Select Committee on Health First Special Report

The Cost and Availability of Generic Drugs to the NHS

Session 1999-2000
Health Committee Recommendations: Progress - Generic Drugs

First Report: The Cost and Availability of Generic Drugs to the NHS (HC 105) Published: 21/12/99

Government Reply: Cm 4673 Published: 03/2000


Government Response and Action

(a) In the context of PCG funding, we have in a previous report noted that "it is not clear how problems of overspend, for example on prescribing, will be resolved within the Health Authorities". We believe it would be extremely unfortunate if the success of the PCG initiative was undermined by sharp and unpredictable rises in drugs budgets (para 15).

Shares this concern. In December 1999 announced additional £90 million in-year allocation to help meet the cost of generics price increases. Following consultation during Spring 2000, introduced a maximum price scheme for the main generic medicines with effect from August 2000, called for further reductions in the list prices of certain (mainly newer) generics, and abolished Category D with effect from September prescriptions, replacing it with more stringent measures. The new arrangements are operating effectively. In a full year they should reverse the effect of generics price increases in 1999-2000

(b) We believe it is significant that production levels have now returned to normal whilst prices and Category D levels have remained abnormally high (paragraph 22).

In the light of last year's price increases, Government commissioned a fundamental review of the generics supply chain from Oxford Economic Research Associates (OXERA) to advise on suitable arrangements for the longer term. In the meantime, introduced the maximum price scheme in response to continuing high prices and abolished Category D

(c) We think it most regrettable that the Government could not oversee an orderly transition to patient packs for all pharmaceutical products. Given the very considerable cost benefits generic drugs have brought to the NHS, we believe the Government should have given a higher priority to ensuring that transitional arrangements were co-ordinated. We believe that the Government underestimated the real cost, and potential for difficulties, of the change to patient pack dispensing. If the Government had continued these discussions we believe that in the long run there would have been savings well in excess of the £20 million cost to public funds (paragraph 31). (d) We cannot, on the basis of evidence we have received, take a view on the extent to which the Government should have offered financial support to the industry during this transition (paragraph 32).

Does not accept view that it should have proceeded with Patient Pack Initiative.

(e) We acknowledge that the generics industry has incurred substantial investment costs in the move to patient packs which it needs to recoup. The evidence that the industry provided to us on the implications for pricing of the transition we found contradictory and confusing. We were left with the distinct impression that, in the absence of what they perceived to be agreed Government support for the transition to patient packs, the industry had been well positioned to manipulate the market (paragraph 34).

Government had not signalled commitment to the patient pack arrangements, which would not have helped deal with increased costs.

(f) We regard it as unsatisfactory that the system relies on basket wholesalers and manufacturers who are free to determine levels of supply and stock, and are thus able to trigger Category D status, which in turn has commercial implications for their industry (paragraph 37).
(g) We welcome the Government's commitment to reform the operation of the Drug Tariff. We believe that the reliance on a small range of wholesalers and suppliers and on the four week stock measure has not reflected the realities of the market place. We welcome the fact that, eight days after we took evidence, the Department met the PSNC and agreed modifications to the entrance and exit procedures and to reduce the stockholding period to two weeks (paragraph 40).

Is a clear need for detailed examination of existing arrangements. . That is purpose of Fundamental Review, which encompasses reimbursement arrangements. Ahead of results of this, have already abolished Category D

(h) The evidence we have reviewed leads us to believe that the PPA acted promptly and with a commendable degree of urgency (paragraph 39).

DoH continues to work with PPA.

(i) The evidence we have received confirms that the current system has not only failed under the pressure of events but also actively contributed to the problems. The looming crisis became apparent to the PPA as early as mid-March 1999, and it notified the Department promptly. We regret the fact that it has taken several months for the Government to act to deal with the problems of which the PPA had made them aware and to consider reforms to the operation of the Drugs Tariff (paragraph 41).

DoH did take appropriate action.

(j) The Category D system rewarded all in the supply and distribution chain when products were allegedly in shortage. The Drug Tariff was slow to respond to trends in aggregate supply as between bulk and patient pack drugs. These facts, together with the very limited number of manufacturers involved, all made the market ripe for manipulation. We urge the OFT to investigate these matters (paragraph 46).
(k) The short-line wholesalers did not respond to a questionnaire sent out by the Department in late summer to ascertain the causes and extent of the problem. We note that short-line wholesalers, because they have no trade body, were the only major part of the supply chain not present at our hearing. We accept that short-line wholesalers are well placed to profit from market volatility. We are not, however, convinced that market manipulation, hoarding and collusion are limited to the short-line wholesalers. We look forward to seeing the findings of the OFT on this matter (paragraph 47).

Office of Fair Trading is continuing its investigation into the generics market.

(l) The manufacturers and sellers themselves apparently no longer believe that the market alone can ensure an orderly supply of generic drugs. Mr Watts for the BAPW told us that his organization would welcome closer regulation of the generic market if it would prevent hoarding and speculation. Mr Close for the BGMA said that he thought all interested parties and Government needed to engage in dialogue to produce a system which allowed the full range of generics to be provided at the best price (paragraph 48).
(m) It seems to us highly undesirable that the proper functioning of the market in generics should have to rely on companies having to refuse to sell their products and on management being present on a Saturday morning to prevent sales from taking place. Given this absurd situation, and given the stratospheric price rises of the past eighteen months which must have enriched many individuals at the expense of the NHS, we welcome the Government's decision to instigate a wide-ranging review of the operation of the generics market to see if it requires revised or additional regulation or other more fundamental reforms. We would be very surprised if changes were not urgently needed (paragraph 49).

Commissioned OXERA to undertake a fundamental review. OXERA's final report recently submitted. Government now considering its findings. Will consult before deciding on way forward.

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