There is a “significant risk” that direct-to-pharmacy (DTP) medicine distribution arrangements, such as the sole supply scheme agreed between Pfizer and Unichem, could increase costs to the National Health Service, potentially by hundreds of millions of pounds, according to government market watchdog the Office of Fair Trading (OFT).

DTP schemes could also mean patients having to wait longer to receive their treatments, warns the OFT in its long-awaited report on medicines distribution, which it began in early April and has published this morning.

Under the traditional wholesale model for distribution of branded medicines, manufacturers supply to wholesalers, typically at the industry's conventional discount of 12.5% to the list prices. Wholesalers then compete to supply pharmacies and offer discounts from the list prices. DTP schemes, on the other hand, permit manufacturers to set (and raise) the prices paid by pharmacies, and pay wholesalers a fee for delivering their medicines according to their required service standards.

DTP arrangements could create efficiencies in distribution, says the study, and it recommends therefore that the Department of Health should make further changes to the Pharmaceutical Price Regulation Scheme (PPRS), to ensure that NHS drug costs do not go up as a result of changes in distribution. It offers two options for achieving this: reducing list prices in the PPRS framework by an amount equivalent to the average discounts received by pharmacies; and pharmaceutical suppliers offering a minimum list price discount to pharmacies. This would accommodate both DTP and the traditional wholesale model, says the OFT, which notes that, as the PPRS is currently in the process of renegotiating, this presents “a key opportunity to incorporate changes."

“If the government is concerned about reductions in service standards to pharmacies, it should seek the agreement of manufacturers to adopt minimum service standards,” the report goes on, adding: “government should ensure that it pays less if service standards are reduced.”

“The changes to the distribution of medicines in the UK are among the most significant for many years and have given rise to real concerns,” said OFT chief executive John Fingleton. “Building on our suggested reform of the PPRS, further action is needed to prevent increases in NHS medicines costs and to ensure service standards pharmacies to patients are of a satisfactory standard. Our recommendations give manufacturers the freedom to use the distribution models that suit them, while ensuring protection for patients and the NHS,” he added.

Pfizer response
Responding to the OFT report, Pfizer welcomed the fact that it contains no recommendations for further action or referrals on competition grounds, and its acknowledgement that DTP schemes may give rise to efficiencies in distribution. A company spokesperson said that Pfizer had introduced its scheme to secure the supply chain and ensure the availability of “safe and effective” Pfizer medicines for patients, and added: “Pfizer has always maintained that its model is in full compliance with all applicable [European Union] and UK laws.”

The company is however adamant that its scheme does not increase the cost of its medicines to the NHS. “Our scheme has resulted in increased confidence in the secure supply of Pfizer medicines since its introduction in March 2007 at no additional cost to the NHS,” said Pfizer Ltd’s managing director, John Young.

For the study, the OFT says it has consulted widely with stakeholders and considered the drug pricing and distribution systems of other countries including France, Germany, Sweden and the Netherlands. The government now has 90 days to respond to its recommendations, and this process will be led the Department for Business, Enterprise and Regulatory Reform. Given that any future widespread use of exclusive distribution arrangements could lead to longer-term competition concerns, the OFT says it will monitor the situation “with the prospect of future investigation, if appropriate.”