Pharmaceutical Price Regulation Scheme

23 June 2008

We are encouraged that the government has reviewed the PPRS in the light of the OFT's PPRS market study and has taken up some of our recommendations, for example, concerning off-patent branded medicines. However, the new scheme will not introduce value based pricing, which we continue to believe would bring major benefits to patients, the NHS and the pharmaceutical industry. We are encouraged that further action, beyond negotiating a PPRS price cut, is being considered to ensure that access to medicines reflects their value to patients and to promote innovation and uptake of new medicines. These are vital issues and we believe value-based pricing could provide a long-term and practical solution. We will continue constructive dialogue with the government on these issues.

20 February 2007

The OFT has recommended that the Pharmaceutical Price Regulation Scheme (PPRS) should be reformed, to deliver better value for money from NHS expenditure on drugs and to focus business investment on drugs that have the greatest benefits for patients.

The OFT's study identifies a number of drugs where prices are significantly out of line with patient benefits. These include treatments for cholesterol, blood pressure and stomach acid. At present, many alternative products are available in these and other major areas of expenditure, yet some drugs are much more expensive, but not significantly more effective, than others. Specifically, some drugs currently prescribed in large volumes are up to ten times more expensive than substitute treatments that deliver very similar benefits to patients.

The study recommends that the current 'profit-cap- and price-cut' scheme be replaced with a patient-focussed, value-based pricing scheme, in which the prices the NHS pays for medicines reflect the therapeutic benefits they bring to patients. This would enable the NHS to obtain greater value for money from its existing drug spend.

The OFT estimates that a value-based scheme could release in the region of £500 million per year that could be used more effectively, giving patients better access to medicines and other treatments which they may currently be denied. Over time, value-based pricing would also give companies stronger incentives to invest in drugs for those medical conditions where there is greatest patient need.

The study proposes two options under which the prices of on-patent branded prescription drugs could be set according to value-based principles:

1. Ex post value-based pricing - this would involve retaining upfront   freedom of pricing for companies but would replace company-wide profit controls and price cuts with a series of reviews of the cost effectiveness of individual drugs or drug classes, conducted some years after launch.
2. Ex ante value-based pricing - this, in addition to the ex post reviews, would involve a fast-track ex ante assessment of a new drug's cost effectiveness before launch.

To help design workable options for reform, the OFT has drawn on experience in a number of countries and has taken advice from experts in the NHS and key stakeholders in Government and industry. The proposed scheme builds on existing NHS expertise in the Department of Health and cost effectiveness bodies at a devolved level. It is designed to deliver stability for Government and industry in the long term and to deliver better value for money for the NHS.

Download the market study report (pdf 1 mb).

Annexes - all pdf files 

• Annexe A - Markets for prescription pharmaceuticals in the NHS (547 kb)
• Annexe B - Comparative analysis of NICE, SMC and AWMSG (377 kb)
• Annexe C - GP survey (243 kb)
• Annexe D - Global overview of pharmaceutical industry (261 kb)
• Annexe E - PPRS and industrial policy (389 kb)
• Annexe F - International comparisons of pharmaceutical prices (391 kb)
  Annexe G - Legal framework (285 kb)
• Annexe H - PPRS profit controls (606 kb)
• Annexe I - Modelling profitability under the PPRS (174 kb)
• Annexe J - PPRS price controls (296 kb)
• Annexe K - International survey of pharmaceutical pricing and reimbursement schemes (1.3 mb)
• Annexe L - Evaluation of options for reform to the PPRS (1.1 mb)
• Annexe M - Current price inefficiencies and potential benefits of value-based pricing (466 kb)
• Annexe N - Glossary (125 kb)
• Annexe O - Bibliography (167 kb)
• Annexe P - List of organisations consulted (112 kb)

See press release

Background

The PPRS is the method by which the UK Government seeks to control the prices of branded prescription medicines on which the NHS spends about £8 billion a year. It is negotiated every five years between the Department of Health and the Association of the British Pharmaceutical Industry. The scheme comprises two main components: profit controls that apply to all the branded products sold by a company to the NHS, and price controls that allow companies freedom to set the initial price of new active substances but restrict subsequent increases to the NHS list price. Additionally there are one-off price cuts that are periodically agreed at the time of the scheme's renegotiation. Neither the profit cap nor the price cut helps ensure that the prices of medicines reflect the health benefits they bring to patients, however.

23 March 2006

The OFT continues its study into the PPRS rather than make a reference to the Competition Commission.

See press release.

13 September 2005

The OFT has launched a market study into the PPRS.

See press release.
See Pharmaceutical Price Regulation Scheme: Eighth Report to Parliament.
See Pharmaceutical Price Regulation Scheme 2005.

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