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Slow changing landscape

Although revisions to the PPRS are subtle, they represent significant shifts over time

Large sandy hills in desert When I last wrote about the Pharmaceutical Price Regulation Scheme (PPRS) in this magazine, I argued its principles would continue in spite of the scheme's many critics. Acknowledging the changes to the NHS at the time, increasing demand-side controls and vociferous calls for cost-effectiveness and value for money, I felt the mechanism of the PPRS still had something to offer.

The year was not 2007, it was 1990 (The PPRS – a great success?, September 1990, pp 30-31) and the PPRS has gone on to survive five revisions since.

The parties have hailed the 2009 version as a breakthrough and there have been changes – mostly in favour of industry – without a doubt. But much has not changed. The Department of Health (DH) retains its dual role as guardian of public drug expenditure and as the 'sponsoring department' for the pharmaceutical industry (the Department of Business, Enterprise & Regulatory Reform sponsors the UK bioscience industry), and the Association of the British Pharmaceutical Industry (ABPI) remains its sole industry opposite number for dialogue, formal consultations and negotiations on the PPRS. It took well over a year to agree the latest scheme, a not dissimilar time-span to that needed for previous ones.

As before, and in spite of strong opposition from the Office of Fair Trading (OFT) to the use of large, arbitrary price cuts as a way of managing the market, the new PPRS kicked off with a generalised price reduction, with at least one more set to follow during the scheme's life, and a price freeze. A profit margin continues to be calculated annually for each large company according to its fixed assets in the UK, with monies repaid to DH if the margin is exceeded, either directly or through price reductions. In calculating the profit margin, allowances continue to be made for R&D, promotion and the provision of information.

One new feature, inserted at industry's insistence, is that the 2009 PPRS will run at least its full five- year term unchanged – there being no provision for a mid-term review – and neither party can give the requisite 12-months' notice of termination before four years have elapsed. It should be noted, however, that any future new government is not necessarily bound to this agreement and, at the time of writing, a change at Westminster is looking increasingly likely. Clarifying a previous ambiguity, the new scheme is considered a voluntary one, not binding under the law of contract, but this is only because it is specifically described as voluntary in paragraphs 1.1 and 4.1 of the agreement.

The inclusion of NICE
The 2009 PPRS is the first to mention the National Institute for Health and Clinical Excellence (NICE), despite the institute's recent 10th anniversary and, hence, its existence at the time the 2008, 2005 and the 1999 schemes were concluded. In fact, the NICE process and the PPRS have long been indirectly linked as companies consider the likely outcome of a NICE appraisal when setting the price of a major new medicine.

Also promised are some improvements to the NICE process, but it is too early to expect these to be evident. The PPRS repeatedly asserts that NICE "will not negotiate or publicly set or publicly indicate prices", although it seems inconceivable that some 'discussion' between it and companies on price will not take place. Others regard what they see as 'mission creep' by NICE with some apprehension. NICE was established to give advice to the NHS on the clinical and cost-effectiveness of treatments. Public health was added to its remit in 2005 and in 2008 it started to develop capacity to provide policy consulting. Now it is planning to help develop the indicators used in the Quality and Outcomes Framework, which helps determine GP practice income.

Another novel feature is the call by PPRS to establish a single, unified horizon-scanning process. The current system has a duplication of information requests, involving several horizon-scanning bodies (for example, the regional Medicines Information Centre for Trent and the West Midlands, the National Prescribing Centre's New Medicines Scheme, the Scottish Medicines Consortium and the Welsh Medicines Resources Centre). The DH, however, says none will be sacrificed in the reform process; it merely wishes to achieve consistency on principles and timing.

The allure of flexible pricing is the closest the 2009 PPRS gets to accepting the OFT's proposals on value-based pricing. A clear definition of what value actually entails is still lacking, however, and even the PPRS admits the matter presents "practical challenges".

It will inevitably put pressure on companies to lower their original price expectations so that value is immediately reflected in the price according to existing evidence. Price restoration will be based on the collection of future evidence and a positive recommendation from NICE.

