On June 30, 2009 the UK Government published its final response on the 2009 Pharmaceutical Price Regulation Scheme (PPRS). The new PPRS is the culmination of regulatory scrutiny and revision to the voluntary price regulatory system which has been negotiated from time to time by the UK Department of Health and the Association of the British Pharmaceutical Industry (ABPI) since 1957. The PPRS can be characterized as an attempt to exercise buyer power in the purchase of prescription pharmaceuticals by the National Health Service (NHS) across the UK, in that it caps the profits that pharmaceutical companies can make on sales of branded prescription medicines to the NHS, and in return, pharmaceutical companies will benefit from the NHS ensuring these drugs are prescribed to patients.  

The PPRS represents an attempt to balance incentives for innovation with cost and price control. The PPRS is unique among pharmaceutical price regulatory systems in that it is based on a system of profit controls and is negotiated as a voluntary agreement between the Government and the pharmaceutical industry. The PPRS aims to ensure that the National Health Service (NHS) has access to good quality medicines at reasonable prices. The scheme also seeks to promote a stable, competitive pharmaceutical industry. This briefing outlines the key features of the new PPRS.  

Background  

The UK Office of Fair Trading (OFT) launched a study in September 2005 in order to assess whether the PPRS was achieving its stated aims. In its report published in February 2007, the OFT recommended that the current PPRS should be replaced by a new price control scheme founded on "value-based pricing" to ensure that the price of drugs reflects their clinical value to patients, rather than the price being set by companies according to what they feel the market will bear.

In its interim response to the OFT report, published in August 2007, the UK Government identified four principles which it needed to take into account when reviewing the PPRS. In December 2008, a renegotiation of the PPRS was concluded between the Government and the industry. The four principals are:  

  1. Deliver value for money through savings and pricing that better reflects the value of drugs  
  • While the Government already encourages the use of lower-cost generic drugs, it has plans to introduce generic substitution in January 2010 so that pharmacists will be able to substitute generic equivalents for drugs prescribed by their brand names.  
  • The scheme introduces a 3.9% price cut on branded drugs sold to the NHS starting 1 February 2009, an additional 1.9% starting 1 January 2010, and further price adjustments each year.  
  • Drug manufacturers already have the incentive to set prices reflecting the true therapeutic value of drugs because the NHS receives guidance from the National Institute for Health and Clinical Excellence (NICE) on whether and under what circumstances the use of a particular drug is both clinically and cost effective; but the PPRS introduces new mechanisms to further encourage manufacturers to provide medicines at a price that reflects their value:  
  1. flexible pricing will enable companies to supply drugs to the NHS at lower initial prices with the option of higher prices if value is later proven, subject to NICE approving the new price based on evidence as to the value of the drug;  
  2. Patient Access Schemes (PAS) will be used more systematically to allow earlier patient access to drugs that are not in the first instance found to be cost or clinically effective by NICE; a patient access scheme is a pricing or discount scheme which the drug manufacturer can offer the NHS as a way to improve the drug’s value for money.  
  1. Encourage and reward innovation
  • Innovation is already encouraged through the existing policy of freedom of pricing for new active drugs at market entry, which allows innovative drugs to be introduced into the market immediately after receiving a licence and through NICE providing guidance to the NHS on the clinical and cost effectiveness of available drugs.
  1. Assist the uptake of new medicines
  • The 2009 PPRS goes further than previous schemes by including an “innovation package” that rewards the development of innovative drugs by encouraging uptake through:  
  1. a “horizon scanning process” for new drugs and technologies in development, which ensures clinicians are kept informed of new drugs and their benefits at an early stage so that the NHS can ensure these drugs are prescribed to patients when they enter the market. The industry will help to develop the database and provide information about medicines in development;  
  2. working with relevant parties to better understand the uptake of clinically and cost-effective medicines; and  
  3. piloting the use of prescribing incentive schemes to promote the uptake of innovative products.  
  1. Provide stability, sustainability and predictability in the UK market  
  • The 2009 PPRS is a non-contractual voluntary agreement designed to provide stability and predictability in pharmaceutical pricing for the NHS and industry for the next five years.  
  • The Ministerial Industry Strategy Group (MISG) provides the industry with a forum to discuss issues of concern with high level Government officials.  

In December 2007, the OFT published its market study into medicines distribution in the UK. It considered that new schemes such as direct to pharmacy schemes and the reduction in the number of distributors could result in higher costs for the NHS and longer waiting times to receive medicines. The Government addressed these concerns in the PPRS with a provision that any scheme member wanting to change its distribution arrangements in a way that could result in the above consequences would have to first notify the Department of Health. The Government did not conclude that further legislation was required but will keep matters under review.  

The OFT welcomed the Government’s response and acknowledged that the 2009 PPRS reflected many of the principles it believes should guide the design of any drug pricing scheme, representing a significant step forward. The OFT noted, however, that the PPRS did not go far enough and more fundamental changes to future schemes would be necessary. The OFT suggested that replacing the current price and profit controls with a value-based approach to pricing would provide the greatest benefit to patients. The 2009 PPRS, while introducing the value-based approach to a degree, maintains the traditional price and profit controls and the freedom for companies to set prices. The Government has been mindful to maintain a balancing act between the NHS and the pharmaceutical industry, but some commentators suspect that as cost pressures continue to grow, it may become difficult to keep both sides happy.