A secretive price-fixing scheme operated between the UK's Department of Health and the major pharmaceutical companies has resulted in the NHS spending many millions of pounds more than it should have for drugs, the Office of Fair Trading is expected to say today.
The OFT report is expected to recommend major changes in the way drug prices are decided. It will call for a far more transparent system, which could lead to lower prices for innovative medicines like Herceptin when they first arrive on the market. The high price of such drugs has caused some primary care trusts, who hold the purse strings, to drag their feet over paying for them.
At the moment, the PPRS (pharmaceutical price regulation scheme) agreed every five years between the Department of Health and the drug companies, prevents any company from making excessive profits from the NHS. The PPRS effectively "caps" the amount of profit any one company can make.
But within that company's profit margin - calculated according to their investment in the UK as well as the range of drugs they make - new drug prices can be set as high as the company wishes. This has led to prices as high as £30,000 or £40,000 a year per patient for a cutting-edge medicine.
If the company looks likely to make a lot of money from a new drug, it may pass the rights for some of its older medicines to other companies who have not reached their NHS earnings ceiling.
The OFT has been investigating since last September whether this arrangement, agreed behind closed doors, is fair. The competition watchdog is expected to say that it does not allow the NHS to get the best prices for medicines.
More at The Guardian
UPDATE: Here's London Stock Exchange's take on the report.
Insider's view: Remember folks. The UK's drug prices are around two thirds of those in the US! So if the UK's NHS is being gouged by about $1 billion, how much are the US public overpaying for their medicines?
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