Select Committee on Health Memoranda

Memorandum by the Department of Health


Table 4.10.1



  1.   Source: PCA, PPA, England. Figures are for prescription items dispensed by chemists and appliance contractors and dispensing doctors including items personally administered in England, for financial years April to March. Note that in addition to prescriptions written by GPs in England, this includes those written by nurses, dentists, hospital doctors, (and, up to March 1994, armed services doctors and dentists) provided they were dispensed in the community. Also included are prescriptions written in Wales, Scotland, Northern Ireland and the Isle of Man but dispensed in England. The data do not cover drugs dispensed in hospital or private prescriptions.

  2.  The net ingredient cost (NIC) is the basic cost of a drug. This cost does not take account of discounts, dispensing costs, fees or prescription charge income. All figures are expressed at outturn prices.

  3.  Generic dispensing covers drugs that are prescribed and available generically and the dispenser is reimbursed at the Drug Tariff or generic price. It is possible in some circumstances for a branded drug or parallel import to be dispensed against the prescription.

  3.  The Department collects data on secondary care prescribing through NHS Trust and Health Authority financial returns. On an annual basis, these high level aggregate returns enable it to monitor the pressure faced by local NHS organisations and the aggregate cost to the NHS as a whole. More detailed information is available to Trusts at a local level from hospital pharmacy IT systems. This is primarily used to monitor local spending on pharmaceuticals together with adherence to local policies aimed at ensuring the cost effective use of medicines.

  4.  "Pharmacy in the Future", the modernisation programme for pharmacy services in England made a commitment to implement a self-assessment tool for medicines management in NHS hospitals. The tool has been developed by the Office of the Chief Pharmacist, at the Department of Health, with the support of the Regional Directors of Performance Management and Public Health and Regional Pharmaceutical Advisers. It was introduced to NHS Trust hospitals in England through a roll-out programme managed by the Regional Office (RO) network.

  5.  The self-assessment tool recognises that achieving clinical and cost-effective medicines use is an organisation-wide issue on which managers, prescribers and pharmacists need to work together. The self-assessment tool provides an opportunity for hospitals to examine their current arrangements.

  6.  Regional Offices are in the process of organising meetings with Trusts to ensure action plans are in place to improve performance.

  4.10b  Could the Department provide information on (i) total Family Health Services expenditure on prescribing for each year from 1992-93 to 2000-01, (ii) the average expenditure per capita, (iii) the total number of items prescribed and average number per capita, and (iv) the average cost per prescription? Any commentary which the Department would wish to append would be welcome, including an assessment of progress in meeting its stated target of restraining the growth in the drugs bill to sustainable and affordable limits?

  7.  The information requested is shown in table 4.10.2.

Table 4.10.2



  1.   Source: PCA, PPA, England. Figures are for prescription items dispensed by chemists and appliance contractors and dispensing doctors including items personally administered in England, for financial years April to March. Note that in addition to prescriptions written by GPs in England, this includes those written by nurses, dentists, hospital doctors, (and, up to March 1994, armed services doctors and dentists) provided they were dispensed in the community. Also included are prescriptions written in Wales, Scotland, Northern Ireland and the Isle of Man but dispensed in England. The data do not cover drugs dispensed in hospital or private prescriptions.

  2.  The net ingredient cost (NIC) is the basic cost of a drug. This cost does not take account of discounts, dispensing costs, fees or prescription charge income. All figures are expressed at outturn prices.

  3.  Population estimates are based on ONS mid-year estimates/projections of the resident England population.


  8.  Since 1999-2000 funding for hospital and community health services, prescribing and discretionary general medical services has been brought together into a single funding stream at Heath Authority and Primary Care Group level. Unified allocations enable Health Authorities and Primary Care groups to deploy resources flexibly to best meet the health needs of their population. It is for Health Authorities in partnership with Primary Care groups and other local stakeholders to determine how best to use their funds to meet national and local priorities for improving health, tackling health inequalities and modernising services.

  9.  Average growth in the FHS drugs bill over the last five years has been 8.1 per cent per annum. This figure would undoubtedly have been higher had it not been for the significant effort that was been put into managing the drugs bill, for example through prescribing incentive schemes and the provision of quality advice and support to prescribers. New and innovative medicines often offer the most cost-effective form of treatment so the Government does not necessarily view growth at this level (or any other level) as a bad thing.

  10.  A new Pharmaceutical Price Regulation Scheme (PPRS) was agreed in 1999 with the Association of British Pharmaceutical Industry (ABPI). The scheme, which will run for five years, began in October 1999, with all suppliers being required to reduce the prices of all products covered by the scheme by 4.5 per cent. The price reduction is achieving savings to the NHS drugs bill in excess of £200 million a year.

