Changes to the regulation of drug prices in the UK
On 11 December 2008 the Department of Health and the Association of the British Pharmaceutical Industry jointly published details of an agreement they had reached after nine months’ negotiation for the pricing of brand name drugs sold to the NHS.1 The new terms, which came into effect on 1 January 2009 and will run for five years, are the latest in a continually evolving Pharmaceutical Price Regulation Scheme.
Under the framework of this scheme, which was originally known as the Voluntary Price Regulation Scheme, government and industry have been negotiating “voluntary and non-contractual” terms for drug pricing since 1956, and the previous set of terms—which started in 2005—was due to run until 2010. However, in 2007 a market report from the Office of Fair Trading argued that the scheme was outdated, perverse, and not fit for purpose, and demanded that it be reformed.2 The government unilaterally withdrew from the 2005-10 scheme in February 2008 despite resistance from the drug industry.3 To what extent does the current scheme allay the Office of Fair Trading’s criticisms?
Much has been reformed in the pricing agreement, although an opportunity for a new start, with new structures and new relations, has not materialised. So, through the Pharmaceutical Price Regulation Scheme, the Department of Health will remain the “sponsoring” department for the drug industry in the United Kingdom, and the scheme will still be voluntary and non-contractual. As before, a profit margin will be calculated annually for each company according to its fixed assets (for example, its land, buildings, plant, and machinery), with monies repaid to government if the margin is exceeded and vice versa; and in calculating the profit margin, allowances will continue to be made for research and development, innovation, promotion, and the provision of information.
However, the new scheme contains key changes, among which are the way individual drug prices are set and modified, the central role that the National Institute for Health and Clinical Excellence (NICE) will play in the pricing process, and a more determined effort by the department to ensure that NICE’s recommendations are fully implemented. In addition, and as part of the new deal, government has negotiated a 5% overall cut in the cost of drugs sold to the NHS, estimated to be equivalent to £350m (
415m; $520m) in 2009-10 and £500m for each year thereafter.1 4 Separately, but crucially, generic substitution is to be allowed in the community. So, from January 2010 pharmacists in the community will be able to substitute generic equivalents for drugs prescribed by their brand names. This has happened in hospitals for years and is a welcome change because it weakens the hold of brand name products.
As of now, the price of each new drug will be based on its clinical value (”the value the medicine provides to NHS patients”) and will no longer be determined by the company according to what it feels the market can bear. Moreover, prices will be flexible, and so could start low and increase (or decrease) depending on subsequent evidence. Prices could also increase if a new indication emerges, in which case the product could have two prices—one for each indication—with the price difference managed through a reimbursement system. Central to the arrangements will be NICE’s technology appraisals, which will now be undertaken for most new products (no longer for a selected few) and will be available within months of drug launch. Moreover, as part of the new Pharmaceutical Price Regulation Scheme, the elements of the quality adjusted life year will be reviewed, to ensure that it can be used to best reflect clinical value. Over the next three years NICE’s funding is being doubled to just over £60m (Andrew Dillon, personal communication, 2008), no doubt to help meet this expanded workload.
Knowing that a positive NICE appraisal is crucial to a product’s future in the UK, companies will need to “second guess” NICE’s recommendations when setting their prices. NICE’s decisions will certainly be crucial in the flexible pricing arrangements. Importantly, if NICE does not approve a new product, one option is for the company to work with the various health departments across the UK to establish a Patient Access Scheme. The new Pharmaceutical Price Regulation Scheme repeatedly asserts that NICE “will not negotiate or publicly set or publicly indicate prices”; however, it seems inconceivable that some “discussion” will not take place.
The terms of the new Pharmaceutical Price Regulation Scheme are welcome, even if the changes are somewhat timid. The government and the Association of the British Pharmaceutical Industry have gingerly responded to the criticisms of the Office of Fair Trading, but they go nowhere near meeting them in full. Perhaps they see this as a stepping stone and plan to make the full transition at the next round of changes in 2013. To check if the experiment (for it is just that) is successful, patients, doctors, and the public will need to have access to the workings and outcomes of the new scheme. A public debate on the achievements of the new arrangement would seem sensible. Inevitably NICE will play an increasingly important role in determining what we pay for medicines. It is essential that NICE remains true to its origins and provides advice that is intellectually independent of the government and drug companies. The risk that these new arrangements will draw the
BMJ 2008;337:a2735