The PPRS is a voluntary scheme which is re-negotiated periodically between the Department of Health (DoH) and the pharmaceutical industry represented by the Association of the British Pharmaceutical Industry (ABPI), and under which the prices of drugs sold to the National Health Service (NHS) are regulated voluntarily. Failing agreement the DoH has powers to regulate prices under the Health Act 1999. In February 2007 the UK Office of Fair Trading (OFT) published a report on the PPRS in which it recommended that the profit-related controls over prices which the then PPRS imposed should be replaced by a scheme under which prices are controlled by a value-based approach which reflects the clinical and therapeutic value of drugs to patients and the NHS. The Government responded to this report in its interim response by setting out four principles it would seek to achieve in its review of the PPRS, namely:

  • Delivering value for money;
  • Encouraging and rewarding innovation;
  • Assisting the uptake of new medicines; and
  • Providing stability, sustainability and predictability.

Following negotiations between the DoH and the ABPI an “outline agreement” was announced on 18 June 2008, under which certain broad principles on price cuts have been agreed for the new PPRS. Under this “outline agreement” savings of 5% will be delivered to the NHS through a combination of measures. A base price cut of 2% will be combined with additional measures to reduce the price of out-of-patent branded medicines where generic equivalents exist (in a similar way to proposals in the OFT’s recommendations on the PPRS). Because this action on older medicines varies with time, there will be additional price cuts that vary year by year to ensure a 5% saving. These measures will apply from January 2009.

If the actual rate of growth in the drugs bill to the NHS in primary and secondary care in England exceeds 6.7% in either 2008 (compared to 2007), or in 2009 (compared to 2008), there would be a further, once only, price cut of 2% in 2010 or 2011. For companies with sales of £25 million or less in 2007, the first £5 million sales will be exempt from the price cut. As with the current PPRS, companies would have freedom of pricing for new products and be able to modulate prices. There will be an independent dispute resolution mechanism. Provision will be made to freeze prices on 31 August 2008 until the price cut on 1 January 2009.

Negotiations on a new scheme which will better reflect the concept of value are still ongoing. In relation to the Government’s commitment to encourage and reward innovation, an “innovation package” is being negotiated which will include: 

  • The establishment of a single horizon scanning process for new drugs in development, with more systematic industry involvement, to support better forward planning;
  • The piloting extension of prescribing incentive schemes with Primary Care Trusts (PCTs), to promote uptake of innovative products and better use of existing levers in payment by results; and
  • The development of new metrics for uptake of clinically and cost-effective medicines, starting with a number of drugs positively appraised by the National Institute of Clinical Excellence (NICE), and publication of comparative international data.