Business – NHS boost for drug companies

Pharmaceuticals manufacturers have won major concessions from the health department in return for a 4.5% price cut in National Health Service medicines, a move health service finance directors say will help prevent the NHS drugs budget spiralling out of control.

Revisions in the pharmaceutical price regulation scheme will give the companies more opportunities to increase profits on new drugs and greater allowances for research and development.

The health secretary has the power to abolish the PPRS and impose prices, but was convinced such a move would destroy the UK-based pharmaceutical industry. The NHS market is now worth around £7bn annually and has been growing at around 9% a year for most of the decade. The changes will save the NHS £200m a year.

The PPRS is a complex mechanism that controls drug prices. In essence, a company’s profits from sales to the NHS must not exceed a value equivalent to a specified rate of return on capital. Under the new scheme, the rate has been raised from about 17% to 21%.

The health department allows companies to exceed this profit ceiling in certain circumstances – the upper limit has been increased from 125% to 140%.

Companies will be awarded additional relief for introducing up to 12 new drugs. They can offset 0.25% of their UK health service turnover for each new medicine, if their income from each drug is £500,000 or more.

Experts say this will raise the R&D allowance from 21% to 23%.

Michael Bailey, corporate affairs director of Glaxo Wellcome, said the new rates would encourage innovation and maintain UK-based research.

‘If a company is successful in bringing benefit to patients through new therapies, this will be reflected in additional R&D allowances,’ he added.

The 4.5% price cut takes effect on 1 October and will be followed by a 15-month price freeze. After that, the health department will have the right to veto increases, though manufacturers will set charges for new drugs.

Glaxo warned that efficiencies would have to be made to offset the effects of the price cut and subsequent freeze.

Barry Elliott, finance director at the Royal London Hospitals NHS Trust, welcomed the agreement. ‘Anything that helps us control drugs costs is to be welcomed because it is one of the areas where we face the biggest ongoing cost pressures year on year,’ he said.

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