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OFT makes recommendations over direct-to-pharmacy schemes

The Office of Fair Trading says that direct-to-pharmacy models adopted by pharmaceutical companies in a bid to gain direct control over their supply chain may carry a 'significant risk' of higher costs to the NHS

The Office of Fair Trading (OFT) has said that direct-to-pharmacy (DTP) models adopted by pharmaceutical companies in a bid to gain direct control over their supply chain may carry a  'significant risk' of higher costs to the NHS.

The OFT's move follows the implementation of a supply arrangement between Pfizer and UniChem, the wholesale business of Alliance Boots, which had caused widespread concern in the industry earlier in 2007.

The investigation was launched after the OFT received a high volume of complaints over service levels and potential increased costs to the NHS.

In March, Pfizer made UniChem the sole supplier of its medicines. The pharmaceutical group sells its drugs directly to pharmacists and pays UniChem a set fee to deliver them.

Soon after, Unichem resigned from UK wholesalers trade association British Association of Pharmaceutical Wholesalers (BAPW), as the association led a High Court challenge to the DTP deal.

Then in April 2007, AstraZeneca (AZ) appointed AAH Pharmaceuticals and UniChem for its own DTP scheme. The use of two distributors by AZ was seen as a move on the part of AZ to lessen concerns over any exclusivity.

The OFT has now made recommendations which say that manufacturers and wholesalers involved in DTP schemes will need to offer discounts similar to those negotiated with the NHS when there was competition among wholesalers.

The recommendations also try to control exclusivity agreements, which could result in a cut in service levels from manufacturers and wholesalers, such as increased waiting times for drugs, although since the story broke pharmaceutical companies which have adopted the model say this will not happen.

Unichem has welcomed the fact that the OFT had stopped short of requesting a full investigation by the Competition Commission.

The OFT recommends the pricing reductions be implemented in the form of changes to the Pharmaceutical Price Regulation Scheme (PPRS) and manufacturers adopt minimum service standards.

Under law, the Department of Health (DoH) has 90 days to respond to the OFT's recommendations. The July 2007 recommendations the OFT produced for the PPRS are currently in the consultation stage at the DoH.

Pfizer comments
In a press statement, Pfizer said it welcomed the OFT's acknowledgement that "such schemes may also give rise to efficiencies in distribution" and noted with interest the further recommendations made by the OFT with regard to the PPRS, which it added may be raised in industry discussions with the UK government in due course. 

John Young, managing director at Pfizer, said: "Patient safety is our paramount concern. Our scheme has resulted in increased confidence in the secure supply of Pfizer medicines since its introduction in March 2007 at no additional cost to the NHS."

The OFT report can be downloaded here

11th December 2007

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