MEMORANDUM BY THE DEPARTMENT OF HEALTH
AVAILABILITY OF GENERIC DRUGS TO THE NHS
(GD1)
Contents
1. Introduction and Executive Summary
2. The arrangements for the supply of generic drugs to the
NHS
3. The events of 1998-99
4. The current supply and pricing position
5. Analysis of causes of supply and pricing problems
6. Action being taken to address supply and pricing problems
in short and medium term
7. Conclusion
Description of reimbursement system
Generic prescribing rates
Generics prices—long term price trends
"Top 100"Generics price Index
Manufacturers and Wholesalers' response to survey
1. INTRODUCTION
AND EXECUTIVE
SUMMARY
Introduction
1.1 The Department of Health welcomes the
Health Select Committee inquiry into the current shortages of
the supply of generic medicines to the NHS. It hopes that the
Committee's investigation of witnesses and analysis of the problems
that have arisen around the supply of generics will add to our
understanding of the causes of these problems and, more importantly,
their remedies. It also hopes that in raising awareness of the
current shortages the Committee's work will also help in re-assuring
the public that the shortages in the supply of certain generic
medicines have not led to patients failing to receive the
medication they need.
1.2 This Memorandum explains how generic
medicines are supplied to the NHS and reimbursement rates set
(Part 2), describes the events of 1998-99 that have led to supply
shortage and price increases (Part 3), sets out the current supply
position (Part 4), analyses the causes of the supply problems
and price increases (Part 5) and concludes with the Action being
taken to address the problems (Part 6).
Executive Summary
1.3 The key points in this Memorandum are:
(i) For decades the NHS has relied on the
market for the supply of generic medicines. The assumption—and,
to date, the experience—has been that a competitive market
in the supply of generic medicines delivers the NHS continuity
of supply and reasonable prices, ie overall value for money for
the NHS.
(ii) The arrangements for reimbursing pharmacists
what they dispense generically on the NHS are designed to reimburse
at rates that result from strong competition in the market. The
reimbursement rates set out in the Drug Tariff follow the
market price and act as a ceiling on the level of NHS reimbursement;
they are not designed to lead the market and set the price.
(iii) These arrangements, until the events
of this year, have served the NHS well. There has been general
continuity of supply at reasonable prices and this has helped
the NHS reach high levels of generic dispensing (some 48 per cent)
and allowed the Government earlier this year to set a challenging
Public Service Agreement target for generic prescribing.
(iv) The events of the last year have caused
significant upheavals in the market for generics that have led
to both shortages of generic medicines and, as significant, price
increases.
(v) The initial shock to normal supply came
from the closure, for essential public health reasons,
in December 1998 of Regent—GM Laboratories. Despite assurance
to the Department from most in the industry that the market would
close the gap in supply, the loss of Regent's product is now identified
by those in the supply chain as the key triggering factor in the
shortages and price rises that began to occur in the first half
of 1999. Other factors also played their part, including relocation
of some manufacturing capacity and the move to patient packs.
(vi) Despite further reassurance in June
from those in the market, by July it was clear not only that the
market was not delivering continuity of supply (and prices were
beginning to rise significantly) but also that there was no certainty
of any immediate, or even medium term prospect of, a return to
the previous market conditions on which the NHS had successfully
relied.
(vii) In effect the market had turned from
one that balanced the needs of sellers and purchasers to a sellers-led
market. This inversion effectively undermined the basis for ensuring
value for money in NHS supply arrangements for generic medicines.
For example, Drug Tariff prices started to rise, giving a signal
to suppliers whose prices were lower than the Tariff price that
they could raise them. And the arrangements under which pharmacies
can be paid above the Drug Tariff price when products are in short
supply, thus ensuring that patients get the medicines they need,
began to apply to large numbers of products effectively turning
the Drug Tariff price from a ceiling into a floor price.
(viii) In July the Department decided the
market could not be safely left to itself. A major investigation
was undertaken to identify more clearly the causes and potential
remedies of the supply and price problems. The results of this
investigation are set out in detail in this Memorandum. The investigation
confirmed that as well as the causes noted above the supply chain
was operating inefficiently with supplies from manufacturers taking
a long time to reach consumers (with some evidence of stockpiling
by some in the supply chain in anticipation presumably of further
price rises), manufacturers not able to adequately judge which
specific products were most needed, and "Category D"
reimbursement arrangements were now having unintended effects
that tended to exacerbate the supply and price problems.
