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OFT to study drug pricing scheme

171/05    13 September 2005

The OFT has launched a market study into the Pharmaceutical Price Regulation Scheme (PPRS).

The NHS spends about £7bn a year on branded medicines for prescription in the hospital and community sectors. The PPRS is the method by which the UK Departments of Health seek to control the price of these drugs, by setting a cap on the profits that each drug company can earn on its annual sales of branded medicines to the NHS. It is a voluntary scheme negotiated every five years between the Departments of Health and the Association of the British Pharmaceutical Industry. The current scheme runs from 2005 to 2010.

The stated aims of the PPRS are to:

• secure the provision of safe and effective medicines for the NHS at reasonable prices
• promote a strong and profitable pharmaceutical industry capable of such sustained research and development expenditure as should lead to the future availability of new and improved medicines
• encourage the efficient and competitive development and supply of medicines to pharmaceutical markets in this and other countries.

The OFT study will assess whether the scheme provides an effective way of meeting these aims.

The decision to launch the study follows a previous study by the OFT looking at the impact of public procurement on competition. The study will last at least until spring 2006 and may continue until the end of that year, depending on the findings. Possible outcomes include:

• recommendations that Government consider changes to the scheme
• a reference to the Competition Commission for it to investigate the matter further
• enforcement action by the OFT
• a clean bill of health for the scheme.

John Vickers, OFT Chairman, said:

'Healthcare and the interaction between government and markets are two of the OFT's priority areas – both are at the heart of this study. We want to examine whether the PPRS works well to ensure that pharmaceuticals markets meet the needs of patients by offering adequate rewards to pharmaceutical companies for developing new and useful drugs, while providing the taxpayer with value for money.'

See market study page.

NOTES

1. Source: Pharmaceutical Price Regulation Scheme: Eighth Report to Parliament, Department of Health, March 2005.

2. Source: The Pharmaceutical Price Regulation Scheme 2005, Departments of Health of the United Kingdom and the Association of the British Pharmaceutical Industry, 3 November 2004.

3. The report Assessing the impact of public sector procurement on competition is available from the market studies area of this website (see also press release 16/04 and the statement Public sector procurement research published of 30 September 2004). The study evaluated the ways in which public sector procurement policy could affect competition, both positively and negatively, and identified a number of sectors – including pharmaceuticals – in which the impact is more likely to be significant.

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