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The Pharmaceutical Price Regulation Scheme – cutting the cost of cancer drugs

by Hilary Tovey | Analysis

6 January 2009

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A bottle of tablets

A new pricing scheme should lead to cheaper cancer drugs

With the New Year upon us and the sound of cash registers still ringing in our ears from Christmas, the nation is tightening its belt to ride out the difficult financial times ahead.

For their part, the UK Government has reached an agreement with the pharmaceutical industry that should help ensure that an ever cash-limited NHS will be able to continue provide the best possible drugs to patients.

January 1st 2009 marked the start of a new pricing scheme which will not only reduce the UK’s overall drugs bill, but also help make some expensive new medicines – including cancer drugs – more affordable for the NHS.

The NHS has an obligation to make the best possible use of its finite pot of money. If its advisors agree that a particular drug, or service, should be made available to patients, generally this means that something else cannot be funded.

The tricky decisions about which new drugs should be made available are made by the National Institute of Health and Clinical Excellence (NICE, for England and Wales – in Scotland the process is led by the Scottish Medicines Consortium). These organisations weigh the benefits of a treatment against its cost and make recommendations on whether they consider the treatment ‘value for money’ for the NHS.

The NHS is rightly prepared to pay top dollar for new drugs, provided their benefits are clear. So, as you can imagine, the higher the price of the drug, the more confident NICE needs to be in the evidence that it will bring benefit to patients.

How does the Government decide what price it should pay for drugs?

Pricing negotiations – known as the ‘Pharmaceutical Price Regulation Scheme‘, or PPRS – have taken place between the Government and the pharmaceutical industry every five years since the middle of the last century.

The scheme runs on the principle that pharmaceutical companies are only permitted to make a certain profit margin on their products – enough to cover the cost of developing the treatment, and offset the cost of testing the hundreds of other drugs that fail the rigorous clinical trials system.

Previous pricing agreements between the Government and pharmaceutical companies focused solely on reducing prices. Price cuts are, of course, good news for the Government purse and the NHS budget as a whole, but ultimately mean little for individual patients.

What many people don’t know is that, accounting for inflation, we have seen an overall price decrease in the cost of drugs of around a quarter over the last 10 years. Yet many new drugs are still considered too expensive to be prescribed on the NHS. An example of this is the recent decision by NICE not recommend four kidney cancer drugs (which is now under review).

What’s so special about the new scheme?

The new scheme not only includes price cuts of nearly 6 per cent, to be phased in over the next three years, but also includes two new measures.

1) Flexible pricing

One of the key criticisms of the current pricing system is that, although pharma companies could guess at the price range at which drugs would be approved by NICE, the Government’s reluctance to allow prices to go up as well as down meant that the pharma companies tended to set prices right at the top of this range.

But under the new agreement, companies will be actively encouraged to consider ‘value’ in their pricing and, after initially pricing a given drug relatively cheaply to encourage approval, will have room to increase prices as more evidence on how well it performs in patients becomes available.

Setting lower prices when a drug is first introduced into the market, with the option of raising them after new evidence shows just how well they work in a ‘real-life’ setting, means that drugs are much more likely to be approved by NICE first time around – and that patients in the UK will be entitled to the same world-class treatments available elsewhere in Europe.

The Government will also set tracking systems in place to allow us to draw comparisons on which drugs are being made available to our European neighbours.


We’re already starting to see how flexibility in pricing can improve the lives of cancer patients. In November, after over two years of appraisal and re-appraisal, NICE published guidance stating that the lung cancer drug, Tarceva (erlotinib), should be made available to all patients on the NHS.

This announcement overturns previous rulings that this drug was too pricey to be considered ‘value for money’ and therefore should not be funded.

This decision was made possible by an unprecedented move by the pharmaceutical company, Roche. The company agreed to let the NHS buy Tarceva at the same cost as the current drug treatment. Roche are confident that, in time, their drug will prove to be better than the alternative treatment – but this is difficult to prove with the limited evidence available at the moment.

2) ‘Patient Access Schemes’

When NICE decides that they don’t consider a drug to be ‘value for money’ at the price set by the pharmaceutical company, ‘patient access schemes’ can be applied to reduce the overall cost to the NHS.

These schemes already operate on case-by-case basis. Examples include the cancer drug Velcade (bortezimib) for multiple myeloma and Lucentis (ranbizumab) for macular degeneration – an age-related eye condition that is a major cause of blindness.

For Velcade, the pharmaceutical company agreed that the NHS only had to pay for patients who responded to the treatment (judged by at least a 50 per cent reduction in a substance known as paraprotein in their urine or blood); otherwise the pharmaceutical company would foot the bill for the drug.

In the case of Lucentis, the company agreed to pay for any injections over and above the first 14. If patients were not better after the initial treatment, the company would pick up the cost of any future treatment.

So what do these changes mean for patients?

What’s really exciting is that these new measures now have equal weighting alongside price cuts in the pricing scheme. Combined with a focus on improving uptake of treatments once they have received NICE approval, this intelligent approach to pricing should mean that more new drugs are available to the patients who need them.

We’re now waiting to see whether companies will have the confidence in their treatments to take advantage of these new measures, and find prices at which drugs can be funded by the NHS.

This is one New Year’s resolution we would like them to keep.

Hilary Jackson

Hilary is Cancer Research UK’s Policy Manager