For months, the UK government, the Department of Health (DOH), and the Office of Fair Trading (OFT) have been considering how to reform the Pharmaceutical Price Regulation Scheme (PPRS). The PPRS is the voluntary scheme agreed to by the DOH and the Association of the British Pharmaceutical Industry every five years to regulate the prices charged by pharmaceutical companies to the National Health Service (NHS).

In February 2007, the OFT issued a report on the PPRS, recommending a radical overhaul of how pricing should be approached, including by introducing a value-based pricing element linked directly to the proven effectiveness of individual drugs on categories of patients. (See Issue 6). This introduction of value-based pricing caused the industry considerable concern.

The UK government issued an interim response to the OFT report in August 2007, indicating a need to review the PPRS. The response rejected the far reaching changes advocated by the OFT. (See H&H Pharmaceutical & Biotechnology Update).

On June 18, 2008, the DOH announced it had made “big progress” on reaching an agreement on a revised PPRS. In its statement, the department revealed that the key areas of agreement will include: (a) a 5 percent price reduction for drugs supplied to the NHS, (b) an additional 2 percent price reduction in case global NHS payment thresholds are exceeded, and (c) measures to support patient access to innovative drugs. The new PPRS will take effect on January 1, 2009. On June 18, 2008, the DOH also launched a consultation on legislative proposals to control the price of branded medicines that would apply to those pharmaceutical companies who choose not to sign up to the revamped PPRS. The legislation would also apply in case of failure to reach final agreement on a new PPRS. In effect, there will be a legislative pricing safety net for the NHS for the purchase of branded medicine. The proposals are to take effect on September 1, 2008.

The consultation on the legislative proposal may imply that the UK government has lost some degree of confidence in the voluntary PPRS to ensure reasonable pricing to the NHS. Unlike the PPRS, legislation on pricing is not voluntary and need not be regularly negotiated between industry participants and the DOH. The price cuts in the proposed legislation are more onerous than the draft terms agreed for the new PPRS.