Exclusive Pharmacy Distribution Contracts May Increase Costs, UK Says

There is a significant risk that direct-to-pharmacy distribution contracts may increase costs to the UK’s National Health Service (NHS) by up to hundreds of millions of pounds, a study from the UK Office of Fair Trading (OFT) found.

The OFT began the study after receiving complaints from pharmacists, wholesalers and dispensing physicians over Pfizer’s exclusive distribution contract with UniChem. The study investigated the anticompetitive impact of manufacturers introducing direct-to-pharmacy contracts or reducing the number of distributors they use.

Direct-to-pharmacy schemes allow manufacturers to set, and possibly increase, the price pharmacies pay for drugs and control their drugs’ distribution. Until recently, manufacturers typically supplied drugs to several competing wholesalers at the industry’s discount of 12.5 percent.

The Department of Health should make changes to the Pharmaceutical Price Regulation Scheme (PPRS) to ensure drug costs do not increase due to the distribution changes, the study recommends. The PPRS is a voluntary scheme negotiated every five years between the Department of Health and the Association of the British Pharmaceutical Industry to discuss brand drug prices. The current scheme lasts until 2010.

The OFT report does not recommend further action or referrals on competition grounds for Pfizer’s agreement, the company said. It believes its model is fully compliant with all applicable European Union and UK laws and said its scheme does not increase the cost of Pfizer drugs to the NHS.

The government has 90 days to respond to the office’s recommendations. The OFT may investigate exclusive distribution agreements again if they appear to lead to long-term competition concerns.

The OFT’s report can be seen at www.oft.gov.uk/shared_oft/reports/comp_policy/oft967.pdf.