  11.  Progress has been made on other key initiatives. Around 21,000 nurses have been trained to prescribe from a limited Formulary of drugs and appliances and the signs are that a total of up to 23,000 nurses will be trained in prescribing by the end of this year. On 4 May 2001, Ministers announced their intention to extend independent nurse prescribing to enable more nurses to prescribe a wider range of medicines for a broader range of medical conditions. Following training, independent nurse prescribers under the extended scheme will be able to prescribe General Sales List and Pharmacy medicines currently prescribable by GPs, together with a list of Prescription Only Medicines. We plan to have the amended regulations and a training programme in place by the end of 2001, with the first nurses able to prescribe under the extended scheme by the spring of 2002. The contribution of general practitioners to quality prescribing is being recognised through additional remuneration as part of the Sustained Quality Prescribing Scheme announced in April (HSC 1999/107). Every practitioner in a practice which qualifies for the payment, in accordance with a number of benchmarks, among which is the requirement to use a formulary or an increase in generic prescribing, will receive an additional annual payment.

  12.  Measures have also been taken to improve rational prescribing by GPs and towards eliminating unwarranted variations in prescribing. The National Institute for Clinical Excellence (NICE) has already begun to make key decisions, including its first appraisal (the fast track appraisal of the flu drug Relenza) was announced in October 1999. Progress continues to be made on the PRODIGY roll-out and we estimate that around 30-40 per cent of computerised practices had access to PRODIGY at the end of 1999. In broad terms this means that between 3,000 and 3,500 of the 9,000 GP practices should by now have access to PRODIGY. Release 1 is being rolled out to general practitioners with the aim of it being made available to all GPs by the end of 2000. The National Prescribing Centre (NPC) and the Prescribing Support Unit (PSU) have continued to provide support to medical and pharmaceutical advisors via bulletins and through the provision of analytical services.

  13.  Present and possible future measures to secure value for money and security of supply of generic medicines for the NHS are covered under paragraph 4.10c.

  14.  The PRODIGY programme of work continues to be developed and make progress to improve rational prescribing.

  15.  A survey carried out in June 2001 estimated that 80 per cent of practices have clinical systems installed that could support PRODIGY. Of these GPs who could use PRODIGY, 14 per cent did so in order to support the care process, involve patients in the decision-making, up-date their own knowledge—all providing practical support for clinical governance. The education and communication programme continues to support GPs in their uptake and use of PRODIGY, demonstrating an increase in both awareness and use in twelve months.

  16.  The clinical content in PRODIGY continues to be updated and new guidance topics developed to ensure clinicians have up-to-date clinical evidence on their desktops. Updated guidance has recently been released on thirteen topics including acute otitis media, wax in ear, acute sore throat, menopause, chest infection and obesity. PRODIGY includes approximately 130 sets of guidance, covering 200 of the most common conditions seen in general practice. Collaborations with the National Institute for Clinical Excellence are in place to ensure the Institute's guidance is disseminated through the PRODIGY system.

  17.  A research phase, testing a revised prototype which helps clinicians manage patients with chronic diseases (such as heart disease), also continues in partnership with GPs, practices and the suppliers of clinical computer systems.

  18.  The contribution of general practitioners to quality prescribing is being recognised through payment of the Sustained Quality Allowance. This allowance is paid when all of seven benchmarks are achieved, including increase in generic prescribing or the use of a formulary. Currently, the NHS employs around 800 prescribing advisers, mainly pharmacists, in health authorities and primary care organisations, having a common aim to encourage and secure rational and cost-effective prescribing.

  4.10c  Could the Department explain the measures being taken to control NHS expenditure on generic drugs in primary care following the price increases in 1999-2000?

  19.  The Department has acted to control the prices of generic medicines. Following consultation, a statutory scheme setting maximum prices for the main generic medicines was put in place in August 2000. The scheme is operating effectively. Prices have remained stable since its introduction and the NHS has saved some £240 million in 2000-01 compared to prices before the scheme was proposed.

  20.  EU legislation requires a review of price controls to be started within 12 months of their introduction. The Department launched a review on 23 July 2001 and has consulted on a proposal that the present scheme should remain in place, unchanged, pending decisions on longer term arrangements for generic medicines.

  21.  On 23 July 2001 the Department also issued a discussion paper on its proposals for the supply and reimbursement of generic medicines to the NHS in the community for the longer term. The paper draws on the fundamental review of the generics supply chain carried out for the Department by OXERA (Oxford Economic Research Associates). The paper puts forward two main options for the future:

    (i)  Reform of reimbursement arrangements, so that the price the NHS pays for generics is based on the price at which they are sold by the manufacturer plus an amount for the wholesale distributor.

