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Tuesday, December 11, 2007

Pfizer Supply Deal Ups Pressure on UK Price Cuts

UK drug pricing reform was on the books anyway. The Office of Fair Trading in February 2007 recommended a switch from the traditional PPRS system whereby companies are free to set prices as they wish, within broad profit constraints, to a “value-based” approach whereby drug prices are cut and capped according to a product’s perceived therapeutic benefit.

Now the OFT’s just gathered some more fodder in its call for an end to one of Europe’s friendliest national pricing schemes—from their review of the direct-to-pharmacy drug supply arrangement initiated by Pfizer in March, with several other Big Pharma following suit.

Pfizer decided to cut out the wholesaler and sell its drugs directly to pharmacists. It still uses a wholesaler, UniChem, to do so, but UniChem in this case is simply a logistics provider, receiving a fee-for-service rather than buying the drugs outright and taking a margin from selling them on to pharmacists itself.

Pfizer had plenty of reasons to embrace DTP, which you can read about in more detail in this IN VIVO feature. One of them is that it gets to control individual drug discounts. In the traditional model, manufacturers sell to wholesalers at a 12.5% discount to list price, wholesalers compete to offer pharmacies the most attractive price and typically pass on about 10.5% of that discount. The National Health Service reimburses the pharmacies at list price, but then claws back some of the profits they make from the discounting.

The OFT has concluded from its investigation that there is a “significant risk” that DTP schemes will result in higher costs to the NHS (despite Pfizer’s assurances otherwise). So, it says in a release issued today, since the PPRS scheme is under review anyway (the current plans runs from 2005-2010), here’s another reason to switch to a pricing system that ensures that pharmacists’ discounts are safeguarded.

The OFT’s helpful suggestions:

1) reduce list prices in the PPRS framework by an amount equivalent to the average pharmacy discount
2) force pharma firms to offer a minimum list price discount to pharmacies

The bit of good news: Pfizer and others are free to pursue the DTP set-up (“manufacturers should be free to choose the distribution method they consider to be most efficient,” says the OFT).

A somewhat Pyrrhic victory, though. As far as drug prices are concerned, whatever freedom there was will now certainly soon come to an end.

1 comment:

Adam J. Fein said...

I like the way you connect the distribution situation to drug pricing.

I also think that the OFT report has some intriguing insights for payers in the US market. See my blog for details:

U.S. Lessons from Pfizer UK

Regards,
Adam

Regards,
Adam