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1 May 2001 : Column 216WH

NHS and the Drugs Industry

1.30 pm

Mr. Peter Bradley (The Wrekin): I can only assume that the May Day disturbances have prevented the public and Members alike from flocking to Westminster Hall for this debate. I had expected a full Chamber, but I shall have to do my best to whistle in the wilderness, which is a practice that is not unknown to me.

A couple of weeks ago, I received a copy of the Association of British Pharmaceutical Industries annual review for the year 2000--and a very interesting and useful document it is. It states:

I make no apology for raising the issue again, as I have done a number of times, both in this Chamber and on the Floor of the House. I recognise the importance of the drugs industry to the national health service and, indeed, to the economy, but I have a principled objection, as I am sure do most others, to profiteering. I have been disappointed in the past two years at what I can regard only as the Department of Health's complacency in the face of the excessive profits that some pharmaceutical companies are making at the expense of the NHS and taxpayers. I very much hope that the Under-Secretary of State for Health, my hon. Friend, the Member for Birmingham, Edgbaston (Ms Stuart), in whom I have the utmost confidence, will restore my faith.

I acknowledge the industry's contribution of 60,000 jobs, a further 250,000 indirect jobs and £2.9 billion a year invested in research and development, which equates to about £8 million a day, according to the ABPI's annual review. Five of the top 25 selling drugs on the market have been pioneered in the United Kingdom and there were £7.1 billion worth of exports, producing a trade surplus last year of £2.3 billion. Drugs that are manufactured in the UK are our third biggest export, which is an impressive record.

However, we have seen too frequently the way in which the pharmaceutical industry and the companies within it have exploited their dominant position. We saw recently how multinationals sought to put pressure on the South African Government. I am pleased that they have now withdrawn their action against that Government in respect of AIDS drugs. We saw, too, the reaction of the manufacturer, which I believe is Glaxo Wellcome, although I stand to be corrected, when the National Institute of Clinical Excellence announced that it could not recommend that the drug Relenza could be prescribed through the NHS. As I recall, the chairman's response was that he would have to review the company's investment in this country.

It is interesting to note that drug prices are uniformly cheaper in Spain, where there is no drug industry, so that the muscle that the industry applies to the Government in negotiating drug prices is considerably reduced. It is my contention that there is routine profiteering at the expense of the NHS. I accept that the costs of research and development are considerable and I recognise the need for drug companies to recover their investment and to reward their shareholders. I do not object to profit, but to excess profit.

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In 1999, Shropshire health authority and the primary care group in my constituency raised concerns about the deficit in their drugs budget. I carried out research and initiated an Adjournment debate in which I described the £69 million overspend that health authorities were contemplating, £66 million of which would not have existed had there not been the differential pricing between branded and generic drugs. I described how hospital-led prescribing was contributing significantly to the problems that they faced. When I say "they" I mean 78 out of the 100 English health authorities. Some 34 were facing a deficit of £1 million, and five were facing deficits in excess of £2 million. In summary, hospital-led prescribing is simple. Pharmaceutical companies offer hospitals drugs at knock-down prices--loss leaders--knowing full well that hospitals account for only 20 per cent. of the market, and that outside the hospital, in the community, which represents 80 per cent. of the market, the prices of those drugs can be significantly increased.

Typically, when a patient is released into the community, he or she goes to his or her doctor and demands the same branded drug that was offered by the consultant in the hospital. The patient will not know that in many cases the cost of the drug in the hospital is a fraction of its cost in the community. In the case of Frumil, the cost in the hospital was only 6 per cent. of the cost in community, and the in the case of Imdur, the figure was 2.5 per cent.

My health authority faced a deficit of more than £1.5 million in 1997-1998. The following year the deficit was roughly the same. In 1999-2000 it had risen to £3.5 million. Those deficits had to be met either from other budgets for health care in my community or from the taxpayer. In 1999, with the introduction of primary care groups, the NHS began to get to grips with the problem. Because PCGs control their own budgets, they have an incentive to switch from expensive branded drugs to the cheaper generics. The health authority in my constituency was encouraging closer working between primary and secondary care, to begin to tackle that problem. It introduced innovative IT packages to guide doctors as to the most cost-effective medicine that they could prescribe.

