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Last Updated: Wednesday, 30 May 2007, 07:29 GMT 08:29 UK
Drug cost reforms 'may cost NHS'
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The OFT spent 18 months looking at drugs pricing
Reforms of the drugs pricing system may cost the NHS money, an economist says.

The Office of Fair Trading has proposed the cost of drugs to the NHS should be based on health impact, rather than the cost to manufacturers as happens now.

The OFT had estimated the move could save the NHS 500m from its 7bn bill, the Health Economics journal reported.

York University expert Professor Karl Claxton said the plan was well-founded but may cost the NHS more and said industry should cover any extra costs.

OFT officials spent 18 months studying the drugs market before proposing a value-based pricing system , which would allow companies to charge higher prices for those drugs that delivered the greatest health benefits.

Such a radical shake-up is bound to worry people within the industry, but most fears are unfounded
Professor Karl Claxton, of York University

At the moment, prices are determined by the Pharmaceutical Price Regulation Scheme, which allows companies to set their own prices within broad profit constraints.

The OFT suggested a move to value-based pricing could save 500m, although it did not fully establish how cost-effectiveness should be measured.

But Professor Claxton said: "Under the new scheme, the NHS will only take on technologies if they are cost-effective - that means the health benefits of using the technology must be greater than health displaced elsewhere in the NHS..

"This will provide a powerful incentive for companies to concentrate on cost-effective delivery when they develop new therapies."

'Fears unfounded'

But he said such an approach could actually lead to an increase in the drugs bill as companies try to produce treatments they get more money for.

Professor Claxton added a system of safeguards should be built into the system whereby industry compensates the NHS if the drugs bill goes over an agreed limit, while the health service hands money back if revenue drops below a set amount.

The OFT declined to comment on the claims, but the Association of the British Pharmaceutical Industry said they were logical.

A spokeswoman said: "We are not opposed to the system that is being proposed, it is just how it works in practice.

"Current measures of cost-effectiveness do not take into account the impact of things such as a benefit of a person returning to work or not needing social care.

"We are keen to see how the government responds to this."

The government is expected to respond formally to the proposed value-based pricing system in the coming weeks.

But a spokeswoman for the Department of Health said: "The government is looking carefully at how to maintain and accelerate the flow of life saving, effective drugs on to the market, at a fair price for the NHS, that also rewards the innovation of pharmaceutical companies.

"We have been listening carefully to a wide range of views and will publish our response later in the year."

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