High-cost drugs which are excluded from the Payment by Results (PbR) tariff cost the NHS in England up to £2.6 billion a year, and incentivising providers to move to less expensive alternatives or more effective procurement strategies benefits the whole NHS, says the Department of Health.

For high-cost medicines that are excluded from the PbR tariff, commissioners and providers agree local prices and local arrangements for monitoring activity. However, because acquisition costs may be reimbursed by commissioners, there may be little incentive for a provider to maximise the cost-effectiveness of these treatments, particularly where providers have to make decisions on prioritisation of their resources, or if improvements in cost-effectiveness require commitment of additional resources, says the report, which has been prepared by Clare Howard, the national lead for the Quality, Innovation, Productivity and Prevention (QIPP) medicines use and procurement programme.

Currently, it is estimated that around 60% of the cost of medicines used by providers of secondary and tertiary care in England may be accounted for by non-PbR drugs, and for some Trusts, especially tertiary care centres, for significantly more. The cost of such drugs in England could be as much as £2.6 billion a year.

Also, the majority of medicines supplied through Home Care - where the annual drugs bill is now over £1 billion - are non-PbR.

Health economies may not make the best use of their resources and lose the opportunity to improve their quality of care unless they have agreements in place to ensure that providers actively seek the most clinically and cost-effective PbR-excluded drugs, Ms Howard cautions. The NHS may therefore be paying for more expensive treatments where equally effective but cheaper alternatives are available, and for medicines that have not been procured in the most cost-effective way.

It is logical to use incentives schemes, which have worked well in primary care, in this area, says the report, which looks at a number of local schemes for non-PbR drugs which are already delivering savings. It finds the criteria they have in common are: 
- they are simple and not overly bureaucratic; 
- they have board-level engagement and support in both the commissioning and providing organisations - this is not just seen as the domain of senior pharmacists; 
- both commissioner and provider aim to see the wider picture of efficiencies;
- good working relations between commissioner and provider and pharmacy and finance departments; 
- pharmacy departments in provider organisations are properly resourced to deliver any changes; 
- they use simple data to set baselines, e.g. cost per unit over the previous two years; 
- they join up "gain sharing" with regional procurement and Home Care initiatives to maximise the efficiencies that can be gained; 
- annual review to reflect changes in workload once new initiatives are bedded in, document progress and ensure that new priority areas are identified; 
- flexibility is adapted on a scheme-by-scheme basis to ensure a "fair" share of savings; and 
- monitoring arrangements are open and transparent, with absolute agreement on the baseline, data source and key performance indicators.

Experience shows that the best way to start is to concentrate on the priority areas agreed between commissioner and provider, the report advises. Agreed schemes can be adopted in a variety of localities with minor alterations around process - there is no need to re-negotiate at length in each locality - and success in year one enables providers and commissioners to build in future years. 

The report stresses that, given that a significant proportion of the work to release savings will likely fall to pharmacy teams, providers should consider that a proportion of the payment should be used to resource pharmacy teams properly.

"Trust boards should be aware of the limitations to the whole health economy of not investing in pharmacy resources to deliver year-on-year," it warns, adding: "the relationship between Pharmacy and Finance is critical."