At the same time, the Department of Health negotiated with the branded medicine manufacturers a 4.5 per cent. reduction in the price of their drugs. That was very encouraging, until the drug industry hit back. Mysteriously, between the autumn of 1998 and the summer of 1999, the number of drugs on the category D list, issued monthly by the NHS to alert practitioners to the lack of availability of cheaper generic drugs, leapt from 30 to 170. Typically, drugs were featured on the list as being unavailable and were then removed from the list some time later. Fruzomide in particular leapt in price between September 1998 and September 1999, from 26p to £2.14, an increase of 723 per cent. Other drugs followed a similarly steep path. The price of 100 mg of thyroxine increased by 670 per cent. and that of 5 mg of bendroflurozide increased by 567 per cent.

So alarming were those increases and their impact on health authorities, that the Select Committee on Health held a snap investigation of the causes of this fluctuation in the market. In its report, the Committee referred to market manipulation, hoarding and collusion, and it

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concluded that the stratospheric price rises of the past 18 months must have enriched many individuals at the expense of the NHS. It was right.

Sadly, the Office of Fair Trading, which was asked by the Department of Health to investigate the causes of spiralling drug prices, is still investigating almost two years later. OXERA--Oxford Economic Research Associates--a consultancy commissioned by the Department, has submitted its report, but it is currently unavailable for public scrutiny and is still being considered by Ministers. Meanwhile, the plunder continues.

The category D list may not be an issue now, but at the time it cost the NHS £160 million. I did not fabricate that figure--it was provided to me in a parliamentary answer by the Minister of State, my right hon. Friend the Member for Southampton, Itchen (Mr. Denham). So steep was the increase and so serious were the consequences for health authorities throughout the country that the Department of Health was obliged to make additional grants to those authorities of £90 million in December 1999.

Whenever I have raised my criticisms on those issues, they have provoked fevered denials from the APBI and individual drug companies, and rather sullen hostility from civil servants, which I do not understand, because I would have thought that if one could identify a way of spending precious taxpayers' money on the NHS more effectively, the Department of Health would be first in line to make use of it.

I first raised my concerns in an Adjournment debate in 1999. Some of the press interest generated by that debate caused the managing director of a small drugs company to write to me, explaining that he had been excluded from the market for pain relief medication for cancer sufferers. He ran a small company that made a generic drug that was a great deal cheaper than the drug known as MST Continus, which was produced by Napp Pharmaceuticals. I referred that complaint to the Office of Fair Trading. It is regrettable that the investigation took two years, but it was thorough. On 30 March, the OFT issued its findings--the first under the Competition Act 1998.

The OFT found that Napp's MST drug had captured about 97 per cent. of the NHS market in 1998, despite the fact that its patent had elapsed as early as 1992. It had achieved that by discounting the cost of the drug to hospitals by more than 90 per cent. It was being sold at less than 50 per cent. of the cost price. Napp's defence was that it could achieve that price through bulk sales to hospitals. I contend that a company that sells a product at less than the cost price will survive only if it can recoup the losses and make a tidy profit from other activities. In my view, that is exactly what Napp did. That was also the view of the OFT, which referred to Napp's strategy of eliminating competition. It spoke of selective "excessive" discounting in hospitals to capture 90 per cent. of the market within hospitals and, once it had secured that market and excluded those companies that could not compete with its discounting, it could capture the far more lucrative market in the community.

The OFT concluded that Napp had "abused its dominant position" in the absence of competition and had charged excessive prices in the community. MST treatments of 10 mg, 30 mg and 60 mg were 1,000 per

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cent. more expensive in the community than in the hospitals. The OFT estimated that a profit of about 80 per cent. was being made on the drug and, more important, that it was costing the NHS about £2 million a year. Those unequivocal findings were serious enough to prompt the OFT to impose a £3.21 million fine. It also demanded that Napp should end the infringements, reduce its prices to the community and close the price differential between what it charged hospitals and what it charged doctors' surgeries.

OFT director John Bridgeman said:

That was a landmark decision. Should Napp appeal, the case will be heard by the tribunal set up under the Competition Act 1998, and will be the first of its kind under the new legislation. That, too, will be a landmark. What the OFT found after its two-year investigation totally vindicated the criticisms that I and many others had made of the drug industry over the years. Napp's defence, according to its press release, was that

It is difficult to estimate the annual cost to the national health service. I have sought the benefit of the Department of Health's estimates through parliamentary questions, but it has not been forthcoming so far. I think that its estimate will be between £50 million and £300 million. That is not unreasonable when one realises that the annual bill for medicines is about £7 billion.

