The health secretary, Alan Johnson, began talks yesterday to reduce the profit margins of the pharmaceutical industry amid evidence that drug companies may be overcharging the NHS by hundreds of millions of pounds.
Mr Johnson met pharmaceutical chiefs on Tuesday to discuss a proposal from the Office of Fair Trading for the price of medicines to reflect the proven therapeutic benefit to patients. Under the current rules companies can charge what they like, subject to a cap on maximum profits.
His move shocked the drugs industry, which signed a five-year deal in 2005 offering price cuts in return for increased allowances to encourage research and development of new products, including better medicines for children.
At the time it was trumpeted by ministers as a great deal for the taxpayer, saving about £370m for the NHS and bringing down prices to match or beat the going rate in other European countries.
But an OFT investigation this year found prices in Britain have crept above the European average over the past two years. It discovered that drugs with similar clinical effects could vary by more than 500% in price. By choosing the cheapest alternative on a range of widely-used medicines, the NHS could save more than £500m a year, it said. The Department of Health said Mr Johnson decided it was "timely" to renegotiate the pharmaceutical price regulation scheme." A spokeswoman added: "While we recognise the benefits the scheme has brought to the UK over the past 50 years, ministers believe it is important to update the system so it is fit for purpose."
It was not clear last night how severely the health secretary intends to squeeze the drugs companies. The department said: "It is in all our interests to encourage research and reward innovation." But it added: "Above all we want to ensure the taxpayer gets value for money and patients continue to benefit from innovative products at a reasonable price."
Drug companies reacted cautiously to the news. Andrew Witty, president of European pharmaceuticals at GlaxoSmithKline, said the current system had "served patients, industry and the UK well for 50 years, providing a stable framework and enabling the UK and the industry to adopt a long-term approach to developing new medicines."
He added that any evolution of the current system should be pricing that rewards innovation, fast access to medicines for patients, and improved uptake of innovative medicines in the NHS.
Aisling Burnand, chief executive of the BioIndustry Association, the organisation that promotes biotechnology, said she supported the principle of investing in drugs that had the most benefits for patients. But she warned: "The complexity and far-reaching consequences of developing a new value-based model should not be underestimated."
