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Trying to save pennies on the cost of medicines is costing the UK taxpayer pounds, says the Company Chemists’ Association in a new report looking at the impact of Government pricing policies on medicines shortages.

The Government’s two pricing schemes for medicines have seen prices squeezed so much that the UK market is no longer attractive to many manufacturers and suppliers, says the CCA. 

This affects the UK economy as well as access to medicines. “Ultra-low prices” lead to medicines shortages and then, “as demand outstrips supply, prices soar causing a huge overspend to the NHS”.

The CCA is calling for an end to the “false economy” of the Government’s medicines pricing policy. It wants a “review of the prices set for medicines so that the UK can compete effectively in the global market” and to “ensure the correct incentives are in place to encourage cost effective procurement”.

It also argues that it is becoming apparent that many shortages are not caused by unforeseeable events in the global supply chain. They are created by the continued squeeze on Drug Tariff prices.

Medicines represent the second highest proportion of NHS spend, worth £20.6 billion in England in the 2023 to 2024 financial year, £14.4 billion of which was on branded medicines.

The annual cost of medicines dispensed by community pharmacies also continues to rise and in 2023/24 totalled £9.5 billion. Advances in medicines, and a growing and ageing population are some of the factors contributing to this, says the CCA.

“Most of the medicines used in the UK are imported from around the world. Some shortages are an inevitable reality of global supply chains,” says the Association, but “UK government policies and decision making has led to a ‘perfect storm’ creating a level of shortages not seen before.”

Margins static

Turning to pharmacy purchase of medicines, the CCA points out that the core value of retained margin has remained static since 2014. This is despite a nearly 14 per cent growth in the number of medicines dispensed by community pharmacies.

“The amount of margin now available per medicine is 12 per cent less than it was a decade ago. This is before inflationary growth in pricing and costs are considered. Accounting for inflation and increased volume of medicines, retained margin had a shortfall of £357m (45 per cent) in 2023/24 alone,” the CCA argues.

Underfunding of retained margin and low reimbursement prices are just two of the factors that have contributed to a net loss of 1,250 pharmacies between March 2017 and September 2024, the CCA says.

The retained margin mechanism incentivises community pharmacies to buy medicines at the lowest possible price for the NHS, the CCA points out, and pharmacies save the NHS on average £750 million each year by efficient procurement.

“This model of procurement can only work if there is the headroom to cut prices. If a medicine’s price reaches a point where bringing it to the UK market risks a financial loss, the UK risks becoming unattractive. At this point the model comes under too much pressure, and it is not possible to deliver savings to the NHS,” the report continues.

“Drug Tariff prices are now so low that other national markets are being prioritised for supply ahead of the UK. This directly impacts the availability of medicines for the NHS, and patients’ access to medicines.”

Market forces mean that a shortage of a medicine leads to increases in the price. This often means that the Drug Tariff price is much lower than the price set by market forces. The number of medicines being dispensed at a loss to the pharmacy has reached a point of being unsustainable, the CCA says.

“The number of price concessions has grown significantly in recent years. In the last 10 years, from 2014/15 to 2023/24, the number of price concessions has risen from 195 to 1,640 per year; an increase of over 740 per cent.”

Ezetimibe travails

The CCA uses the example of ezetimibe to illustrate the financial burden of cost concessions. Ezetimibe 10mg tablets were listed as the medicine costing the NHS the most money in price concessions for the first four months of 2024 even though a relatively low number of patients receive prescriptions for this medicine.

“Open Prescribing have estimated the cost of ezetimibe 10mg tablets to the NHS during this period as over £19 million. This is eight times the normal value, meaning price concessions for just one drug added additional costs to the NHS of almost £17 million in just four months,” says the CCA.

The report also looks at the consequences of cutting the Tariff price of atorvastatin 20mg tablets. During a 16-month period between January 2022 and April 2023, the Government reduced the rate it paid for 28 x 20mg tablets from an average of £1.27 to £0.92, the CCA says.

At least one major manufacturer stopped selling to the UK during this time. This led to a market shortage followed by a price concession. “Reducing the price of atorvastatin by an average of 35p per pack (just over 27 per cent) saved the NHS £7.2m over 16 months (January 2022 to April 2023). However, it cost an additional £24.5m during the 8-month price concession period.”

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Immediate changes proposed

The CCA concludes that the UK market is no longer attractive to international suppliers, and there is not sufficient margin available to reward effective buying. Whilst a complete review of the supply chain is required, two changes can improve the situation immediately, it says:

• Invest in Drug Tariff pricing – avoid ultra-low pricing to make the UK market more attractive to global manufacturers and suppliers

• Increase the retained margin for community pharmacies – by increasing the retained margin, effective buying by pharmacies would be incentivised, giving the NHS the best value possible.

The report comes as the Department of Health and Social Care has proposed amending the legislation setting out the statutory scheme for branded medicine pricing.

The statutory scheme is one of two schemes, alongside the 2024 voluntary scheme for branded medicines pricing, access and growth (VPAG), that control the costs of branded medicines to the NHS. VPAG replaced the 2019 voluntary scheme for branded medicines pricing, which expired at the end of 2023.

Reaction

Responding to the report, Nick Kaye, NPA chair, agreed about the need for an end-to-end review of the medicines supply chain. “Fundamentally there is not enough money in the UK system to sustain a functioning system of medicines supply,” he said.

“Our complicated drug tariff arrangements may once have made sense in theory, but in practice this is no longer fit for purpose and is squeezing the lifeblood out of independent pharmacies.”

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