The Pharmaceutical Price Regulation Scheme - Office of Fair Trading

February 2007EXECUTIVE SUMMARYKey recommendations• We recommend that Government reform the PPRS, replacing current profit and pricecontrols with a value-based approach to pricing, which would ensure the price of drugsreflect their clinical and therapeutic value to patients and the broader NHS.• We believe this would provide major benefits to patients and innovative companies inthe short and long term:– value for money for the NHS: we have identified hundreds of millions of pounds ofexpenditure per year that could be used more cost effectively under value-based pricing,allowing patients greater access to drugs and other healthcare benefits they arecurrently being denied. In short, the same level of expenditure could be used to producegreater benefits for patients.– better incentives to invest: more value-reflective prices would give companies muchstronger incentives to invest in the drugs that are most beneficial to society, particularlyin areas of unmet patient need. Given the international importance of UK prices, thesebenefits would be felt not just in the UK, but globally.– a stable, sustainable system: these reforms would improve stability for Governmentand industry in the long run, by avoiding reliance on increasingly arbitrary profit and pricecontrols and ensuring instead that future pricing decisions are based on an informed,rational debate about how to make the best use of available NHS resources.• International experience shows that value-based pricing can work well in countries that havefewer resources than we enjoy in the UK but companies have highlighted key issues thatneed to be addressed in ensuring effective implementation. We believe we have met theseconcerns in developing options for reform that will provide a credible, practical pricingregime for the long term.The Role of the PPRSPrescription medicines help improve the lives of millions of patients in the UK. Newbreakthrough drugs are brought to market every year, such as those recently developed totreat various forms of cancer and severe forms of disabling arthritis. These join moreestablished medicines such as aspirin, which still saves many thousands of lives per year inits applications in cardiovascular medicine and against life-threatening inflammations.The NHS spends about £11 billion a year on these treatments, £8 billion of which is onbranded drugs. This is a study of the Pharmaceutical Price Regulation Scheme (PPRS), one ofthe main instruments employed by the UK Health Departments to control NHS expenditureon these branded drugs.The aims of the scheme are to secure value for money for the NHS while providingpharmaceutical companies with the right incentives to invest in new and useful drugs for thefuture. The remit of this study, launched by the OFT in September 2005, is to assess whetherthe PPRS is effective in meeting its high-level objectives, or whether there is a case for reform.The workings of the scheme are complex, but at a broad level it comprises two main components:• profit controls, which set a maximum level for the profits that a company may earnfrom the supply of branded drugs to the NHS. Exceeding this level will require arepayment of excess profits to DH. The profit control also enables companies toincrease prices if their profits fall below a given minimum.1