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Generic Drugs

12.30 pm

David Taylor (North-West Leicestershire): I am pleased to have secured this debate as it gives me an opportunity to explore the unforeseen effects of the pressure to drive higher still the proportion of national health service prescriptions for generic pharmaceuticals, and to make a submission to the Government review of the future supply and reimbursement of generic medicines for the NHS.

The Government have already, with some success, protected the supply chain that provides vital medicines to our pharmacists, general practitioners, hospitals and, ultimately, patients against some of the abuses that took place in the late 1990s. During that period, the need for the action that the Government subsequently took was apparent. Wholesalers regularly hoarded large amounts of a drug in demand and waited for that demand to meet critical mass before releasing their supplies into the market at the highest possible price. In 2000, the Government introduced an interim maximum pricing scheme for generics, which in its first year saved the NHS £330 million. That arrangement is not in place indefinitely and the options for the reimbursement and supply of generics are being reviewed. I shall return to that point later.

GPs have long been encouraged to prescribe generics whenever possible. In 2000, 71 per cent. of items were prescribed generically, but owing to the non-availability of generic versions of some drugs, only 52 per cent. were dispensed generically, representing 22 per cent. of overall cost. The upward trend continues. The figures for April to September 2001 reveal that almost 76 per cent. of items were prescribed generically against the 72 per cent. target. The dispensing rate of generics, although unknown, is unlikely to have increased a great deal.

Generics are less costly than branded medicines because their manufacturers do not need to undertake clinical trials. In the UK, the average net ingredient cost of a brand is £16.06 and that of a generic is £4.18. If there were no generics and the average cost of branded medicines remained the same, the NHS drugs bill would increase from £5.3 billion to £8.6 billion. According to the British Generic Manufacturers' Association, £1.2 billion spent by the NHS on generic drugs saves the taxpayer £3.3 billion.

The discussion paper, "Options for the Future Supply and Reimbursement of Generic Medicines for the NHS", said that the Government are looking to


The reimbursement price of branded medicines is the NHS list price set by the pharmaceutical price regulation scheme. For prescriptions written generically, it is governed by the drug tariff price. The calculation that is used to determine the drug tariff is the weighted average of the list prices of five major suppliers for the most commonly used medicines, which is published every month by the Department of Health. Two separate pricing mechanisms are necessary because generics, as multi-source products, operate in what is effectively a commodity market.

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The payment that pharmacists receive comprises the list or drug tariff price of the item dispensed, minus an assumed level of discount, plus a container allowance and a professional fee. The fee, if any, that the patient pays for their NHS prescription is deducted from that payment. The difference between the actual cost of generic products purchased by pharmacies and the amount that they are reimbursed is determinable through the use of a scale of deductions derived from a discount inquiry.

The reimbursement system is rightly designed to achieve the cheapest purchasing price for the NHS, although its reliance on pharmacists in all sectors buying lower than the reimbursement price is being affected by recent announcements concerning the reduced dispensing fee that community pharmacists now receive.

The majority of medicines remain cheaper when written generically, but there is evidence that the 72 per cent. quota that all primary care organisations must meet as a key performance indicator is inhibiting their ability to achieve potentially substantial savings for the NHS by buying a branded medicine that is cheaper than its generic counterpart. Indeed, one PCO chairman said:


Entertaining the prospect of purchasing cheaper, non-generic medicines should not jeopardise a PCO's status. The quota should remain, but where examples of substantial cost savings can be provided, there should perhaps be an exemption from inclusion in the overall quota. Obviously, there is the question of how one defines substantial cost savings, but given that the system of price checks and analysis is notoriously convoluted, involving individual community pharmacists, pharmacy chains and multinational generic suppliers, such an exemption is surely possible.