Will expectations of a later price increase in the UK be realised? Some doubt it on the basis that payers will want to pay less per unit, not more, for a medicine that has proven its worth and has seen growing volume uptake due to that increased worth. There are also concerns about how the new arrangements can work outside England and Wales in spite of the UK-wide reach of the PPRS. While NICE guidance on multiple technology appraisals applies in Scotland, its single technology appraisal guidance does not. The devolved administrations will have to come up with a solution, because if flexible pricing is to work, it must apply across the UK. The ABPI, however, remains optimistic that demonstration of added value over time will be rewarded.

There has been considerable interest in patient access schemes, previously known as risk-sharing schemes, with the OFT supportive and the Commons' Health Committee more cautious. A mention in the 2009 PPRS might have been a first for risk-sharing and might provide for the more systematic use of such schemes, but the concept is far from new to the UK; several schemes go back years and at least three predate NICE. The manufacturers concerned will hope they can secure NHS funding, while simultaneously blunting the dual threat of benchmarking in higher-priced markets and parallel exporting.

The developments will also be welcomed by patients eligible for treatment, but they add to the administrative burden placed on front-line health workers like clinicians and hospital pharmacists. In myeloma alone, two drugs are subject to patient access schemes and pregnancy protection schemes, which results in time-consuming form-filling, the patient lobby Myeloma UK notes.

Generic substitution was a late and unlikely entrant to the new PPRS agreement, put forward only because it wasn't possible to agree on how to deal with the pricing of brands after loss of exclusivity. The subject has always been regarded with apprehension in the UK by industry, the government, pharmacists and doctors alike, and has been considered unnecessary with GPs practising Europe's highest rates of voluntary generic name prescribing. No accurate estimates of the likely cost savings (after PPRS adjustments) have been made and there are concerns over clinical, patient adherence, liability and intellectual property issues.

Generic substitution has the potential to add complexity for little overall gain. It would require a number of rule changes, redesigned prescription forms, listings of equivalent and excluded products produced, pharmacy remuneration (a devolved matter) discussed and clarification provided on what to do in situations where generics are unobtainable or when brand prices are lower than generic ones. A proposal is expected to emerge from DH in the summer. Though it assures the measure is still on track for a January 2010 introduction, some slippage – if not entire cancellation – is looking likely.

Subtle changes
Given that the term was also used to describe its control of the now discredited banking sector, we are unlikely to hear the government refer to the PPRS as 'light-touch regulation' again. Other changes are more subtle, but could represent significant shifts nonetheless. At least two medium-sized firms that were members of the 2005 PPRS did not sign up again. Like others, they may have done their sums and found some advantage in the alternative statutory pricing scheme.

The make-up of PPRS signatories has changed markedly over time. According to the latest report to parliament, of 41 companies providing DH with annual financial returns in 2006, nine were return-on-capital (ROC) companies and 32 were return-on-sales (ROS) ones. The ROC/ROS company ratio used to be very different before the spate of mergers took place over the past decade. Under the 1993 PPRS, for example, of the 35 companies with sales exceeding the £20m AFR threshold at the time, 28 were assessed on a ROC basis and just seven on a ROS basis.

More companies are also making use of the modulation provision at the time of a PPRS-enforced price cut. Of 2009 PPRS signatories with home sales exceeding £5m, 45 (66 per cent) applied the 3.9 per cent reduction with modulation, eight applied it across-the-board, 11 used a combination of price cuts and cash payment, and four made full cash payments in lieu of a priced reduction. At the time of the 2.5 per cent price cut under the 1993 PPRS, modulation was used by 46 per cent of companies and a flat rate cut by 34 per cent.

I should finally mention the distribution margin, although the 2009 PPRS confines itself to this heading and little more. Previous schemes didn't specify 12.5 per cent as the gross wholesale margin either, but they did hint at some document somewhere in the DH archives that stated it. Is its absence now significant? Maybe companies have been given a 12.5 per cent price increase? May this warm thought carry you through the recession.

The Author
Donald Macarthur is an independent industry consultant specialising in international pricing/reimbursement/trade/distribution issues. He is the author of Complete Guide to the 2009 PPRS, NICE & Other Pharmaceutical Cost Containment Measures in the UK 
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20th July 2009


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