APPENDICES TO THE MINUTES OF EVIDENCE
APPENDIX 1
Supplementary memorandum by the Department
of Health (GD 1A)
INTRODUCTION
The Department welcomes the opportunity to
provide an updated report to aid the Committee's deliberations.
Information on the current position and our activities since the
Committee's hearing on 4 November is set out below.
CURRENT POSITION
Prices and Supply
Analysis of December prices show that
whilst prices continue to rise, the rate of rise is not running
at the high level of earlier months.
| Months (1999) |
Price Index |
| April to May | 3.0% |
| May to June | 5.2% |
| June to July | 4.5% |
| July to August | 6.5% |
| August to September | 1.6% |
| September to October | 3.7%
|
| October to November | 1.6% |
| November to December | 2.7%
|
| |
The price index is based on the price movement of the top
100 drugs in terms of Net Ingredient Cost and is weighted according
to quantities dispensed in 1998.
However for the December Drug Tariff which has now gone to
press the number of items in Category D has dropped by 11 per
cent, partly as a result of changes to the entry and exit criteria
recently agreed with PSNC (see below) but also due to apparent
recovery of the stock position for a number of drugs.
ACTION
Category D
On 12 November PSNC agreed two changes to the entry and exit
criteria for category D: reduction of the stockholding period
of two weeks and to allow stockholding of certain additional pack
sizes to be taken into account. We are looking at further proposals,
for example to expand the list of suppliers whose stocks are checked.
PPA
We have further reviewed with the PPA options to enable PPA
as rapidly as possible to:
— return to month-in-month processing;
— deal with the backlog of prescriptions;
— resume timely supply of prescribing and budgetary
data to HAs and PCGs.
Work is now being done on the feasibility of further revising
data entry systems, change to shift-patterns and training of new
staff.
Communications with NHS
Arrangements have been made to provide NHS Executive Regional
Offices, Health Authorities and Primary Care Groups with regular
reports about the position and robust information about forecast
outturn for this financial year and advice on budget setting for
next year.
Communications with manufacturers, wholesalers and pharmacists
We shall be continuing to meet manufacturers, wholesalers
and the PSNC to assess the situation and to see what further steps
can be taken.
Fundamental review
As announced at the Committee's hearing, Ministers have commissioned
a fundamental review of the supply of medicines to the NHS, with
particular reference to the arrangements for generics. Its terms
of reference are:
— To carry out and report on a "high level"
analysis of the generics industry and the supply chain structure;
— To identify and analyse the key incentives that
run through the system; and
— To suggest and develop options for improvement.
The options will be developed in two broad ways:
(i) a remedial approach—asking whether adjustments
to existing arrangements could be made, which would better deliver
the Government's objectives.
(ii) a radical approach—asking how we might
do things differently.
Timescales will depend at least partly on what the review
team find and the complexity of any options they recommend. However
we expect to have received their recommendations by the summer
of 2000.
A further note on the review is annexed.
Annex
DISTRIBUTION AND SUPPLY OF MEDICINES TO THE NHS
FUNDAMENTAL REVIEW
1. The Department's current objectives for the system
of distributing medicines to the NHS are that it should:
— maintain, and improve, the current quality of
service to patients both in hospital and in the community, in
particular maintaining a secure and reliable service that meets
clinical need;
— minimise the costs of the distribution networks,
subject to service level and quality requirements;
— reimburse community pharmacies as closely as possible
to what they actually pay for the medicines they dispense under
the NHS;
— have transparent prices;
— support a competitive pharmaceutical market; and
— secure value for money for the NHS.
2. In the light of the difficulties currently experienced
in the generics sector, the Department has invited Oxford Economic
Research Associates (OXERA) to conduct a fundamental review of
the operation of this sector, taking into account—and if
necessary also subjecting to the review—the totality of
medicines supply and distribution arrangements. The PPRS agreement
recently conducted with the pharmaceutical industry would be excluded
from this wider review.
3. The review will:
— carry out and report on a "high level"
analysis of the generic manufacturing and supply industry, and
the wider pattern of relationships for wholesaling and retail
of medicines for the NHS. This will cover:
(i) a detailed investigation of ownership links;
(ii) an analysis of operational characteristics at all levels
of distribution and supply;
(iii) an analysis of how the NHS reimbursement arrangements,
and distribution margins, affect participants' behaviour;
(iv) an understanding of the incentives that exist at each
stage in the distribution chain;
(v) a consideration of how these are changing through time.
