Pharma use loophole to hike up the price of drugs – so why doesn’t the NHS stop it?
30 October 2015
30 October 2015
We should be asking what a recent expose of drug price rises tells us about how health is being managed in the UK, argues Chris Ford.
A recent Sunday Times expose of drug price rises in the NHS revealed that drug companies were exploiting a loophole that allowed them to charge up to 2,358% more for medicines through a process called “debranding”. Because the NHS has strict rules governing how much it will pay for branded drugs, some pharma companies were able to charge more by essentially re-categorising them.
The report suggested that, among other examples, phenytoin sodium capsules, used to treat epilepsy, had gone from costing the NHS £2.3m before it was debranded to just over £50m in 2013.
The finger of blame was pointed at the usual villain – the pharmaceutical industry. But while drug companies might be to blame for finding loopholes in price-capping rules, the question we should be asking is: what does this tell us about how health is being managed in the UK?
Most Britons seem to love the NHS, we admire doctors and nurses, but mistrust “hospital managers” and “profiteering agencies” and “drug companies” because they’re so often positioned as the parasites who feed off the wonderful health system that we all pay so much for in taxes – they’re in it for the profits, not the patients, and therefore must be morally bankrupt. So whenever a story like this breaks, it’s the pharma companies that take the hit, whether that story is in the UK or the US, where Martin Shkreli became pariah number one for raising the cost of a drug he bought the rights to by 50-fold.
But why do we expect profit-oriented companies, who have shareholders (generally our pension funds) that naturally expect a return on their investments, to do anything other than play the system?
My colleague, Igor Goncharov, has clearly shown through his research that these pharma companies do not systematically make excessive profits and their performance is, in fact, on a par with other industry sectors. To be successful requires significant investment, however, and Pfizer (one of the companies in the Sunday Times) spent over US$8bn on R&D in the last 12 months. They are not a charity - this investment has to be financially worthwhile.
So, health ethics aside, these companies do the right thing for their investors by making sure these profits are sustained, and that means finding ways to make money where they can. Every person who has been on a basic business course knows about the BCG Matrix – you need your “cash cows” to invest in your rising “stars” and problematic “question marks”.
What is so much more worrying is that while pharma are accused of milking the taxpayer, none of the people we pay to manage our health system seemed to notice, or if they did, apparently no action was taken. It even took a pharma insider to bring it to the attention of the Department of Health. So why are we not blaming the custodians of our precious health service for their role in this scandal? Perhaps because the structure of the NHS makes it exceptionally difficult to figure out who this is.
The high prices the NHS paid for the drugs in question were all laid out in the Electronic Drug Tariff, and the secretary of state for health has sole determining authority for these prices. This means that the hospitals, surgeries and clinics prescribing the medicines have no direct influence over the price paid, and the full cost is simply passed on to the people who commission their services – most frequently that means the newly-formed GP-led clinical commissioning groups (CCGs).
But these CCGs are so new, small, and often inexperienced in management on this scale that they rely on commissioning support units and medicine management teams to advise them. But who is doing the monitoring and performance analysis?
The bizarre way our 212 CCGs came into existence in 2012 means that rather than the normal hierarchy of firms that you get in an extensive system, where they get progressively larger and more capable of handling large-scale bureaucracy as you go up the chain, CCGs are tiny in comparison to the trusts that report in to them. And once formed, they are subject to weak accountability, with no significant scrutiny or performance management from NHS England, who acts to create them. They serve “the people”, so they are accountable to everyone and no-one at the same time.
From the many interviews I’ve carried out in my research, some CCGs appear to be great, some terrible, some sit in between. But because they’re “only” acting as managers, a step removed from the front line of health that we focus on so much in the media, we seem to have no interest in their failings.
No savvy politician wants to get involved either, it seems, as the government created a whole structure that tries to prevent accountability from flowing up to them. When a health system has a predicted £30 billion hole about to appear in it by 2020, you want to be as far away from the decision making as possible when financial trade-offs have to be made between which groups get care, and which do not. We’ve already seen over five years of 4% real-terms “mandatory efficiency savings” imposed on mental health contracts, forcing many trusts to strip out layer upon layer of management, rely increasingly on agency staff, and reduce investment in the face of shortening contract terms.
For me, the price revelations are a fortunate warning, if it is to be heeded by the press, the public, and politicians. It is a warning that management control systems in NHS trusts and CCGs are overstretched, at best, and close to breaking point at worst. Any system that fails to pick up on, report, and follow up such a major shift in prices has to be questioned. At least it was a financial, rather than care-related, failing that the investigation exposed.
Any business owner or manager faced with the figures in the Sunday Times must have been shouting at the paper “how on earth didn’t they spot that?” If you were buying a pint of milk and the till screen shows £11.06 instead of 45p (the same percentage rise as reported for Amantadine, an oral drug for Parkinson’s disease) when you reach the checkout – wouldn’t you say something? Do something?
For now, perhaps, we can be thankful about one thing – these under-managed, over-stretched NHS trusts and commissioners appear to be making sure that if they drop a ball, it’s a financial rather than a clinical one. But with chronic, sustained under-investment in staff being cited as key reasons why 15 trusts are now being run in special measures, the monitoring of health performance is more critical than ever. If we cannot trust the commissioners to spot an £11 pint of milk in their basket, will they spot something much more serious and life threatening? We hope, yes, but increasingly we just don’t know.
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Chris Ford receives funding and research support from the European Social Research Council, the International Centre for Research in Accounting Trust, NEMODE (new economic models in the digital economy), and the Institute of Chartered Accountants in England and Wales. He has no organzational or industry affiliations related to research in any aspect of the health economy.
Chris Ford lectures in Accounting and Management, and is Director of Impact and Engagement in the Accounting and Finance Department. He works with the Institute for Chartered Accountants in England and Wales developing links between academia and business, through his governance and advisory role on their Finance and Management Faculty.