The OFT is highly critical of the current PPRS, citing GBP 500 million which could be saved, and advocates total reform of the PPRS to increase value for money for UK National Health Service (NHS) drug expenditures, and to direct pharmaceutical investments to those drugs delivering the highest therapeutic value to patients.
If the UK Government accepts the OFT’s recommendations, pharmaceutical companies may lose the commercial freedom to determine the initial prices of new drugs if the new PPRS is shifted towards a value based pricing approach dependent on clinical and therapeutic results. The reform of the PPRS may impact pharmaceutical companies’ current significant levels of research and development into new treatments.
Pharmaceutical companies will need to continue considering (i) how the PPRS review is likely to impact their businesses and (ii) what processes to put in place to ensure their views are considered and applied by the relevant governmental organizations and representative trade associations in the future review and negotiation stages.
The PPRS is a 50-year old voluntary scheme agreed between the UK Department of Health (DOH) and the Association of the British Pharmaceutical Industry, which regulates the prices charged by pharmaceutical companies to the NHS. The PPRS is negotiated every five years and the current PPRS will run until 2010.
The NHS spends GPB 11 billion a year on drugs (GBP 8 billion on branded drugs). The remit of the study was to assess whether the PPRS is effective or whether there is a case for reform.
The PPRS Report recommends replacing the current PPRS with a flexible value based pricing scheme directed towards pricing drugs according to their clinical and therapeutic value to both patients and the NHS as a whole.
The PPRS Report notes that whilst primary care accounts for 75 per cent of NHS drugs costs, GPs appear to have a “weak knowledge” of the prices of drugs
OFT MARKET STUDY
The UK is unique in that its legislation allows the OFT to initiate market investigations where there are no obvious competition law breaches by individual companies. The aim of such market studies is generally to identify potential market failures. Market studies are not limited to competition issues and may also focus on consumer problems and (any) adverse consequences of government regulations.
The OFT may carry out market studies pursuant to section 54 of the Enterprise Act 2002 (2002 Act). OFT market studies generally take three months to one year. The PPRS market study took nearly one year and a half.5 The potential outcomes of OFT market studies are:
- A report that no problems exist
- Publishing information to help consumer choices
- Encouraging firms to adopt voluntary practices to address problems
- Recommendations to sectoral regulators or the Government (e.g. the PPRS Report)
- Individual competition or consumer law investigations into individual companies
- A market reference to the UK Competition Commission (CC)
OFT market study reports are published pursuant to section 4(4) of the 2002 Act.6
CC MARKET INQUIRIES
A market reference by the OFT to the CC can have serious consequences in terms of remedies, and may occur where the OFT “has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom”.7
The 2002 Act defines “feature” as including: the structure of a market, the conduct of one or more companies, or the conduct of customers.8 Examples of “features” include: market concentration, vertical silos, high barriers to entry, parallel behaviour, vertical agreement networks, low customer switching behaviour and limited customer choice.
A CC market study can take up to two years, and at the end of the process the CC has powers to remedy adverse effects on competition. Recent examples include (a) publication requirements in respect of Store Cards, (b) data provision requirements for Home Credit and (c) price control for Classified Directories.
In March 2006, the OFT announced that in lieu of making a market study reference to the CC in respect of PPRS, it would continue its own study and publish a report.
One possible explanation for this is that if the OFT had referred PPRS to the CC, the CC’s final report could have been published as late as 2008 or 2009, which may not have given the interested parties sufficient time to agree the new PPRS.
The benefit of a reference to the CC would have been the existence of a formal procedure for pharmaceutical companies and other interested third parties to submit views at various stages in the CC’s review procedure. There is no equivalent feedback mechanism in respect of the OFT process, nor do there appear to be, at this stage, clear channels for submitting views and comments through any formal procedure going forward.
The PPRS Report envisions the National Institute for Health and Clinical Excellence (NICE) and the Scottish Medicine Consortium (SMC) playing an integral role in the 2011 to 2016 PPRS. NICE and SMC evaluate medicines, treatments and procedures for the NHS.
The UK Department of Trade and Industry and the DOH have 120 days to consider and respond to the PPRS Report.
There are a number of challenges in formulating strategies to contribute substantively to the PPRS review, not least because of the lack of a clear legislative procedure and the voluntary character of the PPRS to date.
We have significant experience dealing with similar pharmaceutical pricing reviews and issues in the U.S. and Europe. Hogan & Hartson routinely assists pharmaceutical and biotechnology companies to evaluate and respond to the legal, regulatory and policy impact of drug pricing schemes.
Our teams can assist your company in a number of ways:
- Consider and advise on procedural and legal issues, including feedback mechanisms.
- Assist you in formulating common views and arguments to put forward to relevant governmental authorities, regulators and trade associations.
- Work with your business people and economists to analyze pricing proposals and develop counter-proposals.
- Consider how to address general perception issues.
- Assist you in putting your messages forward to the relevant target audiences