— conduct a competition analysis, covering:
— be intended to support policy analysis and decisions
to be taken by the Department of Health about possible reforms
to these arrangements. Broadly two perspectives will be taken
to this stage of the review:
4. The OXERA consultants will work closely with the Department
throughout the exercise; and the OFT will be kept in touch with
developments. The overall programme of work will be timed to reach
conclusions by the summer of 2000.
5. A factual report of the work will be published when
the Department has reached conclusions as to the development of
policy, on which basis it will consult.
November 1999
PATIENT PACK INITIATIVE
INTRODUCTION
When giving evidence, John Denham said that the current
spate of shortages and price rises has been triggered by a number
of factors and that whilst the shift to patient packs by many
generic manufacturers during this year has probably been a contributory
factor it is certainly not the only one or the most significant.
Indeed, our analyses show that substantial price rises for large
(bulk) packs have been occurring throughout the year. Neither
do we accept that the decision not to have a centralised approach
to this change has been a cause of price rises.
Nonetheless, we offered to provide further details of
the history of government involvement with the move by the pharmceutical
industry into patient packs. This note sets out those details.
It has been true for a long time in the UK that some
medicines are manufactured in bulk packs, designed to be repackaged
in the pharmacy to the exact quantity, and some in manufacturers'
"original" or "patient" packs, designed to
be supplied to patients without further repacking. The long-term
trend has been towards greater use of patient packs.
2. Government intervention in this process is probably
best traced back to 1985, when its Standing Medical, Pharmaceutical
and Nursing and Midwifery Advisory Committees set up a joint sub-group
to consider the question of "original pack depensing"
(ie dispensing in unbroken manufacturers' packs).
3. Following this, in November 1988 the Government of
the day issued a consultation letter suggesting a voluntary code
of practice on original pack dispensing. While stating explicitly
that "It should be for the industry to decide whether and
when to pack their products [in original packs]", the code
of practice envisaged that doctors would prescribe mainly in original
pack quanitities, that manufacturers would agree to produce medicines
in standard pack sizes, and that pharmacists dispensing original
packs would be expected to round prescription quantities where
necessary in order to be able to dispense the pack unopened.
4. The code of practice idea did not seem to have progressed
very far. On 22 February 1991, the then Minister for Health, Virginia
Bottomley answered a written Parliamentary Question from Sir Neil
Macfarlane MP asking whether the Government intended to implement
proposals for pharmicists to dispense exclusively from complete
original packs. In reply she said:
5. "A formal consultation exercise is needed for
changes to orders under the Medicines Act 1968, section 129(6).
Consultations following the report of the Sub-Committee appointed
by the Standing Medical, Nursing and Midwifery, and Pharmaceutical
Advisory Committees to consider original pack dispensing suggest
that agreement on such changes would be difficult to achieve.
We intend to institute a new round of consultation with the medical
and pharmaceutical industry shortly." [Col 304].
6. On 13 July the following year, her successor Dr Brian
Mawhinney, responded to a question from Alan Meale MP asking when
the Government would publish a consultation paper on the introduction
of original pack dispensing by saying that "We are considering
the options and will make an announcement in due course." [Col
518].
7. By that time, EC Directive 92/27 on the Labelling
of Medicines and Patient Information Leaflets was on the agenda,
and many people began to view the use of patient packs in place
of bulk supplies as the best way to meet its requirements about
the information to be supplied alongside patients' medication.
8. From 1992 to 1994 there were various discussions between
Department of Health officials and both Association of the British
Pharmaceutical Industry (APBI) and British Generic Manufacturers
Association (BGMA) on the possibility of introducing original
pack dispensing. In parallel, the ABPI started discussions with
medical and pharmacy bodies over a draft set of "Principles
for the Introduction of Patient Packs".
9. On 20 September of 1994 that year the Minister of
State for Health, Gerald Malone met representatives of ABPI, BMGA,
the General Medical Services Committee (GMSC) of the British Medical
Association, The Royal Pharmaceutical Society of Great Britain
(RPSGB), and the Pharmaceutical Services Negotiating Committee
(PSNC), to dicuss proposals for a regulated move to patient packs.
He subsequently wrote to them, saying that he was determined to
press ahead now to achieve a sensible outcome, subject to satisfactory
resolution of the outstanding questions on phasing and cost.
10. There followed further discussions until, in three
stages between April and June 1995, the details of what had become
known as the Patient Pack Initiatives were made public.
11. In summary, it had been agreed that there would be
a transition programme during which manufacturers would withdraw
bulk supplies and replace them with patient packs. This would
be linked to a rolling programme under which the Medicines Control
Agency would approve manufacturers' labelling and Patient Information
Leaflets as now required by EC Directive 92/27. The programme
was to be in 12 phases from December 1995 to the end of 1998,
the phases determined broadly by therapeutic classes of medicines
(so allowing manufacturers of competing medicines to make the
change from bulk to patient packs simultaneously.) There would
be changes to NHS terms of service for pharmacies to ensure, once
the relevant phase had begun, that they stocked and dispensed
only patient packs.
