The government's aim is for the new system to be up and running in January 2009. The meat of the proposal is a cost savings of 5 percent on drugs the NHS buys, with an additional 2 percent cut to kick in if the increase in total cost exceeds 6.7 percent either this year or next year. This extra reduction would take effect in 2010 or 2011.

The 5 percent cut will comprise a 2 percent across-the-board reduction in price of all branded medicines, combined with a system to lower the prices of off-patent meds where there is generic competition. Additional variable price cuts will bring the overall figure up to 5 percent. Companies with sales of less than £25 million will be exempt from the price cuts on their first £5 million of sales.

Encouraging Innovation

While the new PPRS may seem gloomy, there is a silver lining for industry—a government promise to support innovation in return for the cuts. For years, pharma companies have been complaining that the adoption of innovative medicines is extremely slow in Britain. Even after a drug is approved by regulators, pharmas have to clamber over cost-effectiveness hurdles set in place by the National Institute for Health and Clinical Excellence (NICE). This leads to the phenomenon called "NICE blight," where Primary Care Trusts (the local groups responsible for health budgets) refuse to sanction the use of licensed drugs until NICE rules—NICE rulings can take months or years.

The current lack of support for new medicines flies in the face of the government's stated commitment to promote innovation, and to do so by purchasing. Several new proposals aim to remedy this. One idea is to set up a single horizon-scanning process to keep an eye on developmental drugs, with the formal involvement of industry. This should allow for better forward planning to prevent the launch of important but costly drugs coming as a huge financial shock. Another plan is to pilot prescribing-incentive schemes, which would encourage PCTs to prescribe new meds.

In addition, new metrics will be introduced to track the adoption of NICE-approved medicines, comparative to international figures. Patient groups can then "name and shame" PCTs that aren't playing by the NICE rules.

The ABPI described the government's proposals as a "significant deal" that provides an excellent platform to improve access to innovative medicines. "The [newly outlined] PPRS will not only offer benefits to the NHS and to the industry, but most of all to patients, with a raft of measures designed to eliminate delays in providing the most modern medicines," said ABPI president Chris Brinsmead, chairman of AstraZeneca UK.

The government is happy with the progress, too. "I am delighted [we] have been able to make such encouraging progress," says Secretary of State for Health Alan Johnson. "We have a duty to ensure that patients continue to benefit from innovative products at a reasonable price, and the taxpayer gets value for money. We also recognize the industry's important contribution to the economy, developing new medicines, and to the UK's research capacity."

Sarah Houlton is Pharmaceutical Executive's global correspondent. She can be reached at sarah@owlmedia.co.uk