(ix) The investigation led to immediate action
in three main areas:
First, action to ensure competition is
actually working in the market. The Office of Fair Trading was
contacted early in August and is formally investigating the supply
of generics to see if the events of the last year raise any competition
issues.
Second, immediate and necessary action,
within the general framework of existing arrangements to address
problems with the present systems. For example: action is being
taken to ensure that "Category D" is only brought into
operation when absolutely necessary, and only for as long as absolutely
necessary; the PPA took and continues to take immediate steps
to improve its processing of prescriptions; and the MCA has arrangements
in hand to ensure Regent is inspected immediately it is ready
for inspection.
Third, action was set in hand to consider
how best the Department—in the light of events—could
secure its objectives of ensuring that:
— The NHS gets a sure supply of
reasonably priced generics
— Pharmacists are paid promptly
— Health Authorities and Primary
Care Groups get the information they need.
(xii) Until this year NHS reliance on competition
in the market has secured continuity of supply of generics at
reasonable prices. This has been achieved without direct involvement
of government in a commodity market. We have been repeatedly reassured
at the various key stages during the year that the market would—at
some stage—return to normal, but this has not yet proved
to be the case and we can have no real confidence it will happen
or, if it does, when, and even if it does that there will not
be a recurrence of problems in the future.
(xiii) Key questions arise about the operation
of the market:
(a) whether some suppliers (manufacturers
and/or wholesalers) have been charging excessive prices over a
sustained period of time, taking advantage of their market power;
(b) whether some suppliers have been
holding excessive stocks of certain products for speculative purposes—well
above what is needed to meet their normal supply. If so this would
restrict the supply of medicines and create artificial shortages,
thus contributing to recent price rises;
(c) whether some suppliers are exploiting
the rules for reimbursing products that are in short supply, either
by: manipulating their stock position to get products into Category
D; and/or once products are in Category D, taking advantage of
the system—which is designed to ensure continuity of supply—to
institute very significant price increases that are not justified
by cost pressures;
(d) whether there has been explicit or
implicit collusion between any suppliers to bring about or sustain
any of the practices identified above.
(xiv) Above all—even if the outcome
of OFT investigation is to confirm that there are no competition
issues—the question arises immediately whether the NHS should
continue to rely on a commodity market for the supply of generic
medicines—one that may always, by its very nature, be vulnerable
to events such as those of the last year. The NHS now purchases
some £700 million per annum of generics medicines for primary
care use. The present supply arrangements evolved over a long
period when generic supply was of less importance to the NHS both
in terms of volume and total cost.
(xv) The Department believes therefore
that a fundamental review is needed of the arrangements for the
supply of generic medicines to the NHS to see, in the light of
the last year, whether the present arrangements should be replaced
by ones that better serve the needs of the NHS.
2. THE ARRANGEMENTS
FOR THE
SUPPLY OF
GENERIC MEDICINES
TO THE
NHS
Description of present supply arrangements
2.1 The supply of generic medicines is best
viewed as part of a whole pharmaceutical supply chain: at its
simplest, manufacturers of branded and generic medicines sell
to wholesalers who then sell on to community pharmacists, dispensing
doctors and hospitals for dispensing to patients.
2.2 The markets for branded and generic
medicines are very different: branded medicines are normally produced,
at least until the expiry of patent protection, by the single
pharmaceutical company which developed the product. In the UK
these products are covered by the Pharmaceutical Price Regulation
Scheme (PPRS). Supply is predominantly through full-line wholesalers
but with some direct supply. The overall size of the NHS primary
care medicines market is some £4.7 billion per annum with
generics comprising only some £700 million. Branded products
will not be considered further in this document.
2.3 Generic drugs are more of a commodity
product. Our licensing requirements mean that in the vast majority
of cases products with the same generic name and strength and
of the same type of preparation can be dispensed interchangeably.
Where a GP prescribes using a generic name, the pharmacist dispensing
the prescription can use any version of the preparation that is
licensed and meets the required specification. (This contrasts
with the requirement for prescriptions written using brand names
where only products with that brand name can be dispensed.) These
arrangements allow generic products to compete on price at the
point of dispensing.
