Global Report: If It Ain't Broke

Under the UK's pricing scheme, drug prices have dropped by 21 percent in 10 years. Is it really time for a change?
Apr 01, 2007


Sarah Houlton
If the uk's office of fair trading (OFT) is to be believed, Brits are overpaying for their medicines to the tune of £500 million a year. That's the conclusion the OFT came to in its long-awaited report on the Pharmaceutical Pricing Regulation Scheme (PPRS), the arcane method by which drug prices are set in the United Kingdom.

Industry is crying foul. OFT was charged by the government to look at the PPRS's three principal aims: ensuring reasonable prices, promoting a strong pharmaceutical industry, and encouraging competition. But critics say it has focused almost entirely on cost, and not the wider issue of fostering innovation.

"They were supposed to take a broader remit," says Richard Barker, director general of the Association of British Pharmaceutical Industry (ABPI). Despite OFT's claims, the UK's National Audit Office concluded in February that the PPRS has saved the National Health Service (NHS) £1.2 billion, that prices are down 21 percent from a decade ago, and that first-in-class medicines are invariably launched in the UK at a lower price than in other large European markets.

The PPRS has been in operation for the past half-century, and it is renegotiated every five years. Rather than set prices, it leaves pharma companies free to pick their own, as long as their profits remain below a preset level. The last renegotiation, which came into force in 2005, led to prices being cut by 7 percent. Industry believes that, despite its complexity, the PPRS works relatively well, providing return on investment that rewards them for the money they spend on innovation.

OFT, however, proposes that the UK move to a value-based scheme in which the price NHS pays for medicines reflects the therapeutic benefit they bring to patients. It claims that similar systems have worked well in other countries, such as Australia, Canada, and Sweden, and that eventually value-based pricing would encourage companies to invest in drugs for conditions for which the need is greatest.

Decisions on value would be made by the National Institute for Clinical Excellence (NICE) and its equivalents in Scotland (the Scottish Medicines Consortium) and Wales (the All Wales Medicines Strategy Group). One of these bodies would suggest a cost-effective price for each drug, passing its conclusions to a pricing unit within the Department of Health, which would then negotiate the final terms with the pharma companies.

Barker is concerned that NICE and its counterparts will not have enough data to make informed decisions in advance of a drug's launch. "Data availability at that point is extremely limited and not representative as they come from clinical trials on selected patients," he says. "It also then locks us into negotiation with government before launch, so there will be a delay in drugs reaching patients." He added that this has already been seen in countries that operate similar systems.

A main concern is that the stable environment provided by the PPRS's five-year cycle will be lost and that this will discourage investment. "There is a clear link between the stability of the market and companies' willingness to invest," says Professor Adrian Towse, director of the Office of Health Economics (OHE).

Barker agrees. "When I sit in meetings with international CEOs, all they want to know is whether their investment will be rewarded," he says. "This is one advantage the stability of the PPRS brings."

Industry executives have come out in support of the existing scheme, expressing alarm at the proposed alternative. "The PPRS has worked well over the years, and that's contributed to a vibrant research environment [in the UK]," claims Charles Bouchard, executive director, European government affairs at Merck, Sharp & Dohme. "Our main concern is that the bad practices we have seen across Europe are not adopted here. Our advice as this debate is launched is [to remember] innovation—do not kill the golden goose, but consider the patients."