Examination of witnesses (Questions 124
- 139)
THURSDAY 4 NOVEMBER 1999
MR JOHN
DENHAM, LORD
HUNT OF
KINGS HEATH,
MR JACK
BARNES and MR
ANDY MCKEON
Chairman
124. Can I welcome you to this final session
this morning and express the appreciation of the Committee for
your willingness to come along and give evidence. In particular,
could I thank you for a very helpful paper from the Department
which has been very useful in respect of our inquiry. Minister
of State, would you like to introduce yourself and your colleagues?
(Mr Denham) Yes, Chairman. I am John Denham, Minister
of State at the Department of Health, currently with responsibilities
for the mainstream structure and financing of the NHS. My colleague,
Lord Hunt, is responsible for the pharmaceutical side of affairs,
although I held that responsibility until a few weeks ago. On
my right is Andy McKeon who, on the official side, deals again
with NHS matters and on my left is Jack Barnes who is our official
dealing with the pharmaceutical supply industry.
125. Can I offer a particular welcome to Lord
Hunt. I have got a sense of deja vu in today's session
and no doubt Audrey Wise has as well because we used to have you
here many years ago in a different capacity.
(Lord Hunt of Kings Heath) Thank you, Chairman.
126. You have certainly heard part of the last
session, if not all of it. In your evidence to the Committee you
put some pretty sharp points to us about the operation of the
market and, as Lord Hunt will have heard, I raised these specific
points and quite serious allegations in some respects about the
operation of the manufacturers and wholesalers. They refute, more
or less in its entirety, these key points and while the Government
blames the market and the people operating the market, the market
operators appear to clearly blame the Government, particularly
the decisions taken in September of last year. Mr Denham, you
were around at the time, do you want to respond to that comment?
(Mr Denham) September last year was actually before
my time but that does not really matter.
127. Who is guilty then? They are not here.
(Mr Denham) I have taken a close interest in all of
the events that could possibly have had any connection with the
situation. Perhaps I could say, Chairman, just by way of introduction,
that the National Health Service actually has been able to rely
for decades on a competitive market, which was good. It supplied
generic medicines securely at good prices, indeed falling prices
over recent years, and the market has largely sorted itself out
in a way that has generally been of benefit to the National Health
Service. This year it is quite clear that market has failed us
and has failed to keep that supply of pharmaceuticals at the volumes
and the prices that we have been able to expect in the past. There
have been a number of causes of that. The most significant single
one was probably the closure of Regent, the company which closed
last December which was necessary on public health grounds. The
assessment made at that time was that the other manufacturers
would very rapidly fill the gap that was created in the market.
Now what is very clear, and I am sure you will want to go into
this in greater detail, is that that and a number of other factors
have created a market which is not operating efficiently and effectively
in the interests of the National Health Service. If I could go
back to the decision which I think you are referring to regarding
Patient Packs last September. We simply do not share the view
that the rise in prices and the failure of the market to correct
itself can be ascribed solely or largely to the change to Patient
Packs.
128. You refute the key defence of the previous
witnesses?
(Mr Denham) Not least because large increases have
taken place in the prices of products which are supplied in bulk
and of which the normal form of supply is in bulk. I think we
would accept that the transition to Patient Packs, with some products
being supplied in bulk, some in Patient Pack form, is one of the
elements which has made the market different this year from that
which has operated in the past. Certainly we would not accept
that the evidence points at all to that single decision about
Patient Packs having created the situation that we are now dealing
with. What I would say is that it is very clear that we need to
find the best ways of tackling the situation that we are now in.
There is action on three fronts that we think needs to be taken,
much of which is already in hand.
129. This is part of the review that you mentioned
within your submission?
(Mr Denham) There are three things, I think, Chairman.
Firstly, we have got to look at what we can do within the present
arrangements in the short term to tackle the problems and that
means addressing changes to Category D, the mechanism which you
were discussing earlier this morning.
130. Any thoughts on what you would do? Obviously
this is a very key area of concern for the Committee and for the
people earlier on.
(Mr Denham) The gist of it is to look at ways of broadening
the range of products and suppliers that are taken into account
in the Category D assessment and, secondly, to reduce the period
of time for stocks to be held which is part of the trigger for
something to be in Category D.