    (ii)  Changing the system of purchasing generic medicines so that, instead of them being bought by community pharmacists and the NHS reimbursing them, they would be bought centrally by the NHS through a system of competitive tendering, using its purchasing muscle.

  22.  As a further option, the paper assesses the possibility of keeping in place the existing maximum price scheme over the longer term.

  23.  Discussion of the proposals with interested parties is under way and will last till 22 October 2001. Ministers will then reach a decision on the way forward, taking account of views expressed. Formal consultation on the Government's preferred option will then follow.

  4.10d  What progress has been made in getting the pharmaceutical industry to reduce drug costs by 4.5 per cent (as agreed in the PPRS)? Could the Department comment on issues such as volume, price and substitution? Has the lack of reliable data to monitor spending led to a breakdown in cost control?

  24.  At the start of the 1999 agreement all companies with sales of branded prescription medicines to the NHS of more than £1 million a year were required to reduce NHS list prices by 4.5 per cent. All companies required by the scheme to reduce prices by 4.5 per cent from 1st October 1999 have done so.

  25.  Companies were allowed to achieve the reduction either by an across the board reduction or by modulation (variable reductions to the prices of different products provided that the overall effect was a price reduction of 4.5 per cent). Companies that chose to modulate the list price of some or all of their products to deliver the price reduction have to submit independently audited outturn data (net sales revenue and quantities sold to the NHS for each product). The Department has analysed the audited data for the periods 1 October 1999 to 31 December 1999 and 1 January 2000 to 31 December 2000 to ensure that companies are delivering the required level of savings. Companies that have delivered less than a 4 per cent price reduction have made a payment to the Department for the shortfall and remodulated prices so that 4.5 per cent reduction is achieved for the rest of the agreement.

  26.  The price reduction is achieving savings to the NHS drugs bill in excess of £200 million a year.

  27.  Following turbulence in the generics market in 1999-2000 the Department of Health put in place a statutory maximum price scheme covering the main generics in August 2000. This has brought stability to the market. The response to question 4.10(c) gives further information about recent developments in relation to the supply and reimbursement of generics.

  28.  The problems in the generic market in 1999-2000 also led to prescription processing problems at the Prescription Pricing Authority (PPA). This led to delays in the availability of up-to-date prescribing information. The PPA introduced a recovery strategy to reduce the delays in current information and are on track to be back to a normal processing timetable by October 2001.

  29.  Data available for monitoring prescribing spend during 2000-01was not as up-to-date as required due to the delays in prescription processing. The production of prescribing data will return to normal during 2001-02, improving the information available for monitoring spend.

  30.  The volume of prescription items (for both generic and branded prescription items) increased in 2000-01 by 5.0 per cent. The average growth over the previous three years was 3.1 per cent.

4.11  Allocations to National Specialist Services

  What was the total allocation in 1999-2000 and 2000-01 to each of the supra regional services and what is the planned allocation for 2001-02; and what significant changes have there been in the overall pattern of expenditure?

  1.  The expenditure on each of the supra regional/national specialist services in 1999-2000, 2000-01 and the service agreement value for 2001-02 is given in the table below.

  2.  The National Specialist Commissioning Advisory Group (NSCAG) was established in April 1996 to advise Ministers on the identification and funding of services where central intervention into local commissioning of patient services was necessary for reasons of clinical effectiveness, equity of access, and/or economic viability. NSCAG superseded the Supra Regional Services Advisory Group.

  3.  Two new national services are to be centrally funded from 1 April 2001:-

Paediatric Bladder Exstrophy

  4.  This service was designated from 1 April 2000. It will be centrally funded from 1 April 2001. The service provides for the management and initial surgery of children under 14 with bladder exstrophy, primary epispadias and exstrophy variant. These are a group of very rare, but disabling, conditions, which are very difficult to manage. Two units , Great Ormond Street Hospital and Newcastle upon Tyne NHS Trust will provide the service.

Rare Neuromuscular Disorders

  5.  This diagnostic service combines the specific expertise of four centres in different forms of rare neuromuscular diseases. These groups of disorders comprise:

  The limb-girdle muscular dystrophies (led from Newcastle NHS Trust).

  The congenital muscular dystrophies (led from Hammersmith Hospitals NHS Trust).

  The congenital mysasthenias ( led from the Oxford Radcliffe NHS Trust).

  The ion channel disorders of skeletal muscle (led from the Institute of Neurology, London).

  6.  One service will have its service costs funded through NSCAG while undergoing final evaluation:-

Paediatric Ventricular Assist Devices

  7.  Two units, Great Ormond Street Hospital NHS Trust and The Newcastle NHS Trust have been designated to undertake this service whilst it is undergoing evaluation. The aim of this evaluation will be to assess the effectiveness of provision of Ventricular Assist Devices to children. There is convincing evidence that for infants and children there are sufficient hearts to meet demand, however in view of the very small numbers on the waiting list when an organ becomes available there is often no suitable patient. These devices will provide a bridge to transplant in this small group.