2.4 The supply arrangements for generic
medicines are more complex than for branded versions. A small,
and probably declining, proportion is supplied direct, both to
primary care dispensing contractors and hospitals. The rest is
supplied via wholesalers. Wholesalers can be divided into two
main types: full-line wholesalers, who keep a complete range of
stock, and of whom there are a small number of national and regional
players; and short-line wholesalers, who focus on a limited number
of products and of whom there are a large number of companies
of varying sizes. In recent years the proportion of the generic
market passing through full-line wholesalers has decreased, shortliners
having expanded to take up a significant proportion of generic
wholesale supply.
2.5 The UK thus has a market with quality
guaranteed through the licensing arrangements and structured to
compete on price. But the NHS systems are also structured to ensure
the NHS benefits from this price competition. In hospitals, budgets
encourage cost-effective procurement. In primary care, the reimbursement
system for community pharmacists uses a system of fixed-price
reimbursement known as the "Drug Tariff" which itself
helps to drive competition and encourages pharmacists to buy lower
than the reimbursement price. Recovery of estimated discount from
pharmacists, assessed through regular discount inquiries, captures
the extent to which they manage to buy at lower prices. The combined
effect means that the NHS not only incentivises cost-effective
purchasing but obtains the financial benefits too. If a drug is
in short supply and cannot be obtained at the Drug Tariff price
it is placed in "Category D" which enables pharmacists
to be reimbursed what they paid for the drug rather than the Tariff
price. This system ensures that neither patients nor pharmacists
are disadvantaged.
2.6 A detailed description of how the reimbursement
rate for pharmacists' use of generic medicines is calculated is
at Annex A.
Benefits of these arrangements
2.7 Our basic system for stimulating the
market in generic pharmaceutical products and minimising health
service expenditure in these medicines has—until the events
of this year—been very effective. The principle of generic
prescribing has opened up a substantial market in chemically-identical
products. Growth in generic prescribing, has been significant
in recent years and has allowed this market to expand to cover
a proportion of health service prescriptions which is almost unique
world-wide (See Annex B). Once patents expire, similar products
can enter the market and start to compete on price and the high
proportion of prescriptions which are now written generically
means that the market is worth entering: some 48 per cent (1998)
of prescriptions are now reimbursed at "generic" rates.
Diversity of supply has also until now helped assure reliability
of supply. Additionally, our reimbursement system in setting a
headline reimbursement price is designed to stimulate community
pharmacists to "beat the price"; and the extent to which
pharmacists on average do beat the price is clawed back from contractors
as a whole to the benefit of the NHS through the discount deduction
mechanism. In addition, before this year, generic prices have
been dropping steadily—around 15 per cent in cash terms
and 25 per cent in real terms between 1994 and 1998. (See Annex
C). All this was good news for the NHS in securing quality pharmaceuticals
at a low price: many generics were typically a fraction of the
price for the matching brand. [NB: The figures for generic prescribing
given in Annex B are higher than the 48 per cent generic dispensing
figure quoted above. This is because the generic prescribing figure
includes prescriptions for medicines which are as yet only available
as branded products, for example because they are still in patent.]
3. THE EVENTS
OF 1998-99
3.1 As noted in part 2 of this Memorandum
the arrangements for the supply of generics to the NHS have served
the NHS well in the past—increasing demand for generics
has been met with consistency of supplies at reasonable prices
(indeed declining prices overall over the last five years).
The events of the last year have called into question whether
that continues to be the case and whether the Department can continue
to rely on a market for continuity of supply at reasonable prices.
3.2 Amongst the thousands of drugs products
that are marketed, there will always be some in short supply for
one reason or another. For example, supply difficulties were reported
for various paracetamol and asprin containing products due to
the changes made, for public health reasons, to the maximum pack
size for these medicines that could be sold over the counter (OTC).
Various products were given "Category D" status as a
result.
3.3 The events of 1998-99 have however been
different. They have presented the Department with problems in
a market on which it relies but (safety aside) does not regulate.
At each state it has taken what action was available to it to
try to ensure a return to normal market conditions.
3.4 It is now clear the closure of one generics
manufacturer triggered the problems, even if in subsequent months
the supply and prices problems were compounded by other factors
in the market and interaction with the NHS's purchasing and reimbursement
arrangements.
