House of Commons - Health

Select Committee on Health First Report

FIRST REPORT

The Health Committee has agreed to the following Report:—

THE COST AND AVAILABILITY OF GENERIC DRUGS TO THE NHS

INTRODUCTION

1. In the last eighteen months the cost of some generic drugs has increased by over 700%. The number of generic drugs in shortage, according to the Government's own figures, has increased at least six-fold in the same period. We decided to investigate the current apparent shortages of generic drugs in the NHS and the factors underlying the sudden sharp price rises reported to us.[6]

2. On 21 October 1999 we announced our intention to hold a single oral evidence session on 4 November and also invited written submissions. Our terms of reference were: "to raise awareness of the current shortages of generic drugs available to the NHS". These were carefully chosen to indicate we saw our role as being one of highlighting the issue, rather than pointing to definitive solutions. We are aware that drug pricing in the NHS is a very complex matter which does not readily succumb to simplistic analysis.

3. We took oral evidence from the North Manchester Primary Care Group (PCG), Shropshire Health Authority, Croydon Health Authority, the Prescription Pricing Authority (PPA), the Association of the British Pharmaceutical Industry (ABPI), the British Generic Manufacturers Association (BGMA), the Pharmaceutical Services Negotiating Committee (PSNC), the British Association of Pharmaceutical Wholesalers (BAPW), Department of Health officials, Mr John Denham, MP, Minister of State and Lord Hunt, Parliamentary Under-Secretary of State [Lords], Department of Health (the Department).

4. In addition we received over 20 written memoranda which we have drawn on in compiling this report. We are extremely grateful to all those who gave oral and written evidence to us, especially given the very short period of notice.

5. We should also like to record our thanks to our specialist adviser, Joe Collier, Professor of Medicines Policy, St George's Hospital Medical School, University of London, who assisted us with great expertise.

6. "Generic" drugs are those that may be produced once the patent of a proprietary medicine to which their active ingredients are equivalent has expired. They are normally cheaper than their branded counterparts and, with very few exceptions, are absorbed into the body in the same way and are equally effective. In the UK, they can be sold and supplied by any drug company provided that they meet the standards set and enforced by the Medicines Control Agency. In the UK about a dozen companies manufacture generic medicines.[7] The British Generic Manufacturers Association (BGMA) told us that the current UK generic drugs industry provides 50 per cent of NHS medicines at an annual cost of £500 million.[8]

7. For a number of years it has been Government policy to increase the percentage of generic drugs prescribed in the NHS to achieve better value for money in the drugs budget. This was most recently reinforced in the performance assessment framework document from the NHS Executive, Quality and performance in the NHS (June 1999), which lists generic prescribing as one of the "high level indicators of performance". It notes that:

In evidence to us, Shropshire Health Authority described this indicator as "the major target for all PCG incentive schemes in Shropshire".[10]

8. Whereas in 1993 only 11.5% of the NHS drugs budget was spent on generic drugs, that figure had risen to 21.7% in 1997.[11] The average generic prescribing rate for all practices was 63% for the quarter ending September 1998; the Government has set a target for generic prescribing of 72% by the end of March 2002.[12]

Generic drugs supply arrangements

9. It is useful to describe the normal arrangements for the supply of pharmaceuticals to the NHS.[13] Manufacturers of both branded and generic medicines sell to wholesalers, who then sell on to community pharmacists, dispensing doctors and hospitals for dispensing to patients. Branded products are normally produced by the pharmaceutical company which developed the medicine and the arrangements for their costing are covered by the Pharmaceutical Price Regulation Scheme. They are mainly supplied through "full-line" wholesalers (those who stock a comprehensive range of pharmaceuticals).

10. When a doctor prescribes using a generic name, the pharmacist can use any version of the preparation that is licensed and meets the required specification. This allows generic products to compete on price at the point of dispensing. It is effectively a commodity market where prices rise and fall depending on supply and demand. Most generic products are supplied to pharmacists by both full-line wholesalers and short-line wholesalers (who stock only a limited number of products). Community pharmacists are reimbursed using a fixed price system known as the "Drug Tariff" administered by the Prescription Pricing Authority (PPA). The price the NHS pays for a generic drug is calculated as an average ("basket price") of the prices charged by two major wholesalers and three major manufacturers. The PPA invoices the health authority or prescribing practice.[14] The information gained by the PPA in this process is used to formulate PACT (Prescribing Analysis and Cost) and other data which are used to inform budget setting throughout the NHS.

11. When there is an apparent problem of supply of a generic drug, the PPA will reimburse the pharmacist the actual invoiced price of the medicine ("the supplier price") rather than the usual basket price. Drugs thus designated appear in Category D of the monthly Drug Tariff published by the PPA. The arrangements for entry and exit of drugs on to Category D are agreed between the PPA and the Pharmaceutical Services Negotiating Committee (PSNC). The impact of this higher price is not immediately clear to the doctor prescribing the drug as the flow chart below indicates:

GP writes a prescription for a generic drug.

At the chemist, if the generic drug is unavailable, the pharmacist will dispense a branded equivalent instead and send the endorsed prescription to the PPA.

Because of the increase in Category D drugs, there are currently delays of over 3 months between the writing of a prescription and the issuing of a bill to a health authority and thence back to the GP. Meanwhile the supplier receives an interim payment.[15]

The PPA then invoices the health authority or prescribing practice.