The justifiable fears generated by turbulence in the UK generics market in 1999 promoted the introduction of the maximum price scheme and a greater emphasis on a generic prescribing quota. Both factors now inhibit Government action and play into the hands of multinational interests, at the expense of the NHS, PCOs, prescribers and patients. The problems that the Government encounter in paying a fair price for the production, supply and provision of essential pharmaceuticals to the NHS and patients illustrates the legitimacy of the growing concern—particularly among younger people, who are increasingly reluctant to vote—that the rights and interests of corporations are being promoted at the expense of sovereign nations and their citizens. I agree with the view of my hon. Friend the Member for The Wrekin (Peter Bradley), whom I am pleased to see in the Chamber. In criticising the behaviour of certain drug companies in a Westminster Hall debate on generic drugs, he said:


However, the primacy of the profit motive in shaping Government negotiations with the pharmaceutical industry does indeed have serious consequences for NHS patients and UK taxpayers.

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To illustrate the way in which the Government's quota target can inadvertently aid the cartel of generic suppliers in driving prices to unacceptably high levels, I cite the experience of a particular east midlands pharmaceutical company, which encouraged me to initiate this debate. After consultation with a number of primary care trusts—including the former health authority for Leicestershire, which consistently overspent its drug budget in the last five years of its life—the company launched a branded version of an existing major generic that is used in treating depression, and which is 30 per cent. cheaper than the list price of other generics. It might seem counterintuitive, but generics firms that are resisting the product's entry into the market can be combated only by its being prescribed in a non-generic way. However, to do so would run against the NHS policy of incentivisation of generic prescription. Those two factors are preventing savings of up to £21 million a year on this product alone, and there are many other such products.

One of the motives in creating PCTs was the devolving of greater budgetary responsibility to a local level—something that we all support. The ability to access cost-effective new products such as the one that I have cited, without incurring the wrath of the auditors, is essential if we are to resist the monopolistic overtones of the handful of drug companies that already control the generics market. Of course, the overriding criteria for rational prescribing must always be drug effectiveness and suitability, but wherever possible flexibility in pharmaceutical spending is essential to achieving maximum possible savings for the NHS and the patient. Is not optimal use of the drugs budget more important than the generic rate?

It is well understood that the symptoms of an illness can indeed be exacerbated by a prescriptive flow of inconsistent characteristics. Patient unease at being prescribed unfamiliar treatments was consistently and cynically exploited by drug companies at the end of the previous decade. By exploiting poor communication between primary and secondary care—to an extent, such poor communication still exists—drug companies were able to wring millions of pounds out of the NHS, until the Government took welcome action and introduced a 72 per cent. generic prescribing target for PCOs. As expected, savings have been achieved but I have tried to show that that has had the possibly unforeseen side effect of restricting PCOs' ability to get the best drugs at the cheapest prices for GPs and their patients.

The major benefits of prescribing branded, rather than generic, drugs are that the prescriber knows the exact medication dispensed to the patient and that the patient will receive exactly the same medication wherever and whenever they have their prescription dispensed. That benefit would apply to low-cost post-patent proprietary brands, which are sometimes called ecogenerics. By paying regard to the needs of the NHS, GPs and patients, rather than focusing solely on shareholders, alert companies with knowledge of the pharmaceutical industry can reduce their excessive promotional budgets for the branded products that they sell, make them cheaper than generic alternatives and still make the decent profit that I and my hon. Friend the Member for The Wrekin endorse and recognise as necessary.

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The rapacious pursuit of public funds that many drug companies have been guilty of in the past has been effectively reined in by the pharmaceutical price regulation scheme—the PPRS. That covers branded goods, the unregulated pricing of which has been a major burden on local health authority drug budgets.

Peter Bradley (The Wrekin): I congratulate my hon. Friend on securing the debate. It is a shame that he and I seem to be the only two anoraks in the House of Commons who take this issue seriously. He referred to the PPRS but, saving the officials and possibly the Minister, probably only three people understand the PPRS: one is dead, one has been driven mad by it and third has forgotten everything that he ever knew. The investigation by the Office of Fair Trading into Napp Pharmaceuticals, which reported in spring after two years and was last week upheld by the Competitions Commission, found that the PPRS on its own is not sufficient—

Mr. Roger Gale (in the Chair): Order. The hon. Gentleman must come to the point. He should be making an intervention, not a speech.