I am concerned about the responses from the Minister. In an answer that I received last week, she said:

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I wish that I could have such faith in the PPRS, but I do not, and I do not think that it is entirely shared by the OFT either. In its report, it referred to Napp's argument that the PPRS prevented it from charging excessive prices, and concluded:

The officials in the Department who advise the Minister must do better on this issue. I welcome the Government's unprecedented investment in the NHS, but I am determined, as I am sure are Ministers, that every precious penny from the taxpayer that should go into front-line health care does so. That cannot be said to be the case now, as millions of pounds go in through the front door of the NHS and exit through the back, straight into the credit columns of drug company accounts. That is unacceptable.

I want the Minister to assure us that there will be a comprehensive and urgent investigation of the relationship between the NHS and the drugs industry. That should be followed--if it is justified, as I believe that it is--by decisive action to end profiteering. An end should be brought to differential prices in hospitals and the community. Consideration should perhaps be given to the establishment of a single central NHS purchaser for drugs.

If patients are to be at the centre of the NHS--I believe that they should be, and it is one of the central planks of the Government's reform of the health service--drug companies should move aside as much as other sectional interests in the NHS. It is time for the Government to take action.

1.48 pm

Mr. Andrew Lansley (South Cambridgeshire): I am grateful to the hon. Member for The Wrekin (Mr. Bradley) and the Minister for allowing me to make a short contribution. The hon. Gentleman referred to the recent OFT case concerning Napp Pharmaceuticals. The company is based in Cambridge and it employs several of my constituents, so I want to mention some points that have been made to me.

The OFT decision appears to be based on the belief that, as a result of the abuse of a dominant position, NAPP secured excess profits from the sales of its sustained release morphine drug. The penalty that the hon. Member for The Wrekin said had been imposed on the company suggested that substantial excess profits were obtained. However, in the Minister's recent answer to his question, to which he also referred, she explained that the PPRS

We need clarity. Either the pharmaceuticals market should be subject to normal competition rules, along with full patent protection enabling innovative

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producers of drugs to secure a return while the patent protection applies, and doubtless involving higher costs for branded drugs during that period; or it should be possible for the purchasing power of the NHS to be applied through the PPRS to secure drug supply within negotiated profit levels. It is hard to dispute the effectiveness of that approach given the cost of drugs in this country relative to Germany or the United States. I would not regard Spain as a comparator because it does not have the same incentive to encourage innovation in its drugs companies, as the hon. Member for The Wrekin said.

Under the present regime, and following progressive price decreases in the PPRS, the price of MST tablets is lower than it was 18 years ago. The alternatives must be faced. It is unreasonable for the Government to impose the PPRS while appearing to allow it to be ignored, and letting the Office of Fair Trading apply normal competition criteria. In the era of supposed joined-up Government, Ministers need to tell us whether the PPRS is to be sustained or undermined.

1.51 pm

The Parliamentary Under-Secretary of State for Health (Ms Gisela Stuart ): I congratulate my hon. Friend the Member for The Wrekin (Mr. Bradley) on securing the debate and on what I might describe--in the friendliest of terms--as his dogged persistence in getting the issue a public airing. I also note the comments of the hon. Member for South Cambridgeshire (Mr. Lansley) about the relationship between industry and the NHS.

It is true that the NHS spends about £7 billion on medicines in the United Kingdom. I hope that we all agree at least on wanting a system that allows as much as possible of the overall spending to benefit patients. My hon. Friend the Member for The Wrekin referred to the Office of Fair Trading investigation, which he instigated. It was an important investigation and a significant development in the way in which we deal with competition issues. I am grateful to my hon. Friend for bringing it to the attention of hon. Members. As he mentioned, it was the first action of its kind under the Competition Act 1998.

The market for medicines is unusual in several respects and that has been recognised by all countries and by the European Union. First, it is unusual because it is not easy to apply the ordinary language of buyers and consumers to it. Doctors choose medicines on clinical grounds, being relatively autonomous and wanting what is best for their patients. That is the right approach. Secondly, there is often no way in which substitute products can be used, because of patents or sometimes, even when a patent has expired, because of features that make substitution difficult or impossible. That is the case with slow-release morphine, which is the subject of the Office of Fair Trading investigation. Thirdly, the medicines market is not uniform. One cannot automatically decide that manipulation of one sub-market means that the same will happen elsewhere.

