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The True Cost of Price Caps: A Pharmaceutical Time-Bomb?

While the cap might help public spending cuts, it may not augur well for the country’s economic health, says Dr Tony Hockley.

The agreement to cap the NHS drugs bill for branded medicines from 2014 may have consequences for the economy beyond the implied saving. Over the past 15 years the imposition of a price-cut of branded medicines has become the norm every five years, when the pharmaceutical price regulation scheme is re­newed. But the result has been that Britain, from being one of the most supportive European markets for new medicines (at least in terms of price, not usage) has slowly drifted towards the bottom of the league table. Should that trouble us? Do arbitrary price controls affect the location of pharmaceutical innovation?

The Government suggests that it does not. But international evi­dence is to the contrary. The loss of pharmaceutical research cen­tres from England has intensified against the backdrop of cumu­lative price cuts, despite the policy measures to stem such losses. The link between local pricing decisions and inward invest­ment is thereby reinforced.

The price cap on the overall branded medicines drugs bill, how­ever, is a new and much more dangerous step down the same path. For the first two years it will be completely frozen. So, if NHS prescribing exceeds the cap, the pharmaceutical industry will now pay the price by refunding the NHS for any excess it spends.

The consequence will be felt by almost every company. This “clawback” system is similar to that which played a large part in the death of adult NHS dentistry in the 1990s. Then, dentists voted with their feet. The overspend against the cap on dental spending was incurred in providing real treatment to real pa­tients. It was simply that the number of patients had increased, but under the 1990 contract with the NHS, the dentists were obliged to pay the price of this increase in patients accessing care.

The same situation is now faced by the pharmaceutical industry, but the consequences of such a punitive approach could be much more serious for Britain. As traditional manufacturing industries, such as the dockyards, continue to decline the country can ill-afford to drive innovation away. This particular time-bomb may help the public spending figures – and the NHS budget – in the run-up to the General Election, but its impact will come soon af­ter.

*Dr Tony Hockley is Director of the Policy Analysis Centre, and has served as Special Adviser in the Department of Health.

Dr Tony Hockley

Dr Tony Hockley is a Visiting Senior Fellow at the Department of Social Policy at the London School of Economics & Political Science. He is Director of Policy Analysis Centre Ltd and the co-author of Politeia’s Working Systems: Towards Safer NHS Nursing (2014) and A Premium on Patients: Funding the Future NHS (2010).

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