UK needs to cut 2 billion pounds from annual drug spend but no change to PPRS

04/06/2010

The UK government needs to save up to almost 2 billion pounds a year (2.4 billion euros) from its annual drug spend to help save up to 20 billion pounds (24.2 billion euros) over the next five years, according to an independent report.

The report, commissioned by the former Labour government, stated that this could be achieved by increasing generic penetration, reducing variability in prescribing practices (GPs), optimising hospital drugs procurement, increasing the claw back to pharmacy, and reducing wholesalers' revenues.

Notably, the report said there would be no changes made to the 2009 Pharmaceutical Price Regulation Scheme (PPRS), which is expected to make savings of 450 million pounds (544.5 million euros) annually from 2010/11.

Reacting to the publication of the 124-page report, the new coalition government's health secretary, Andrew Lansley said in a statement to APM, that the government is committed to increasing health spending every year and also cutting out waste.

He said: "Today, as part of our drive to make government more transparent, I am publishing this report that was commissioned by the previous government. It is indicative of a top-down internal process intended to cut spending by cutting staff, including frontline staff."

DRUG SPEND SAVINGS

Within the National Health Service (NHS), supply chain/procurement, which includes drug spend, is the third largest consumer of NHS money. Currently 29 billion pounds (35 billion euros) is spent annually by this department, of which 12 billion pounds (14.5 billion euros) is on drugs.

The report, carried out by business advisor McKinsey & Co, stated that potential savings of up to 1.2-1.8 billion pounds (1.4-2.1 billion euros) could be made through pulling different price and volume levers over three-to-five years.

In 2008/09, the secondary care drugs bill totalled 2.5 billion pounds (3 billion euros) - the report states a saving of between 0.2 and 0.3 billion pounds (0.24-0.36 billion euros) could be made in three-to-five years.

The primary care drugs bill came to 9.3 billion pounds (11.2 billion euros) - the target saving of between 1.0-1.5 billion pounds (1.2-1.8 billion euros) can be achieved, the report states.

Savings of 450 million pounds (543 millions euros) will be made annually from the PPRS, the report states.

Meanwhile savings of between 360-600 million pounds (435-725million euros) could be made by reducing variability in general practitioner prescribing practices.

Increasing generic penetration would save between 170-280 million pounds (205-338 million euros) in three-to-five years, while optimising hospital drugs procurement could save between 110-210 million pounds (133-253 million euros).

The report states that 60-160 million pounds (72-193 million euros) could be saved from increasing claw back to pharmacy, while 60-110 million pounds (72-133 million euros) could come from reducing wholesalers' revenues.

METHODOLOGY

The report lists a raft of measures to be used to reduce the drug spend. Looking at branded drugs, the report states the PPRS will include an overall reduction in prices over the five-year term of the contract. No additional price reductions for branded products will be imposed, since the PPRS brings UK prices in line with other EU countries, except Spain and Italy.

Primary Care Trusts (PCTs) can reduce variability in current prescribing costs "per age need weighted population", the report states. "Specifically, assume that PCTs can achieve the median spend or 80% of the bottom quartile".

Generics penetration in value grows from 29% in 2007 to 32-33% in 2013 based on the
assumption that penetration continues growing at a pace that is 50-80% that of the last three years, say the researchers.

Pharmacy clawback is increased from current 9.3% (900 million pounds or 1 billion euros) to 10-11% (typical discounts received currently by pharmacies are around 10.5% for branded and higher for generics).

Savings could be made in procurement of hospital drugs by increasing the discounts on the top 50 branded drugs by 50-80%. The top 50 branded drugs currently receive the highest discount - 12.5%. The rest of the prescribed branded drugs have a current discount of 9.3%, which could increase by 30-40% the report states.

Generic drugs however have limited scope for increase in discounts.

In outsourcing the hospital drug supply chain, the researchers say 3-5% of savings could be made based on the DHL 10-years outsourcing contract which targets 4.5% savings. Between 50-80% of the hospital drug spend is outsourced.

And finally, savings could be made by reducing the amount wholesalers get, to bring the percentages in line with Spain and Italy. Currently, UK wholesalers revenues average 8.5% of branded prescription drugs ex-manufacture price and 10.5% for generics.

Italy's wholesaler revenues average 7.1% and Spain 7.6%.

Source: http://www.apmhealtheurope.com/