New Price Control System in the UK?

Over the last decade, Europe has been a notoriously difficult market for innovative drug manufacturers. Stringent price controls, slow approvals (made slower by the need for separate marketing and reimbursement approvals), mandatory rebates and taxes on promotional activity have made most of the EU a hard place to conduct business. With that in mind, it’s no surprise that managers get concerned when the United Kingdom, the last major European market that can be described as industry-friendly, starts making noises towards a major overhaul of its price control regime.

Since 1957, the UK has relied on a voluntary agreement, known as the Pharmaceutical Price & Regulation Scheme (PPRS), to control public spending on branded drugs. Instead of price controls per se, the PPRS establishes an acceptable range of companywide profitability and then leaves manufacturers free to set prices in a way that best meets this target. Perhaps more than anywhere else in the world, the UK has managed to strike a reasonable balance between encouraging pharmaceutical development and controlling costs.

In February 2007, however, the Office of Fair Trading issued a report recommending changes to the PPRS and the government followed up this month by announcing it would reopen negotiations with the industry prior to the January 1, 2010, expiration of the current agreement. Although any changes to a program that has worked well for both sides is cause for concern, history and the government’s statements indicate that whatever emerges over the course of these negotiations will likely continue to offer innovative drug makers a more favorable environment than found in the rest of the EU.

In short, both the OFT and the government want to move towards a “value for money” system that rewards genuine clinical advances while restricting spending on other drugs. The following passage from the government’s response provides a clue as to how it intends to approach the negotiations:

“In fashioning a way forward we will take into account the following principles:

  •  “Delivering value for money: We agree with the OFT that we need better mechanisms to deliver fair prices and value to the NHS, to patients and to the taxpayer. We also need to ensure that the drugs bill is affordable for the NHS and that other cost-effective elements of patient care are not adversely affected.

  •  “Encouraging and rewarding innovation: The role of the pharmaceutical industry in the development of healthcare and medical advances is of crucial importance. It is in all of our interests that any pricing system will encourage research and reward innovation which delivers valuable new treatments.

  •  “Assist the uptake of new medicines: We are also committed to increasing the uptake of new cost-effective medicines in the NHS. Important progress has been made in this area since the creation of NICE, but we accept that there is scope for further improvement in the uptake of cost-effective new drugs.

  •  “Provide stability, sustainability and predictability: It is important that, once introduced, a future pricing scheme provides stability, sustainability and predictability for industry. OFT identified this as an important area and industry has stated on a number of occasions that the stability of the UK Market makes it an attractive place to invest. We want to ensure that the UK remains a stable market over the coming years.”

The devil, as they say, is in the details and the details are a very long way from being worked out. For one thing, no one has figured out how to reliably measure clinical advances across the range of patient populations. Further, the additional expense and bureaucracy involved in proving “value for money” will certainly be more burdensome than the profit target approach employed by the current PPRS.

Nonetheless, even the industry’s representative associations are taking a cautiously optimistic tone toward reopening negotiations. If the new system manages to both free up funds for new drugs and increase their rate of uptake (notoriously slow in the UK), it could work to the advantage of companies working on the next generation of advanced (read, expensive) therapies.

A copy of the latest (2005) PPRS Agreement can be found at http://www.dh.gov.uk/assetRoot/04/09/32/32/04093232.pdf

A copy of the February OFT report may be found at http://www.oft.gov.uk/advice_and_resources/resource_base/market-studies/price-regulation

A copy of the government’s August 2, response may be found at http://www.berr.gov.uk/files/file40756.pdf