Joe Collier: An end in sight for the secretive drug price fixing pact between government and industry

Professor Joe CollierBy September this year it is almost certain that a new system will be in place for determining how much the NHS will pay for its brand name medicines. For over half a century government and industry have used a complex formula to calculate the overall returns drug companies can make on their sales to the NHS.

By dint of the formula companies have fixed drug launch prices at whatever figure they have felt appropriate. Prices were not based on a drug’s clinical value, nor on the cost of the product’s development, rather they were related to a company’s historical capital (for example, how much they had tied up in plant or machinery) with allowances for promotion, research and innovation (none of which were critically checked).

The formula, which is based on the Pharmaceutical Price Regulation Scheme (PPRS; established in 1956 although then called the Voluntary Price Regulation Scheme) is non-statutory (a gentleman’s agreement), secretive, perverse, anti-competitive, and anti-democratic. Not surprisingly it was severely criticised by the Office of Fair trading in its detailed 2007 review. In essence the PPRS has not delivered the NHS good value for money, has proved cumbersome, and was seen in need of revision (indeed scrapping). It is indeed so antiquated in principal and design that it certainly could not have been introduced now.

After much deliberation the Government appears to have accepted this position and in late February the Department of Health (DH) wrote to 180 pharmaceutical companies unilaterally withdrawing from the Scheme, giving the agreed 6 months’ notice. Since it is essential that there is a working arrangement determining the price of medicines (it is unthinkable that government is moving towards a free market with no controls), one has to ask what new arrangement can be negotiated in just 6 months. Moreover, because this is a very complex area, and assuming the DH will not get much cooperation from the industry and that any new PPRS equivalent would therefore require new legislation, any new deal would take years. So what does government have in mind?

There is one possibility and this would depend on Government adopting a key recommendation of the House of Commons Health Select Committee in its 2008 review of NICE. The Committee’s suggestion was that NICE should review all new products at the time of launch and decide which ones the NHS (in England, Wales and Northern Ireland) should pay for – accordingly, medicines would only be purchasable if the price (based on clinical value) were right. There is already a similar scheme in Scotland (the Scottish Medicines Consortium, SMC) so without new legislation controls could be achieved throughout the UK. Although the working practices of NICE would need changing, and it would be essential for NICE and SMC to collaborate closely, in 6 months something could be in place. A detailed working relationship between NICE/SMC and the industry would need to be negotiated, and arrangements introduced to ensure industry stability, and these will take rather longer than the 6-month deadline. But at least there would not be a vacuum in September. This is an exciting prospect and one that will mean that after 50 odd years the sinister and all too cosy drug pricing tryst of the PPRS will finally be put to rest.

Joe Collier is emeritus professor of medicines policy at St George’s, University of London.Professor Joe Collier