Peter Bradley : I apologise, Mr. Gale. I will come to the point. The Competition Commission upheld the OFT's findings that the PPRS on its own is not sufficient to control the abuses that it identifies. Does my hon. Friend agree that it is time for the Government to review all negotiation mechanisms for the drugs industry to secure real and substantial savings for the NHS?

David Taylor : I certainly agree and I think that the arrangements are opaque, inflexible and call out for major reform. I am confident that the Minister will be able to initiate and oversee such reform.

Regulation of the sort that we have seen on proprietary drugs is just as essential in generics, where private companies are driving profits ever higher at the expense of public health and public funds. To maintain some semblance of parity between the public and private sector, the regulatory framework must remain fluid and resistant to the pressure that is inevitably brought to bear on any regulatory framework by the large corporations affected and the sponsored political emissaries who represent their interests in this place—they are not in the Chamber this morning—often at the cost of every NHS patient in their constituency.

The report by Oxford Economic Research Associates, "Enhancing competition in generic manufacturing", illustrates the priorities of recent arrivals in the UK that are licensed to supply a significant proportion of the UK's drug treatments. It states:


The type of activity flagged up by OXERA should be a cause for concern for everyone involved in primary and secondary care, whether as providers or recipients.

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How it fits in with competition laws domestically, Europewide and internationally is a moot point and one on which I believe that the Competition Commission will report in the near future. How will the Minister implement the findings of any inquiry that illustrate that checks on competition, which are created by the generic prescribing rate, specifically prevent PCOs from obtaining the best quality medicines at the cheapest prices in an attempt to avoid overspend in their drug budgets? In terms of manufacture, supply, prescription and provision of both generic and branded drugs, the existing structure penalises the community pharmacist, a term that embraces chains as well as individual operators. Following the recent 10 per cent. cut in the dispensing fee paid by the Department of Health, the community pharmacist is bearing the brunt of the Government's reluctance to force the major drug companies to offer branded as well as generic drugs at realistic, affordable prices.

The local dispenser, invariably, is a community pharmacist or, in rural areas, a GP licensed to dispense pharmaceutical treatments. Such people are therefore NHS agents, purchasing both generic and branded medicines to dispense against NHS prescriptions. For a chain like Boots or Lloyds, the 10 per cent. cut will be easier to bear; a distinction between such companies and the local pharmacist serving the local community may have to be made in legislation if best value is truly to be achieved on behalf of patients and taxpayers. Otherwise, we shall have the Orwellian situation in which some community pharmacists are more equal than others, especially as vertical integration accelerates.

Finally, I endorse the second approach suggested in last year's consultation paper and urge the introduction of central purchasing for generic drugs through competitive tendering, which seems to be a more transparent arrangement and one that could readily be operated by community pharmacists.

We need to obtain far greater acknowledgment from the pharmaceutical giants that, although they are operating in a market environment, they are bidding for public money and the right to supply life-enhancing pharmaceuticals to that public. It is a large market. The NHS costs £60 billion a year, 10 per cent. of which is taken up by the drugs budget. Of that £6 billion, 20 per cent., or £1.2 billion, is spent on generic drugs. My estimates suggest that a saving of up to 25 per cent. of that, some £300 million, could be made—that is nearly £1 million a day: a £20,000 saving during the time that it will take to have this debate. I am sure that the Minister will recognise the potential and will respond as rapidly as she can.

12.46 pm

The Parliamentary Under-Secretary of State for Health (Ms Hazel Blears) : I congratulate my hon. Friend the Member for North-West Leicestershire (David Taylor) on having secured this debate and on having chosen the subject of generic medicines. It is an auspicious time to raise the subject because, as he said, we are examining the arrangements for the supply of, and reimbursement for, generic medicines in the NHS. Neither he nor my hon. Friend the Member for The

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Wrekin (Peter Bradley) should be classed as anoraks, but as individuals who are extremely knowledgeable on the matter and who will make a constructive contribution to the on-going debate about the supply of generics.

