Drugmakers Negotiating With U.K. Over Pricing Changes

Dec. 1 (Bloomberg) -- Drugmakers are negotiating with the U.K. over changes to the pharmaceutical pricing system, which expires in 2014, as the government seeks to rein in the cost of the state-run National Health Service.

Companies are also weighing proposals to change the way they market medicines to the NHS, the world’s largest public health system, as decisions on purchasing will shift to local groups of doctors from an independent agency.

The changes will increase patient access to new drugs in the NHS and ensure that funds are spent on products that show a benefit, the government said. Negotiations with the government may end up delaying the introduction of new treatments, drugmakers said. Marketing to local doctor groups to be formed under the plan may increase companies’ costs, said Alan Maynard, a health economist at the University of York.

“Pharma is going to have to reorientate its marketing and that’s going to be very expensive,” Maynard said in an interview. “This current war dance that is going on will not necessarily end up being all that beneficial for them.”

Founded in 1948, the NHS employs 1.7 million people. Only the Chinese People’s Liberation Army, the Wal-Mart Stores Inc. supermarket chain and the Indian Railways employ more, according to the NHS website. The service is the government’s second-largest expenditure, at an estimated 104 billion pounds ($161 billion) for 2010-2011. About a fifth of that is used to pay for drugs and other supplies.


The government proposed in July that costs should be based on the value the treatments provide to patients, setting off negotiations with the industry. Under the existing system, companies set the price and then submit clinical data to an agency that decides whether the drug is a cost-effective use of NHS funds.

Companies receive a 17 to 18 percent return on NHS sales under that system, known as the Pharmaceutical Price Regulation Scheme, according to the Association of the British Pharmaceutical Industry.

“The pharmaceutical industry has argued that the PPRS gives them the greatest flexibility and is a system that they will prefer to continue with,” said David Webb, a professor of therapeutics and clinical pharmacology at the University of Edinburgh.

Eli Lilly & Co. warned the Department of Health in July that the move to value-based pricing may lead to delays in drugs being introduced to the market, according to minutes obtained by Bloomberg News under a Freedom of Information Act request.

Possible Delays

“Just by having a price negotiation it could lead to delays in access versus the current approach,” Rick Ascroft, director of corporate affairs at Lilly U.K. who attended the July meeting, said in a phone interview yesterday. “While the goal of the system is to improve access, at least upfront it may actually do the opposite.”

The introduction of value-based pricing would make the decisions of the National Institute for Health and Clinical Excellence, the agency that weighs whether a treatment is cost-effective, “somewhat redundant,” Under Secretary of State for Health Earl Howe was cited as saying in the Pharma Times on Oct. 26. NICE’s recommendation or rejection of a drug governs NHS purchasing decisions.

U.K. Secretary of State for Health Andrew Lansley declined to be interviewed by Bloomberg News, Department of Health spokesman Kirsty Gelsthorpe said, citing consultations with industry over the changes that are expected before the end of the year.

NICE’s Role

“It seems that we’re not going to, after 2013, recommend to the NHS in the terms we have,” NICE Chief Executive Officer Andrew Dillon said today at a Financial Times conference in London. In an interview with Bloomberg News, he said, “We are certainly going to be there as a major part of the new system.”

Under the new proposals, the 145 managing regional Primary Care Trusts will be replaced by 2014 by local doctor groups, also known as GP consortia, who will decide which drugs to purchase for patients.

“We’re facing a completely different environment for sure within the next couple of years,” said Richard Barker, director general of the Association of the British Pharmaceutical Industry. “The industry needs to remake its marketing and sales to both build relationships as these new entities come into existence.”

The proposals may set in place anything between 200 to 500 new consortia, according to Lilly’s Ascroft.

‘Horse Manure’

“I imagine they are pulling their hair out over the idea of marketing to GP consortia,” Maynard said. Doctors “appreciate someone like NICE, which is the international benchmark with its transparency and methods, coming along and saying ‘this is horse manure’ or ‘this is a good drug’ because it takes the burden off them.”

Prime Minister David Cameron’s government on Oct. 20 announced the country’s deepest budget reductions ever, cutting almost 500,000 public-sector jobs. The U.K. aims to eliminate a 156 billion-pound budget deficit after the worst recession since World War II. Spending on the NHS, which Cameron has pledged to protect, will increase by 0.4 percent in real terms.

In the last decade, NHS funds had an annual increase of 7 percent above inflation, said John Healey, health spokesman for the opposition Labour Party. Even then, drug spending “had to be brought under some sort of control,” he said.

“The concept of value-based pricing has an intellectual attraction, but is a leap in the dark at a time when finances in the NHS have not been this tight since a period in the 1950s,” Healey said in an interview in London.

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net