  8.  There have been no other significant changes to the overall pattern of expenditure.

Table 4-11-1


  *  Payments will be made as and when transplants occur.
  **  Remapping between commissioners has taken place.
  ***  This money was paid to the Henderson Hospital and then split between the three Trusts.

4.12  Management and Administration Costs

  Could the Department provide a commentary on the progress it has made in defining management costs in PCGs, Health Authorities and NHS trusts? Could the Department update Table 4.11.1? Does the Department intend to develop a definition of NHS administration costs?

  1.  Integrated guidance on the definition of management costs in Health Authorities and Primary Care Groups was issued in March 2000. The definition continues to have effect in the current financial year. It is based on and updates previous guidance issued in March 1999.

  2.  The definition of HA costs incorporates expenditure on management of PCGs. Unless specifically listed as an exclusion, all HA and PCG staff and non-staff expenditure, including non-recurrent expenditure, is included in HA management costs.

  3.  Specific areas of exclusion from HA management costs relate to payments to health care providers in respect of health services, activities related to improving health and promoting effective health care, and time-limited exclusions in respect of pilot or developmental activities.

  4.  The definition of PCG management costs continues to draw a distinction between the activities that are primarily concerned with the management and administration of the PCG's budget and its responsibilities as a commissioning body and those activities that are the clinical responsibilities of PCG members.

  5.  On this basis the costs of support staff that directly contribute to the clinical processes and arrangements for patients-such as receptionists and practice managers and whose responsibilities are to individual practices rather than the PCG continue to be excluded from PCG management costs.

  6.  Guidance on the definition of management costs in NHS Trusts was also issued in March 2000. The definition also has effect in the current financial year and is based on and updates previous guidance issued in March 1999.

  7.  The definition of management costs in NHS Trusts covers the staff costs of management activities, including contracted out services and consortia arrangements. In line with previous practice the definition allows for exclusion of costs related to specific pilot or developmental activities on a time-limited basis.

  8.  The definition includes the costs of all staff required to support the board and corporate functions of the NHS Trust as well as the costs of senior and other managers of clinical, operational and support services functions. Where appropriate it allows managers to apportion their time between managerial and clinical responsibilities, ensuring that clinical duties are not counted towards management costs.

  9.  Guidance on the definition of management costs of PCTs was issued in March 2000. The guidance makes no distinction between the definition of management costs of PCTs at level 3 and level 4, except that at level 4 it is widened to include provider functions. The definition is based on the existing definition for NHS Trusts but also takes account of the functions of PCGs.

  10.  Table 4.12.1 shows trends in NHS management costs since 1996-97 at 1998-99 prices [alternative table also provided at 2000-01 prices].

  11.  Steps have already been taken to reduce NHS management costs significantly. Reductions since 1997-98 to 2000-01 mean that an estimated £843 million has been redirected from management towards patient care.

  12.  Final savings of £20 million planned last year in order to reach the £1bn target by the end of 2001-02 have been set although these may not be required if indications that savings are ahead of schedule prove to be correct. Savings that are required will be targeted at NHS Trusts with proportionately higher management costs and those NHS Trusts undergoing mergers.

  13.  There are no plans to require further net reductions in HA/PCG costs nationally in the current year but there will be continued emphasis on the need to maximise value for money from management investment and redeployment of resources within the overall cost envelope.

  14.  In terms of management costs the introduction of PCTs will be cost neutral overall and the transition from existing PCGs to PCTs will be accompanied by complementary reorganisation of HAs and NHS Trusts as functions are devolved or transferred. This provides an opportunity for a fundamental consideration of how management functions are best delivered including increased scope for sharing services and pooling functions across the local health economy. In March this year the Secretary of State announced the next stage in the reform of the NHS will see the centre of gravity move from Whitehall to the front line NHS and that as a result of these changes £100m would be released for patient care.

  15.  There is no single accepted definition of NHS administration costs and the Department has no current plans to develop such a definition. Figures on expenditure against NHS management costs are based on clear definitions and are available from audited accounts of HAs and NHS Trusts. They provide the most reliable indicator of the cost of administration in the NHS.

  16.  Paybill costs of staff in senior management, management, and administrative and clerical grades may be used as an alternative, approximate measure of NHS administration costs. These costs include the salaries of large numbers of staff providing support to clinical services and exclude the costs of medical staff working in management roles, as well as other costs such as contracted out services. They provide a less precise indicator of the true cost of administration as they fail to differentiate between managerial and clinical.

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