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Bill Provides Department with Powers to Implement Pricing Agreement with BGMA


By Warwick Smith, Director General, British Generic Manufacturers Association (BGMA)

The BGMA broadly welcomes the Health Service Medical Supplies (Costs) Act 2017 because we believe in transparency between medicines suppliers and the Department of Health (DH), and because it ensures that the Department has the powers properly to implement its pricing agreement (Scheme M) with us.

A dozen years ago we agreed with DH in the Scheme M agreement that we would voluntarily provide data every quarter showing the volumes of each generic medicine sold into primary care and the net revenue gained. For the first time, this enabled the Government to see the actual prices that were being paid to manufacturers by the supply chain and set reimbursement prices accordingly.

The Act’s powers duplicate and extend this agreement. It will also enable the Department to collect data from all manufacturers, not just our members who agree to provide the data voluntarily. This will enhance transparency, improve the accurate setting of reimbursement prices and ensure a level competitive playing field in the supply of generic medicines.

The Act will also allow the Department to collect data for all medicines, including those listed in Category A of the Drug Tariff, and not just in respect of medicines in Category M as they do now. DH currently uses published price lists to set Category A reimbursement prices. This lacks transparency and means that reimbursement prices are artificially inflated and do not reflect actual market prices charged by manufacturers.

The Scheme M agreement allows freedom of pricing for generic manufacturers, but allows DH to intervene when competition is not effective in controlling prices. We understand that the Department was advised last year that they could not act in this way when a manufacturer was also a member of the PPRS. The Act clarifies the Department’s powers in this respect and we now expect them to deliver on this part of our agreement when there is legitimate concern, avoiding unnecessary, long and costly investigations by the competition authorities. We will eagerly cooperate with them on this.

Amid this welcome, we have two reservations. First, transparency needs to be delivered by the Department as well as to it. Prescribers may base their judgements on Drug Tariff prices, as do analysts and academics base theirs. It should be made clear to them that the pharmacy margin of >£800m per year is created by DH setting Category M reimbursement prices at around twice the market price.

The difference between market prices and Category A reimbursement prices is likely to be higher. The generic industry was recently criticised in an academic report for increasing the price of a number of oncology products based on their reimbursement prices, which in the case of one product was 10 times the actual price.

This lack of transparency can lead to clinicians and other NHS decision makers taking decisions on the basis of misleading data. It must be remedied. The powers in the Act allow the Government to do that.  Secondly, a recent OECD report confirmed that average generic medicine prices in the UK are the lowest in Europe.

Those low prices are generated by a system, cleverly created by successive governments, that allows the market to work freely and competitively without unnecessary levels of official intervention. If the Department is insensitive to this in its implementation of the Act, we will see here the same higher prices and lower security of supply that we see in other European countries where, with the best of intentions, governments interfere to try to manage prices.

That would be a perverse and damaging outcome. We will work positively with the Department to help implement the Act effectively.