(Lord Hunt of Kings Heath) We have made proposals
to reduce the time from four weeks to two weeks which has had
the benefit of making it harder to get in but also quicker to
get out of Category D status. And I think importantly, particularly
in view of your initial questioning about the nature of the basket,
to extend that basket so we are capturing more of the reality
that is happening in the market. Clearly at the moment we have
doubts that the current basket does do this properly.
131. Minister?
(Mr Denham) Yes. The second area is to involve, as
we have done since August, the Office of Fair Trading in investigating
the way in which the current market is operating. They began their
initial investigations, as I understand, following approaches
from us in early August and now have moved into the second phase
of investigating the way in which the market operates.
132. On that point, forgive me for interrupting,
in respect of their investigations have you already had some conclusions,
interim conclusions from them, which relate to your fairly serious
allegations within this document about the way the market is being
exploited effectively?
(Mr Denham) No, we have not received any conclusions
from the Office of Fair Trading. I suppose the only conclusion
that we can fairly draw is that if after their initial look at
the situation they had decided there was nothing worth looking
at further, they would have come back to us and said: "We
do not intend to look at this any further". The fact that
the Office of Fair Trading are continuing their investigation
does not answer any of the questions we have set out in the memorandum
and certainly it indicates very clearly that they think this is
worthy of a further inquiry. The third area of action, Chairman,
is that although the OFT study will hopefully tell us about the
market as it currently is, for all of the reasons that you have
been rehearsing this morning we need a more fundamental review
of the way in which generics are supplied to the National Health
Service. This must look at the alternative options which might
be available to us if it is not possible to get the market back
functioning in the way that it has been in the past. That is the
further review—Philip can talk about the details—which
we have told you about.
Audrey Wise
133. I can take the point, Minister, that it
cannot all be Patient Pack problems because there are other drugs
which that does not apply to but of course that does not mean
that it is not a significant factor for some drugs. It still leaves
me puzzled as to why the Government apparently decided to interrupt
plans for an orderly transition so that at least that factor would
be either eliminated or at least minimised. I just do not understand
that. We have been told that there was ten years of collaboration
and then last September or October the Government just sort of
pulled the plug.
(Mr Denham) I just have to say that if you have been
given the impression that there were plans agreed for an orderly
transition to Patient Packs that is simply not the case. There
certainly have been discussions, you have been told this morning
for ten years. My understanding from my briefing before this is
that it had been for about four years, anyway a lengthy period
of time, in which agreement had not been reached on how the transition
to Patient Packs might be handled. In particular, the Government
had not felt that it should be the body that should pick up all
of the financial risk and financial costs involved in the transfer
to Patient Packs which was what the industry was pressing us to
do.
Mr Gunnell
134. And implied that was what you would be
doing but you decided not to do it in September 1998 and, therefore,
the extra investment which they put in, the manufacturers, they
did not get reimbursed for.
(Mr Denham) Certainly as far as this Government is
concerned, and as I understand it there was no agreement reached
with the previous administration—I will look to the officials
quickly to correct me if I am wrong because I was not there—about
financing or the introduction of Patient Packs and certainly no
agreement had been reached with this administration. We took a
decision essentially to allow the market to proceed with the introduction
of Patient Packs at their own pace.
Audrey Wise
135. I can see that you are telling us there
was no agreement, it had not reached the sort of stage that the
impression was given of earlier, but I still do not understand
why you move then into simply saying "Well, the market can
do it" and on the financial side the really uncomfortable
practice that the NHS is having to pick up bills. One of the bills
it is picking up is in the PPA, for instance, with a lot more
on administration and this is a contributory factor. Would it
not have been better to have been in a position of perhaps spending
money in order to help towards an orderly transition than spending
money as a result of a disorderly transition?
(Mr Denham) There are three points, I think, Chairman,
on that. One is that I and Philip Hunt have asked officials to
look back at the discussions that took place around the introduction
of Patient Packs. So far as we can establish, those discussions
did not centre at all on the question of how the transition would
be managed and the impact that it would have on the market for
generic drugs, so if anybody is suggesting that all of this was
all predicted beforehand and you knew that if a decision was taken,
this would follow, I do not believe that that is at all substantiated
by the discussions that took place previously.