3.5 In December 1998 the Medicines Control
Agency, acting on behalf of the Licensing Authority, suspended
with immediate effect the Manufacturer's Licence of Regent—GM
Laboratories. This action was taken under Schedule 2 paragraphs
10-11 of the Medicines Act 1968. The suspension of Regent's manufacturing
licence was because there were a number of critical failures and
other major failures to comply with Good Manufacturing Practice
detected by MCA Inspectors, involving serious deficiencies in
procedures for controlling process changes, auditing systems and
releasing batches. The critical failures included:
— Some major processes were not being
properly controlled or validated.
— There was a danger of penicillin
contaminating other products, for example, tablet compression
had been moved without evidence of proper decontamination and
penicillin was detected outside the specified penicillin work
area.
— Batches of products were released
by selecting only those results which complied with specification,
ignoring others.
The Chief Medical Officer, the Deputy Chief
Medical Officer and the Agency's Chief Executive were all closely
involved in the decision to suspend Regent's licence.
3.6 Regent was known to be one of the main
manufacturers of generic medicinal products in the UK and supplied
a number of own-label generics to other companies. In taking this
action which included recall of some Regent products the Department,
and the MCA, considered the availability of alternative products.
The existence of other Product Licences was checked. Only the
products manufactured solely by Regent were considered to be a
potential problem because it was believed other supplies would
quickly fill the gap. (Only one medicine was identified as a possible
problem (Hormonin) but advice was that patients could be changed
to nearest therapeutic equivalent alternative without problem.)
3.7 In order to check the supply position
after closure, soundings were taken of the British Generic Manufacturer's
Association (BGMA) who said specifically that other manufacturers
would make good the gap in the market. The MCA had already made
informal enquiries of wholesalers on the stock position. The concensus
of opinion—one manufacturer aside—was that the market
itself would close the gap in supply caused by the closure of
Regent.
3.8 In the event other factors added to
market turbulance. Between January and April 1999 the Prescription
Pricing Authority (PPA) alerted the NHS Executive to some price
rises and shortages—and an increase in the number of products
going into "Category D". Arrangements were put in hand
for closer monitoring of prices of "Category D" products
and discussions were held with PPA on the difficulties the increase
in "Category D" products was causing for rapid processing
of prescriptions.
3.9 As the "Top 100 generics price
index" at Annex D shows generics prices overall started to
rise significantly only in May and June. DH then had discussion
with the BGMA and Pharmaceutical Services Negotiating Committee
(PSNC) about the causes of the price increase and supply problems
which by now were causing an accumulation of backlog in PPA processing.
The consensus was that supply problems and the turbulence in the
market were temporary.
3.10 In July DH officials met with both
the BGMA and BAPW to discuss the causes of the continuing supply
problem and price increases and proposed the immediate issue of
a questionnaire to both the manufacturers and wholesalers to ascertain
the supply position of a sample of generic medicines both in terms
of production and stocks held in the supply chain. At the same
time proposals were put to the PSNC proposing changes to the way
in which "Category D" was triggered.
3.11 The necessary information was requested
by early August. In the event sufficient information for a clear
analysis for the wholesalers—to add to the material supplied
by manufacturers—was not received until end September and
even then very little information was received from the shortliners.
Meetings were held on 8 September and 15 October respectively
with the manufacturers (including the BGMA) and wholesalers (including
BAPW) who had responded to the questionnaire. (A list of companies
sent the questionnaire is at Annex E together with responses.)
3.12 Action taken by the Department in response
to the price increases and supply problems (in addition that note
in the chronology above) is set out in Part 5 below. It is first
helpful we think to set (a) the current (October) supply position
and (b) our analysis of what has happened in the market—it
is that developing analysis that has informed the action taken.
4. THE CURRENT
SUPPLY AND
PRICING POSITION
4.1 On supply the position is that,
according to BGMA and our own survey data, total manufacturing
capacity has been back up to 1998 levels ie, pre-Regent closure
for some months. There are however, significant variations between
products.
4.2 Prices are still rising, although
the rate of growth now appears to be slowing down. November Drug
Tariff prices are 1.7 per cent above October prices. This compares
with previous monthly increases as follows:
July-August 6.3 per cent.
August-September 1.5 per cent.
September-October 3.6 per cent.
