Regulating the pharmaceutical industry

Pricing should be renegotiated to control research costs and encourage cost effectiveness

The pharmaceutical price regulation scheme1 is a voluntary agreement between Britain's Department of Health and the Association of the British Pharmaceutical Industry in which companies negotiate generous target profit rates from sales of drugs to the NHS (17-21% rate of return on investment in research and development). The scheme's objectives are to secure the provision of safe and effective medicines to the NHS at reasonable prices; to promote a strong pharmaceutical industry in Britain; and to encourage the efficient and competitive development and supply of medicines worldwide.1 The scheme was renewed in 1993 for five years and is currently under review. Although the scheme has been successful in helping to maintain the British pharmaceutical industry, its objectives conflict, and the way the scheme operates pays little regard to other health policy objectives. As the price of renegotiation, the government should request changes to the scheme, to minimise the inherent conflicts and to ensure that the scheme supports other policies.

There is considerable evidence of the scheme's success at achieving a strong industry.2 However, drug prices in Britain are higher than those in other countries, and there is much debate about what is a “reasonable” price for the NHS. For the Department of Health a conflict exists between its own attempts to control NHS expenditure and the scheme's implicit subsidy of the industry's research and development. If cost containment measures—such as encouraging the use of generic drugs, provision of prescribing data, and other policies aimed at general practitioners' prescribing—threaten profits, the price regulation scheme may allow companies to increase prices. The scheme may also reduce companies' incentives to control their research costs. Finally, there is no attempt to link prescribing with cost effectiveness: products that are cost effective and those that are not are treated equally under the scheme.

In renegotiating the continuation of voluntary profit regulation the government should require the industry to make four policy changes. Firstly, as supported in principle by the House of Commons Health Committee,3 a “fourth hurdle” of comparative cost effectiveness should be adopted by the NHS before it agrees to pay for new drugs. This has been required in Australia since 1993,4 where new drugs with no advantage over existing products are offered at the same price. Where clinical trials show superiority, incremental cost effectiveness is assessed to determine whether a product represents value for money at the price sought.

The implementation of this type of hurdle in Britain requires restriction of publicly reimbursed drugs by a positive list. The existing voluntary guidelines for the economic evaluation of pharmaceuticals5 should be made compulsory for all new products. The cost of the studies and the reimbursement system should be met by industry. Studies should then be reviewed by independent researchers and a panel of medical professionals and economists. This would facilitate national prioritisation of drug treatments and avoid problems of differential access to new products such as interferon beta for multiple sclerosis and new drug treatments for Alzheimer's disease.6

The second suggestion is a more explicit annual report on the scheme to parliament. The first ever report was published in May 1996 and was opaque. In future this report should reveal not only the complicated way in which the scheme works but also its achievements in engendering efficient research and development within the industry. The real cost to the taxpayer of the scheme should be made explicit and be open to debate. The report should also log the number and novelty of the new products which have been produced over a specified period. Novelty—chemical and therapeutic—should be judged by an expert panel.

Thirdly, access to data generated by pharmaceutical companies' research programmes should be increased. Regulation should be introduced to ensure that all data relating to licensed drugs are made publicly accessible and all drug trials are registered prospectively with the Committee on Safety of Medicines and in the National Research Register. It is unethical to ask patients to participate in drug trials without the resulting information being made publicly available to guide their choices and future research and policy. Schering Health Care has already set an excellent precedent by making information about all its unpublished and current trials available through the Cochrane Controlled Trials Register.

Finally, if pharmaceutical industry research is to continue to be subsidised by taxpayers, policymakers should determine, at the margin, the prioritisation of research and innovation. The industry would be expected to respond to these stated priorities, aided by annual reporting of progress. Research within the priority areas could be taken into account in setting individual companies' profit targets within the scheme. Companies which did not address these research priorities could be penalised, generating funds which could be directed to universities via the Medical Research Council.

These four policy innovations will result in a more efficient scheme for regulating the British pharmaceutical industry, rewarding better the manufacturers of the most effective drugs through higher prices. The policies could also facilitate national prioritisation of drug treatments and increase the quality of information provided to prescribers and other NHS purchasers about new drugs. In time, as these innovations affect resource allocation, they may induce greater confidence that the goals of pharmaceutical policy, both industrial (increasing wealth) and health (improving population health), are being addressed. Without explicitness about the goals and performance of trade and health policies, drug expenditure will continue to inflate with little accountability and insufficient benefit for patients.