Drug pricing scheme faces the axe

24 Sep 98
The health department is poised to scrap the controversial scheme that has failed to stem the rise of the NHS's £6bn drugs bill and replace it with strict price controls.

25 September 1998

The Pharmaceutical Price Regulation Scheme (PPRS) places a ceiling on the amount of cash each drug company can receive from the health service in any one year. Yet in each of the past ten years the NHS has spent around 5% more in real terms on medicines.

The PPRS is undergoing its five-yearly review. But the powerful American pharmaceutical companies are disenchanted with the scheme and the health department is keen to cap the amount it spends on drugs each year. The firms involved expect the scheme to be abolished. It is believed the move will be incorporated into the NHS bill to be announced in the Queen's speech in November.

Many are now asking what will take its place. The government has reserve powers to set maximum prices for medicines, though no administration has yet used them. Ministers have become increasingly concerned that the PPRS does not control the price of new drugs, such as Viagra and the anti-obesity drug Xenical. Some estimates have put the annual cost to the NHS of Xenical at £200m.

Under the PPRS a manufacturer can introduce a new drug but must cut the price of other medicines to remain within its payment limit. But there is evidence that companies are dodging this rule by selling licences to smaller companies to manufacture some of their more established products.

But forcing drug companies to reduce prices could have dire consequences. Some economists and industry observers believe this would lead to cutbacks in companies' research into new medicines. Not only would this damage patients' interests but could lead to a reduction in the tax levied on the profits of the firms that operate in the UK.

Nick Bloom, a research economist at the Institute for Fiscal Studies, has called for a number of amendments to the scheme to give it a new lease of life. But it looks as though his plea has fallen on deaf ears.


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