The UK government has agreed with the Office of Fair Trading that better mechanisms are needed in order to deliver medicines at fair prices and value to the National Health Service, patients and taxpayers, and it also accepts that further improvements are needed in the uptake of cost-effective drugs.

The government has emphasised these points in its long-awaited interim response to the OFT’s controversial market study on the Pharmaceutical Price Regulation Scheme (PPRS), which concluded that - under the current system - the NHS was paying too much for branded products and called for the current price and profit controls to be replaced with a value-based approach which, it estimated, could save the Service around £500 million a year.

In its response - issued by the Department for Business, Enterprise and Regulatory Reform - the government acknowledges that, over the last 50 years, the PPRS has been effective in “a number of ways". It has helped ensure a stable pricing regime and sustain a strong pharmaceutical industry delivering valuable new medicines, which have contributed significantly to improvements in the health of the UK population, it says.

However, during this time, significant changes have occurred, it adds. Blockbuster drugs are rare, with innovation now increasingly focused on ever-smaller patient populations, and this creates major challenges in ensuring affordable delivery of these benefits to patients. Therefore, says the government, “to ensure that patients realise the full benefits of developments in this industry, we agree with the OFT that it is time to develop a pricing system which is fit for purpose for the 21st century.

Further opportunities for cost-effective Rx-ing

In recent years, the PPRS has been complemented by prescribing guidance issued by the National Institute for Health and Clinical Excellence (NICE) and the relevant bodies in Scotland and Wales, while generic prescribing has increased to the highest levels in Europe. In addition, much progress has been achieved in encouraging high-quality, cost-effective prescribing, an area which the government agrees with the OFT is crucial, adding: “We will continue to explore further opportunities in this area.”

In fashioning a way forward, the government says it will take account of the following principles:

- delivering value for money: it agrees with the OFT that better mechanisms are needed to deliver fair prices and value to the NHS, patients and to the taxpayer. Moreover, the drugs bill must be affordable for the NHS and other cost-effective elements of patient care must not be adversely affected;

- encouraging and rewarding innovation: the role of the pharmaceutical industry in the development of healt care and medical advances is of crucial importance, says the government, adding: “It is in all of our interests that any pricing system will encourage research and reward innovation which delivers valuable new treatments;”

- commitment to assisting the uptake of cost-effective new medicines in the NHS: important progress has been made in this area since the creation of NICE, says the government, but it accepts that there is scope for further improvement;

- once introduced, the future pricing scheme must provide stability, sustainability and predictability for industry: the OFT identified the importance of this and the industry has repeatedly emphasised that the stability of the UK market makes it an attractive place to invest. “We want to ensure that the UK remains a stable market over the coming years,” says the government.

Commenting on the government’s interim response, the Association of the British Pharmaceutical Industry again stressed that a stable, voluntary agreement is crucial to retaining the industry’s major R&D investments which, it points out, are the UK’s largest. The industry group also welcomed the government’s commitment to increasing the uptake of cost-effective new medicines.

However, the American Pharmaceutical Group, which represents 10 drug majors operating in the UK, said the PPRS is unique in Europe in supporting competitive and stable market conditions. The surprise announcement last week that the Department of Health plans to re-negotiate the current PPRS, which was due to run until 2010, “runs counter to the OFT proposals and brings instability and uncertainty to the UK,” said APG chairman Andrew Hotchkiss, who is also Managing Director of Lilly UK. This is bad for patients, business and the UK economy, said Mr Hotchkiss, adding: “any fundamental change should be fully thought-through and effective from 2010.”

Andrew Witty, president of European pharmaceuticals at GlaxoSmithKline, called for “thoughtful consideration across the system as a whole,” and added: “if discussions focus only on cost-saving and on price, we will not serve the long-term needs of patients, industry and, importantly, UK competitiveness.”

The OFT says it is “encouraged” by the response of the government, which concludes that it now plans to discuss the proposals with industry. “We…will ensure that any future pricing scheme delivers value, rewards innovation and ensures a fair deal for the NHS. This will mean that NHS patients will get the drugs they need at a fair price to the public purse, and the pharmaceutical industry will continue to be encouraged to develop important new medicines,” the government pledges.