Pharmaceutical Price Regulation Scheme

Launched: September 2005

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Purpose of the study

To assess whether the Pharmaceutical Price Regulation Scheme (PPRS) is the most effective means of securing value for money for the NHS, whilst offering appropriate incentives for pharmaceutical companies to invest in new and useful drugs for the future.

(Study following in-house work.)

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Findings

OFT identified a number of drugs where prices are significantly out of line with patient benefit. These include treatments for cholesterol, blood pressure and stomach acid. Some drugs currently prescribed are up to ten times more expensive than substitute treatments that deliver very similar benefits to patients.

The current 'profit cap and price cut' scheme should be replaced with a patient focused 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.

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Recommendations

1. Recommended that the current profit cap and price cut' scheme be replaced with a patient-focused, value-based pricing scheme, in which the prices the NHS pays for medicines reflect the therapeutic benefits they bring to patients.

2. This would enable the NHS to obtain greater value for money from its existing drug spends. Two options proposed:

• ex post value-based pricing- retaining upfront freedom of pricing for companies but replacing company-wide profit controls and price cuts with reviews of the cost effectiveness of individual drugs or classes of drugs
• (preferred long-term option) Ex ante value-based pricing - this would involve fast-track ex ante assessment of a new drug's cost effectiveness before launch.

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Action following market study

Interim Government response, in August 2007, broadly welcomed the report and stated that it will undertake a continuing programme of detailed analysis of the OFT report's proposals, and will discuss this analysis with industry taking into account their strong concerns about a number of the proposals.

Government will make further proposals as part of the ongoing PPRS re-negotiation.

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Market study details and report

Download OFT market study report 'Pharmaceutical Price Regulation Scheme' February 2007 (pdf 1Mb)

Download the annexes of the report:

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

See press release 'OFT report recommends reform to UK drug pricing scheme'. 20 February 2007

Download the Government's response to the Pharmaceutical Price Regulation Scheme (PPRS) (pdf) 30 June 2009

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Background information

See Pharmaceutical Price Regulation Scheme: Eighth Report to Parliament 24 March 2005

See press release 'OFT to study drug pricing scheme'.13 September 2005

See press release 'OFT to continue study into drug pricing scheme'. 23 March 2006

See Pharmaceutical Price Regulation Scheme on the Department of Health's website.

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