Mr Austin
136. Can we ask when those discussions started?
(Mr Denham) I think we need to clarify this and I
know that you were told this morning that the discussions had
gone on for ten years. The briefing that I received certainly
is at least four years and I am sure we can trawl back for you
and see what dates we are talking about. The second point, Chairman,
is that although we would accept that the introduction of Patient
Packs has been one of the elements which have created an unusual
situation in the market, instability in the market, we certainly
do not accept that the situation we are now facing can be traced
back to decisions about the introduction of Patient Packs. The
other factors that we have set out in the memo, particularly the
closure of Regent and their contribution to supply, the decision
of two manufacturers to relocate their supply over that period
of time with some disruption to the provision of pharmaceuticals,
plus the interaction which we have been discussing which has happened
in a new way with the Category D system, all of those elements
come together to create the situation that we have got, but I
certainly do not believe that that can be traced back to Patient
Packs.
(Lord Hunt of Kings Heath) It seems to me that what
the issue over Patient Packs shows is that, as with many other
aspects of the current situation, we have a market which previously
worked well and in our interests and it enabled us in fact us
to see a real reduction in generic prices over a considerable
number of years. The shock to the system caused first by the closure
of Regent and then by other factors, perhaps some element in relation
to Patient Packs, but not, we think, of considerable importance,
the move of two companies overseas was a contributory factor to
the shortage issue, so gave a shock to the market that perverse
incentives began to come into play and for a market that was working
in our favour for many years, suddenly it all started to work
against us. That became clear after a few months because in the
first few months of this year, in our discussions with people
in the industry, the kind of assurances that we were given were,
"Oh, the market will stabilise itself when manufacturers
can make up for the Regent shortage", so it was in the crucial
July/August time when we became particularly concerned that this
simply was not happening, that we had to take this further decisive
action.
Dr Stoate
137. This morning I have been giving the manufacturers
and also the wholesalers a fairly tough time and I have to say
that it has been mainly based on the information from the DoH
which we are very grateful for. You made a fairly strong statement
in paragraph 5.17 and that is about the operation of Category
D where you say that the wholesalers are choosing not to hold
four weeks' stock. You are almost saying or you are virtually
accusing them of actually exacerbating the problem of Category
D by actually deliberately choosing to hold less than four weeks'
supply. Do you have anything to back that up because obviously
it is a fairly important statement?
(Lord Hunt of Kings Heath) I think that clearly these
are matters which both the OFT and our more fundamental review
will need to look into in greater detail, but the concern that
has certainly come to us is that whilst we have seen manufacturers
being able in general to bring their stocks up to the kind of
levels that were there before the closure of Regent, the actual
number of activities in community pharmacies in terms of prescriptions
has been stable and yet prices have risen, and the supposition
must be that somewhere in that supply chain there are stocks being
held which is then having an impact on shortages and then a recategorisation
in Category D. Of course, as I said previously, we have a complex
set of relationships. We have the short-line wholesalers that
we have already heard about who, incidentally, of course not only
are not here, but did not respond to the questionnaires that we
sent out in the late summer, and there must be the supposition
at least that some stockpiling has been going on. Now, clearly
I cannot produce for you hard evidence of that. That is why I
think the OFT investigation and the more fundamental review are
so crucial.
138. Clearly if there is speculation among short-line
stockholders to rig the market, which certainly, as you have said,
is a distinct possibility, do you have any plans specifically
to regulate the activities of short-line stockholders?
(Lord Hunt of Kings Heath) Well, I do not think that
it is possible to see our way in the immediate short term in terms
of regulation because I do not think that there are any powers
that one could look to to do that. I think that the answer lies
in the points that John Denham has already raised in terms of
the immediate action that we have wanted to take and one of those
actions has been to reform Category D. Now, a problem with that
is that we put proposals to the PSNC quite some time ago and we
are still awaiting a positive response and that is very frustrating
from our point of view.
Chairman
139. How long ago was that?
(Mr Denham) July.
Dr Stoate: What power do you have to try to
speed that up because that is quite important?
|