The NHS spends about £5.5 billion on medicines in the community in England each year. As my hon. Friend the Member for North-West Leicestershire knows and has kindly acknowledged, the Government are making a record investment in the NHS. However, that unparalleled investment does not take away from the need to ensure that every penny is spent wisely and well, and that as much as possible goes directly to patient care. Medicines are a key component in the delivery of high-quality patient care, both in hospitals and in the community, and expenditure on medicines in the NHS rose by an average of 8.7 per cent. every year from 1995 to 2000. Similar, and in some cases greater, rates of increase are occurring in most other countries in Europe.

Much of the increased cost is because more prescriptions are being written, many of them for preventive medicines, which are helping to improve the health of people in this country—nevertheless, there is a huge increase. Another factor is the availability of medicines to treat diseases for which previously no therapy, or no effective therapy, existed. There has also been an immense change in the type of products that is dispensed to patients. More effective, and in many cases more expensive treatments are replacing older and cheaper medicines, so there is upward pressure on the finances throughout the system.

As my hon. Friend acknowledged, the arrangements for prescribing, procuring and dispensing medicines on the NHS and for the reimbursement of pharmacists are not straightforward. He referred to "a convoluted system"—it is, indeed, very complex, as I found out in my early dealings with the market. We need to take account of the interaction between manufacturers and suppliers in the private sector. There are also issues concerning product patents, the licensing of medicines for safety, quality and efficacy and the different characteristics and side effects of individual products which limit the extent to which patients may be moved from one product to another. We must always be conscious of possible contraindications.

Decisions about what to prescribe individual patients are made by doctors and sometimes nurses, who rightly want the best medicines for their patients. They have an obligation to follow prescribing guidelines where those exist, but it must also be right that they should prescribe what they consider to be the best medicine available to treat their patients. At the same time, pharmacists have an obligation under their terms of service to dispense, with reasonable promptness, all the medicines prescribed by doctors. The reimbursement arrangements for community pharmacists provide an incentive for them to obtain the best terms that they can from wholesalers and manufacturers.

The purchase and supply of medicines is not an ordinary market, and many of the considerations that apply in such a market must be modified to ensure that patient care is safeguarded. Encouraging generic prescribing plays an important role in controlling the money that is spent on medicines and ensures that patients receive the care that they need.

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Branded, in-patent medicines are considerably more expensive than their generic equivalents. That is primarily to enable researched-based pharmaceutical companies to recover the substantial research and development costs that they incur in developing new and innovative medicines.

David Taylor : Does my hon. Friend accept that branded, post-patent generic medicines—if that is not too much of an oxymoron—can be cheaper than the generics produced by the cartel, whose development has been accelerated by the vertical integration of the drugs market?

Ms Blears : I am aware that the company in my hon. Friend's constituency provided him with some interesting information, which we shall examine closely. I shall come to the definition of cheaper later, although the operation of the market may result in generic products not being cheaper.

Branded products are significantly more expensive than generic products, which is why we are keen to encourage as much generic prescribing as we can. Overall, we estimate that prescribing and dispensing as branded products medicines that were available generically would cost the NHS an extra £600 million a year.

The Government have set targets for generic prescribing by GPs. By March this year, 72 per cent. of items should be prescribed generically, while no more than 295 practices should have generic prescribing rates of less than 40 per cent. I am pleased to say that both those targets have been met ahead of time. As my hon. Friend acknowledged, slightly more than 75 per cent. of items are now prescribed generically. Although they must still meet the target, GPs have a large degree of discretion because 25 per cent. of their prescribing need not meet the generic targets. That gives them some flexibility in their dispensing procedures to take advantage of situations in which drugs become available that would save the national health service even more money. We have not set a hard and fast, 100 per cent. target, and we recognise that there will be a need for flexibility in some circumstances.