My hon. Friend has been quoted as suggesting that the NHS could save vast sums from the drugs bill. We need to be careful about the use of figures. It would be

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dangerous to extrapolate from one example to the whole market. It is not safe to generalise from economic behaviour in one or even a few examples. There is no alternative to certain drugs. Some medicines are for life and others are taken only once.

My hon. Friend spoke as if discounts were automatically a bad thing. I do not believe that. Discounting can be abused, but initially discounts are an example of purchasers using their skills and bargaining powers to achieve savings. That is why it is so important to study each case on its merits. Simply ending discounts will cost money, not save it. Nor do I think that deciding on the right price for a medicine is straightforward. A large part of the price of new medicines relates to the cost of research and development. I am sure that my hon. Friend will agree that without that there would be no new medicines. Of course it is less easy--and a matter for further debate--to say what share of the research and development costs the UK drugs market should include in the price of its medicines. The market is not always stable; I remember the Health Committee debate that was prompted by the unusual turmoil in the market, on the many ways in which the Department of Health could deal with it.

I recognise that companies must be allowed to recoup some of their research and development costs. What counts as "excessive" will probably be the subject of on-going debate. However, we have a strategy; so despite his call for a thorough investigation, I hope that my hon. Friend is convinced that we are looking for the right balance. A number of elements are involved, including direct price control, help with prescribing decisions and profit controls at company level. We need to be careful that the interface between those elements does not damage the pharmaceutical industry, or in any way leech money out of patient care. The pharmaceutical industry is successful, and we would lose it at our peril.

My hon. Friend spoke at some length about the recent OFT report. I reassure him that we are studying that report carefully. It took two years to write, but we have had it for only one month, thanks to the confidentiality provisions of competition legislation. The Director General of Fair Trading has still not issued his direction, although I understand that that will happen very soon. I should like to make it clear at the outset that the OFT investigation does not claim to provide for the day-to-day control of medicine prices. However, the OFT recognises that the pharmaceutical price regulations scheme has considerable advantages as a system of profit and portfolio regulation.

My hon. Friend also asked me to investigate the prevalence of the practice of which Napp Pharmaceuticals is said to be guilty--in short, is the Napp case typical? For the reasons that I have set out--patents and non-substitutability of medicines-- dominance of such a limited market is not unusual. Indeed, there might be good reasons for it to happen. However, in the light of the OFT investigation, we are examining further the areas where there is a dominant position and the potential for abuse. We cannot prejudge the case of Napp, which could be the subject of an appeal. However, we can put strategies in place to deal with imperfections in the market.

A great amount of work has been done to improve prescribing in the primary care sector. For instance, the area prescribing committees are working together with

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the NHS trusts and the primary care groups, and the "Pharmacy in the Future" strategy was launched last September. We are making sure that good working relationships exist between trusts, drug and therapeutic committees and the area prescribing committees, including collaboration on formulary choices and the managed entry of new drugs.

My hon. Friend referred to generic medicines. We recognised that category D of the drug tariff was open to exploitation--it was one of the main topics discussed by the Select Committee on Health--and that changes needed to be made. That is why we abolished it last year, and there are now no products in that category. The market has changed over the past three years, and it has shown success in improving the use of generic medicines. The prices of generics increased, which is why we introduced the statutory maximum price scheme last year. The NHS is expected to realise savings of around £240 million on generic medicines in 2000-01, compared with price rises in March 2000. Overall, prices now are much as they were in 1999, before those steep increases.

There are real signs of the success of our strategy of working with the market. My hon. Friend referred to the OXERA report and the work that had been carried

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out. We are developing further options and drawing on that report. We are committed to publishing a summary of the factual basis for OXERA's findings and will discuss the options with interested parties before we take final decisions on the way forward.

The title of this debate is "NHS and the Drugs Industry". I should like to put on record that we have good relations with that industry. It is important, and it produces a trade surplus of about £2.7 billion; equally importantly, it develops medicines of enormous benefit to patients the world over. We value that and we have to ensure that the UK remains an attractive place in which to develop and produce new medicines.

The OFT investigation has shown that it can sometimes appear that a supplier is exploiting a dominant market position. We have the tools in place to deal with that, to have a proper and fair investigation and to apply the appropriate remedies. In the Napp case, we shall have to wait to see whether the company will appeal. I hope that my hon. Friend is satisfied that we are dealing with the matter vigorously and with great determination.

Question put and agreed to.

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