A secretive price-fixing scheme operated between the Department of Health and the major pharmaceutical companies has resulted in the NHS spending many millions of pounds more than it should have for drugs, the Office of Fair Trading is expected to say today.
The OFT report is expected to recommend major changes in the way drug prices are decided. It will call for a far more transparent system, which could lead to lower prices for innovative medicines like Herceptin when they first arrive on the market. The high price of such drugs has caused some primary care trusts, who hold the purse strings, to drag their feet over paying for them.
At the moment, the PPRS (pharmaceutical price regulation scheme) agreed every five years between the Department of Health and the drug companies, prevents any company from making excessive profits from the NHS. The PPRS effectively "caps" the amount of profit any one company can make.
But within that company's profit margin - calculated according to their investment in the UK as well as the range of drugs they make - new drug prices can be set as high as the company wishes. This has led to prices as high as £30,000 or £40,000 a year per patient for a cutting-edge medicine.
If the company looks likely to make a lot of money from a new drug, it may pass the rights for some of its older medicines to other companies who have not reached their NHS earnings ceiling.
The OFT has been investigating since last September whether this arrangement, agreed behind closed doors, is fair. The competition watchdog is expected to say that it does not allow the NHS to get the best prices for medicines.
Some critics of the scheme have pointed out the anomaly that the Department of Health is the sponsor of the industry and at the same time its principal customer.
Because of the sensitivity of the report for the profits of the pharmaceutical industry, the findings were due to be released this morning at 7am, on the opening of the London Stock Exchange.
One possibility would be the establishment of a body similar to the National Institute for Clinical Excellence - which decides how cost-effective drugs are to the NHS - to set the price at the launch of a new drug, according to how greatly it is expected to benefit patients.
Alternative options would see prices altered after the drug has been in NHS use for a while, when clinicians and health economists would have a better idea of its usefulness.