(See Annex D)
4.3 "Category D" and PPA. There
are still almost 200 preparations in "Category D", accounting
for around 15 per cent of all prescriptions. The PPA is now running
42 days late, resulting in some similar delays in supply of prescribing
data to the NHS and monitoring data to the Department.
4.4 Whilst pharmacists are still having
difficulty in sourcing some products, there are still only isolated
reports of patients who have had any difficulty in obtaining supplies
of their medication or, for example, have had to try several pharmacies
before obtaining supplies.
5. ANALYSIS OF
CAUSES OF
GENERICS SUPPLY
PROBLEM
5.1 This section sets out the Department's
analysis of the causes of the supply problems and price increases.
Price increase
5.2 Paragraph 4.1 above noted the monthly
price increases since May. In total since January 1999 prices
of generic medicines have gone up by around a third.
5.3 The pattern of price increases has been
variable across products. Some prices have more than trebled this
year, whilst others have not moved. Of the top 100 generic products,
around a quarter have risen in price by more than 50 per cent,
one quarter have risen by between 10 to 50 per cent, and the remainder
have risen by less than 10 per cent or, in a few cases, fallen
in price. The largest price increases have been concentrated on
"Category D" products, but there have also been significant
price increases on other products that have not been in short
supply.
Causes
5.4 Our analysis of causes is based principally
on investigation of information from the manufacturers and major
wholesalers, work with the PPA and the NHS Supplies Authority
and the PSNC. As noted earlier, we had a poor response from part
of the wholesaling sector. Few of the regional wholesalers and
only one short-line wholesaler provided any information. We estimate
that the wholesaler respondents account for only around 40 per
cent of the market (for the products in our sample).
5.5 In our assessment we looked at those
factors which we and various parts of the industry identified
as being in varying degrees the potential causes of the problems:
— Regent's closure and other "supply
shocks";
— the move to patient packs;
— stockpiling by some wholesalers and
other alleged "inefficiencies" in the supply chain;
— lack of competition in the supply
chain; and
— interaction of the above with the
Department's reimbursement system and "Category D",
in particular.
5.6 The evidence shows there is some element
of truth to all of these. But, the story is a complex one. The
various effects are difficult to disentangle, because they overlap
in time and because they interact with, and often feed off, one
another.
Supply shock
5.7 It is clear that the problems were to
a significant extent precipitated by the closure of Regent. Our
survey suggested that Regent's share of the market may have been
somewhere in the region of 10 per cent. On top of this, three
additional factors may have contributed to the supply problems
over this period, although they are difficult to quantify:
— Norton and APS—both major manufacturers—have
been transferring their facilities overseas, which may have affected
their capacity around the turn of the year;
— manufacturers have been switching
from bulk to patient packs, which may be causing some disruption
to their production process.
— there appear to have been some supply
problems—as noted earlier—before Regent's closure
due, for example, to legislative changes in over-the-counter aspirin
and paracetamol pack sizes.
5.8 Together, these created genuine supply
shortages. Manufacturers responded by raising their production.
They have told us that overall capacity is now back to pre-Christmas
1998 levels, which is consistent with our survey evidence. But,
the recovery has not been uniform across products. Our survey
shows that output of many products is still well below what it
was last year. This is reflected in the number of "Category
D products", which is continuing to rise. Manufacturers say
they often do not know what is in short supply and they only have
their own order book and "Category D" status to go on.
This uncertainty contributes to the volatility of the sector.
Patient packs
5.9 The use of patient packs is growing
fast—up from around a quarter of total sales (in our sample)
at the end of last year to over 40 per cent in the middle of this
year. The Department expects the direct cost (packaging, etc)
to be reflected in higher prices for patient packs, although we
will want to ensure the "mark-up" is a reasonable one.
However, packaging costs themselves do not explain the increases
we have seen to date in generic prices which are mostly on supply
still in bulk.
5.10 The manufacturers have said to us that
they have experienced delay in getting patients packs listed in
the Drug Tariff which may be creating artificial shortages as
the reimbursable bulk packs constitute a smaller share of overall
supplies. We have listed packs where stocks are adequate and we
have secured the agreement of the PSNC. Once a produce is in "Category
D" a pharmacist can obtain reimbursement for any version
and any pack, not only those listed in the Drug Tariff.