12. In the event, while the Medicines Control Agency
began to approve lables and leaflets to the agreed timetable,
other aspects of the Intiative were delayed. It is clear to us
from subsequent discussions that high levels of co-operation among
all those involved in the manufacture, prescribing and dispensing
of medicines were required to bring the patient pack changes into
effect. In the event all parties had "sticking points"
and these could not be reconciled unless the Government was to
agree to bear all residual risks. In September 1996, Gerald Malone,
in a letter to Dr Peter Read, Chairman of the ABPI, reaffirmed
the Government's support in principle for the objective of the
Initiative and further attempts were made to clear a way through
the detail. At that stage he was suggesting that implementation
might begin in February or March 1997.
13. By March 1997 implementation had still not begun,
although Mr Malone did then confirm his unequivocal support for
an incremental move to supply medicines in patient packs. The
Medicines Control Agency also began consulting on changes to secondary
legislation under the Medicine Act (without which pharmacists
would not have been able to round prescriptions). Despite these
public moves, it was acknowledged by all the parties that significant
and interacting outstanding difficulties needed to be dealt with.
14. When the current administration took office, it became
clear to us that these "details" were of a fundamental
nature. The rules by which pharmacists would be expected to "round"
the doctor's prescriptions to the nearest available patient pack
had not been finalised (but were already complex). There was an
outstanding claim (which they later costed at nearly £10
million) from PSNC for compensation for residual unusable stock.
There were in place no firm arrangements for keeping the industry
to its assertions that increases in the unit cost of medicines
brought about by move to patient packs would be kept within the
level of savings that the NHS would make by being able to reduce
the amount paid to pharmacies to reimburse their own container
costs. No agreement had been reached with PSNC on how the reduced
container costs would be reflected in payments to pharmacies during
the transitional period.
15. It did not seem to us that the Patient Pack Initiative
we inherited was in an adequate shape to be implemented. Not only
did significant practical issues remain unresolved, after several
years of trying to get agreement on them, but we believed that
the Initiative, contrary to what had been believed at earlier
stages in the process, would be likely to require significant
additional public spending.
16. We quickly drew our doubts to the attention of the
pharmaceutical industry. In October 1997, Alan Milburn met the
parties to the Initiative and expressed his reservations about
its costs and feasibility. On 6 November, the Head of the Department
of Health's International and Industry Division, Jack Barnes,
wrote confirming that Mr Milburn's assessment of the Initiative
remained the same, and that "He is, therefore, now considering
alternative means of implementing the Directive."
17. On 14 May 1998, Minister of State, Baroness Jay of
Paddington, speaking in the House of Lords, said "We do not
support the details of the complex and costly plans developed
by the previous administration, which have become known as the
patient pack initiative." (Col 1256) She explained that the
Government's analysis was that the additional costs associated
with the initiative would have required up to £60 million
over the first three years of any scheme to be diverted from direct
patient care, and some £15 million a year thereafter.
18. In his oral evidence to the Committee, Jon Close,
Chairman of BGMA stated that "right up until October 1998
there was an understanding that the industry was going to move
into Patient Packs in a co-ordinated fashion with Government support."
We do not accept this. At no point did current Ministers signal
any commitment to the Initiative, and we made it clear as early
as October 1997 that we had serious reservations.
19. Similarly, Andrew Kay, Chairman of the Generics Medicines
Committee of the ABPI, stated that "There was a plan which
could have been rolled out" and which would have avoided
some of the current problems with generics. Again, we disagree.
There was a plan, but it was not complete. Important specifics
of its implementation were not agreed by all parties and, in our
view, it was unjustifiably costly.
20. Certainly, it seems to have been taken for granted
in the development of the Patient Pack Initiative that, in transitional
phases, patient packs should be listed in the Drug Tariff as soon
as they became widely available. However, bearing in mind recent
events involving Category D, we have seen no evidence that any
special measures had been devised either to ensure that wide availability
of new patient packs would be achieved quickly, enabling a Drug
Tariff listing to be made under normal procedures, or, alternatively
that there were detailed plans in place to revise the basis of
Drug Tariff listings to enable patient packs to be listed before
they were widely available. Nor are we aware of any contingency
arrangements for situations where manufacturers collectively were
unable to deliver the patient packs they had promised but where,
because of the obligatory nature of the programme, bulk supplies
had already ceased.
November 1999
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