Generic prescribing: time to regulate the market?

Successive governments have promoted the prescribing of drugs by generic rather than by proprietary name as a means of maintaining clinical quality while containing costs. The rate of generic prescribing is now 69%¹ and is one of the measures used for assessing performance in primary care.² The past year has seen a dramatic increase in the cost of generic medicines. As well as burdening the NHS with increased costs, these price rises threaten to undermine the development of primary care groups and suggest that the market for generic drugs can no longer remain unregulated.

Drugs prescribed generically may be dispensed as either a branded product (about 7%) or a lower cost non-branded one (62%). The price paid by the NHS to community pharmacists and dispensing doctors for most generically dispensed drugs is set out in the Drug Tariff³ and based on prices charged by a range of suppliers. The market for generic medicines is not regulated, as it was thought that market forces would keep their prices down. In the past year there have been dramatic prices rises in many generic medicines and shortages of some important medicines, such as metformin. The reasons for this are not clear. One generic manufacturer lost its licence to manufacture because of poor quality control,⁴ though this company supplied only about 10% of the market. At the same time other manufacturers were moving their plants overseas and seemed unable to fill the resulting gap. Many manufacturers were moving from bulk packs to individual patient packs in accordance with European Union regulations.⁵ This has increased costs while sometimes disrupting production. The Department of Health was working with the industry to manage a gradual transition but abandoned this a year ago, allowing market forces to dictate the pace of change.

The result has been shortages of products (particularly affecting independent pharmacists and dispensing doctors); variation in the form of medication dispensed; and price rises. For instance, the Drug Tariff price of thyroxine 100 μg tablets has increased by 700% and that of frusemide by 765% in the past 12 months. In one health authority the predicted extra cost of generic drugs is £2m ($3.2m) on an annual total spend of £38m ($61m). If these figures are replicated across England the annual national drug bill would rise by about £250m ($400m).

When a supply of a product at Drug Tariff prices is difficult the medicine may be listed as a category D drug, which allows pharmacists to supply a branded product against a generic prescription and claim for the branded cost. The list of category D products expanded from four in May 1998 to 192 in November 1999, including many of the commonest drugs. This not only increases the cost of these medicines; it also affects the Prescription Pricing Authority, responsible for paying pharmacists and providing prescribing data. Category D prescriptions must be priced manually, rather than by computer, so feedback of prescribing data has been delayed. This creates difficulties for health authorities and primary care groups in tracking financial out-turns.

Late last year the House of Commons Health Select Committee issued its initial report on these problems.⁶ It questions manufacturers' accounts of the origins of the problems and notes evidence of price rises in products that have remained in bulk packs and of prices staying high even though production has apparently returned to previous levels. The report quotes Department of Health evidence of stockpiling and price manipulation, though by whom is not clear. The report also criticises the government for failing to manage the transition to patient packs, which left the industry in a position to manipulate the market, and for not acting sooner on the problems, which were identified by the Prescription Pricing Authority in March 1999. It also criticises the mechanisms for setting Drug Tariff prices and category D listing for being open to manipulation.

The select committee urges reform in the generic market, the Office of Fair Trading has instituted an investigation of possible anticompetitive practices, and the Department of Health has commissioned a review. Clearly the old philosophy that market forces would keep generic costs down has failed. New responses might include tighter regulation of the generic market, formal fixed or reference pricing of generic drugs, or NHS bulk purchase and supply of commonly used medicines (as already practised in hospitals).

The implications of the price rises extend beyond prescribing. Primary care groups are in their first year and have a single budget for all their costs. They have little development money, but many have vigorously addressed prescribing, hoping to release money to provide new services. The price rises in generic products may mean that this will not now be achieved. Advice from the NHS Executive is that current levels of service must not be cut, and that primary care groups will have to find the money from other parts of their budget. The minister for health initially stated that no further funding would be made available to meet the increased prescribing costs, but after publication of the select committee report he announced a further £90m specifically to fund generic price increases.

This will provide some relief for many primary care groups, who have been struggling to prove themselves, both professionally and politically.⁷ Many doctors are unconvinced of the benefits of the recent reforms, and saw the threats to prescribing budgets as confirmation of their worst fears. Despite the new funding, there will still be little ability to free resources for new services. This will demoralise the most enthusiastic supporters of the reforms and may delay progression to primary care trust status, upsetting government plans for the development of the health service. Despite these problems, generic prescribing should still be encouraged both for quality and cost effectiveness of prescribing, but it can no longer be relied on to free cash for future service developments.