"Inefficiencies" in the supply chain
5.11 There is now some evidence that stock
is being held up in the supply chain, possibly in anticipation
of a further rise in prices. Product is not moving quickly through
the supply chain. For many of the new "Category D" products
in our sample, manufacturers reported significant increases in
sales, whilst the amounts dispensed to patients were fairly stable—implying
that product is getting "stuck" somewhere in the supply
chain. The survey information indicates that "mainstream"
wholesalers are not stocking up on these products. According to
the main wholesalers, it can take up to six months for some products
to get from manufacturers to pharmacists due to stockpiling. This
may be stopping suppliers whose supply position determines the
basket price under the Drug Tariff arrangements from replenishing
their stocks, so keeping the product in "Category D"
for longer. This may be contributing to the instability of the
market, since large stocks of product may be bought up one month
and sold off the next.
5.12 The survey also raised further questions
about the efficiency of the distribution chain. In particular,
there are a number of examples of products in the Department's
sample, where wholesalers' stocks are low, but where manufacturers
appear to have plenty of stock. This is a problem if it is causing
products to remain in "Category D". The Department is
looking into the reasons for this.
Competition in the market
5.13 As in any market we would expect supply
shortages to lead to price rises, but the scale of recent price
rises is difficult to justify. There are examples of doubling
or trebling of manufacturer prices on some products.
5.14 The manufacturers' survey shows that
individual product markets have become more concentrated, as manufacturers
consolidate their activities on a smaller number of products.
The very large price increases have occurred in the most concentrated
markets, where supply is dominated by one of two manufacturers.
Lack of competition might also explain why prices do not seem
to be falling when products come out of "Category D",
since it is competition between different suppliers that drives
this process.
Reimbursement system
5.15 The Department has identified several
issues to do with the way the reimbursement system, and "Category
D" in particular, has interacted with the supply arrangements
following the Regent closure and the changed relationship between
supply and demand which followed.
5.16 For products in Category D (ie in short
supply), pharmacists do not have the same incentives to shop around,
because they can be reimbursed at whatever price they pay. This
system is designed to ensure that pharmacists are not penalised
if they have to use more expensive sources to ensure patients
do not go without their medicines. Until this year relatively
few products were in "Category D" at any one time but
in current circumstances the arrangements may be allowing suppliers
to put their prices up unreasonably. The Department's analysis
shows that although there have been significant price increases
on other products, the largest price increases have been concentrated
on products that have been in "Category D".
5.17 In view of the above and the straightforward
cost risks to unified budgets due to reimbursement of more expensive
versions the Department has acted, to minimise the number of products
in "Category D" whilst being fair to pharmacists.
In most cases it believes that products now entering "Category
D" are genuinely in short supply. But, some products have
probably been staying in "Category D" for too long—most
products have stayed in for 2-3 months, and often longer. "Category
D" status is determined by the stock levels of five "basket"
suppliers—two wholesalers and three manufacturers. In some
cases, supply may have recovered, but wholesalers are choosing
not to hold four weeks' worth of stock—the current threshold
for "Category D". It is now also clear that the principal
stockholders are often outside the "basket" and so are
not taken into account in PPA's assessment.
5.18 "Category D" may also provide
a signal to the market that manufacturers and wholesalers may
respond to, sometimes in a unhelpful way. In particular, for some
wholesalers and pharmacists, it may act as a signal of market
shortage and may lead to action which may further de-stabilise
the market.
Looking ahead
5.19 Both manufacturers and wholesalers
have said repeatedly that the market will settle down and manufacturers
have said that aggregate manufacturing levels have reached end
1998 levels, but there is still no consensus view as to when this
will happen and at what level of price. We cannot be confident
how the market will behave. This affects fundamentally the options
for action available to the Department.
6. ACTION BEING
TAKEN TO
ADDRESS SUPPLY
PROBLEMS IN
SHORT AND
MEDIUM TERM
6.1 The action the Department has—and
is taking—falls into three main categories:
First, immediate and necessary action,
within the framework of existing arrangements to ensure: that
"Category D" is only brought into operation when absolutely
necessary, and only for as long as absolutely necessary; that
the PPA is quickly back into rapid handling of scripts; that Regent
is inspected immediately it is ready for inspection.
Second, action to ensure competition is
working in the market.
Third, action to identify possible alternative
ways of securing supply at reasonable prices.
