Professor Adrian Towse, Director of the Office of Health Economics, has joined the UK drug pricing debate over the Office of Fair Trading’s proposals to switch to a value-based system in 2010.

In his paper If It Ain’t Broke, Don’t Price Fix It: the OFT and the PPRS, published in the Journal of Health Economics, Prof Towse concludes that the current Pharmaceutical Price Regulation Scheme has “performed well as a procurement bargain between industry and the UK government,” and he identifies various problems with the OFT’s proposals for change.

In February this year, the UK pharmaceutical industry was hit by the OFT’s claims that the National Health Service is spending too much on branded drugs, and that a radical overhaul of the current pricing system is crucial to recouping some much-needed cash.

Its proposals for change were centred on a move away from the current 'profit cap and price cut' Pharmaceutical Price Regulation Scheme, whereby companies are free to set their own prices "within very broad profit constraints," to a "patient-focused value-based pricing scheme, in which the prices the NHS pays for medicines reflects the therapeutic benefits they bring to patients."

QALY concept

A value-based pricing scheme would mean drug prices being determined before their market entry, based on a cost per Quality Adjusted Life Year concept. According to the OFT, this would provide “the right incentives to invest in drugs that are most beneficial to society, including areas of unmet clinical demand.”

But, unsurprisingly, the OFT’s report did not sit well with many factions of the industry. The Association of the British Pharmaceutical Industry, for one, warned that a system of product-by-product price setting of new medicines when they are launched “has resulted in significant delays for patients waiting for innovative treatments in some other countries.” Others concerns floating around are defining a medicine’s intrinsic value to the NHS before it has been in widespread use, and frightening off potential R&D and manufacturing investment by taking away flexible pricing.

Professor Towse makes a number of recommendations for pricing reform in when the current system expires in 2010. He envisages an expanded role for the National Institute for Health and Clinical Excellence’s Health Technology Assessment process, while still allowing companies the freedom of setting their own prices at launch. Furthermore, he supports the use of risk sharing and non-linear pricing arrangements, measures to ensure more effective therapeutic switching at local level, and measures to boost the take up of cost-effective treatments to improve the current situation.

An earlier analysis of the proposals by Professor Karl Claxton, from the Department of Economics and Related Studies and Centre for Health Economics at the University of York, published in the Journal of Health Economics last month, claims the switch to VBP makes sense, although it does warn that, if not implemented properly, it could swell the NHS’s already burgeoning medicines bill.

PharmaTimes is holding a special meeting on the OFT’s report - THE OFT REPORT CONSIDERED – at the Dorchester Hotel, Park Lane, London, on July 5.

Click here for more information on this event