My hon. Friend acknowledged that there had been a tremendous rise in the price of generic medicines in 1999-2000, and he welcomed the introduction of the scheme, which has managed to stabilise prices. We always said that it was a short-term measure, and now we want to introduce longer-term proposals to deal with the supply of generics. In July last year, we published "Options for the Future Supply and Reimbursement of Generic Medicines for the NHS". There have been many contributions to the discussion, and we are currently considering all the options and shall respond shortly.

Peter Bradley : Will my hon. Friend give us an idea of the weight of support for a central procurement agency to secure what one hopes would be real savings to the NHS?

Ms Blears : The two options set out were central procurement and a reference-based price scheme, but I am not in a position to say what the balance of the

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submissions was. However, once we receive all the responses to the consultation, I am sure that the information will be made available. My hon. Friend will appreciate that simple numbers do not always indicate the weight of those responses; it is more complicated than that, and this is a most complex area with a great deal at stake. We shall therefore evaluate the submissions extremely carefully.

Representations similar to those made by my hon. Friend the Member for North-West Leicestershire have been received by PCTs and health authorities in the Trent region, and I understand that they have been the subject of detailed discussion and are still under consideration. I assure my hon. Friend that they will be properly considered and evaluated. Achieving savings for the NHS is in all our interests, not least those of patients.

The company considers that the branded product that it can offer would allow the NHS to achieve significant savings, and it is a matter worthy of investigation. The Government's policy on encouraging the use of generics has been successful in achieving savings for patients. Nothing in the present arrangements prevents a manufacturer or supplier from entering the market, provided that it has a licence from the Medicines Control Agency. Wholesalers and pharmacists are free to buy from whichever supplier offers the most advantageous terms. When a prescription is written generically, the pharmacist has the choice of dispensing either a generic or a branded product. Usually, however, they will be reimbursed only for the cost of the generic. The procedures would not preclude a lower-priced branded product entering the market.

David Taylor : That is okay, as far as it goes, but not all wholesalers stock the cheaper branded alternatives to the generics, which are sometimes made available to companies under covert and special arrangements.

Ms Blears : My understanding is that the best wholesalers would make the full range of products in the drug tariff available to the pharmacist. It is in their interests, when pharmacists request specific products, to ensure that they are available, because pharmacists will not want to use a wholesaler that does not provide the full range of medicines. If a wholesaler chooses not to stock a product, we can look into the matter. However, if a generic is prescribed, the pharmacist can choose to dispense either the generic or the branded product. That would allow the products mentioned by my hon. Friend to come to the market.

The discount clawback is a complex system of remunerating pharmacists, under which discount inquiries take place and a clawback is made of the estimated amount of discount that pharmacists have achieved through their buying policies from wholesalers and manufacturers. That discount clawback is worth about £600 million to the NHS. We need to be aware, when making changes to the system of purchase and remuneration, that we consider the system as a whole and do not take steps that could jeopardise the income that the NHS receives from the discount clawback.

It is important that the NHS has a secure and consistent supply of medicines. If exemptions were to be made for particular products, we might find ourselves

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having placed all our faith in one supplier or manufacturer of a product. We know that that can cause difficulties for the NHS. It is in the interests of the service to have as wide a range of suppliers as possible, so that it can be assured of a consistent and regular supply. If we were to concentrate on only one supplier for a product, it would significantly increase the risk of shortage should that company run into difficulties and not be able to provide that secure and consistent supply.

I am grateful to my hon. Friends the Members for North-West Leicestershire and for The Wrekin for drawing attention to those important matters. We want to achieve the savings that can be achieved by the prescribing of generic medicines, but we also want, through whatever avenues are open to us, to increase the amount of money that we are able to spend on NHS patients. I reassure my hon. Friends that the submissions and points that they made will be taken into account in the current review of options with respect to the supply of generics in the national health service. They have made a constructive contribution to what is a complex area of manufacture, supply and reimbursement. I undertake to study closely the information that has been provided about specific products from my hon. Friend's constituency.


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