6.2 The detailed action currently in hand
comprises:
6.2.1 The MCA will inspect to assess public
safety as soon as Regent declares itself ready. There can be no
compromise on safety. When Regent notify the MCA that they are
ready, the MCA will re-inspect the company's facilities, procedures,
systems and management organisation, to ensure that their quality
meets the required Standards under GMP. The MCA is in contact
with the company and is already discussing their remedial plans
and timetable with them, so that re-inspection can take place
with the minimum delay. When the re-inspection has taken place,
the MCA has made arrangements to review the findings quickly and,
in the event of a successful outcome, to lift the suspension within
a matter of days. Even if the suspension is lifted, it may be
in full or in part and it could take the company some time to
resume full production.
6.2.2 Further discussions are planned with
wholesalers, manufacturers and pharmacists to ensure that there
is a common understanding of the current supply position and discussion
of further action that might be taken to improve supply.
6.2.3 Further proposals are now with the
PSNC for changes (starting with November prescriptions) to the
operation of "Category D", intended to ensure that products
only go into "Category D" when they are in genuine short
supply and only remain in "Category D" while that is
still the case. Whilst still being fair to pharmacists—and
ensuring that patients get their medicines—this will reduce
(a) direct costs of "Category D", (b) any upward pressure
"Category D" is itself putting on prices, and (c) pressure
on PPA reimbursement processes.
6.2.4 At the PPA urgent work is underway
to deal with backlog of unpriced prescriptions and/or reduce impact
of the backlog on the supply of prescribing information available
to HAs and PCGs.
6.2.5 The whole basis of the current arrangement
for generic supply is competition in the market place. Departmental
officials have been working with Office of Fair Trading (OFT)
officials since early August. OFT is formally investigating the
market to see if the events of the last nine months raise any
competition issues.
7. CONCLUSION
7.1 In all its action in this area—as
in other areas of supply of medicines to the NHS—the Department's
objectives and priorities for the distribution system are sixfold:
First, to maintain, and improve, the current
quality of service to patients;
Second, to minimise the costs of the distribution
networks, subject to service level and quality requirements;
Third, to reimburse pharmacists as closely
as possible for what they actually pay for the medicines they
dispense under the NHS;
Fourth, to have transparent prices;
Fifth, to support a competitive pharmaceutical
market;
Sixth, to secure value for money for the
NHS.
7.2 The NHS has to date relied on competition
in the market to secure continuity of supply at reasonable prices.
This has been achieved without our direct interference. We have
been reassured all along that the market would return to normal
but this has not yet proved to be the case. The disruption has
in particular raised the following questions:
(a) whether some suppliers (manufacturers
and wholesalers) have been charging excessive prices over a sustained
period of time, taking advantage of their market power,
(b) whether some suppliers have been holding
excessive stocks of certain products for speculative purposes—well
above what is needed to meet their normal supply. If so this would
restrict the supply of medicines and create artificial shortages,
thus contributing to recent price rises;
(c) whether some suppliers are exploiting
the rules for reimbursing products that are in short supply, either
by:
— manipulating their stock position
to get products into Category D; and/or
— once products are in Category
D, taking advantage of the system—which is designed to ensure
continuity of supply—to institute very significant price
increases that are not justified by cost pressures;
(d) whether there has been explicit or implicit
collusion between any suppliers to bring about or sustain any
of the practices identified above.
7.3 As noted, OFT is looking to see if there
are any competition issues. However it may be that even if the
market is working as a market should work it is clear that over
the last year the supply system has not secured either continuity
of supply or supply at reasonable prices. Whilst a very early
return to the previous market position is highly desirable, we
need to consider whether the current arrangements—reliance
on a market—is the best way to supply the NHS with generic
medicines.
7.4 The NHS now purchases some £700
million pa of generics medicines for primary care use alone. The
present supply arrangements evolved over a long period when generic
supply was of less importance to the NHS in terms of volume and
total cost. The events of the last year have undermined the Government's
confidence in the market's ability to deliver consistently to
meet the NHS' needs. For that reason, and alongside the OFT investigation,
the Department has decided to undertake a fundamental review of
the arrangements for the supply and distribution of medicines
to the NHS, excluding the PPRS scheme which determines the manufacturer
prices for the supply of branded medicines to the NHS.
November 1999
| 
