The United Kingdom uses a variety of different methods to control drug costs. The primary method is through regulation of manufacturer profits. The Pharmaceutical Price Regulation Scheme (PPRS) regulates the rate of return on capital attributable to pharmaceutical sales in Britain. The government and the Association of the British Pharmaceutical Industry (ABPI) negotiate a target rate of return for each company based on brand-drug sales to the national health plan, known as the National Health Service (NHS). To reach the target rate (currently between 17 to 21 percent), the amount of research and development (including promotional expenditures) is set at about 9 percent of sales. Since the PPRS does not regulate prices per se, it permits the company significant flexibility in the launch price of new products. Once a product is marketed, any subsequent price increases require prior NHS authorization. In the event a manufacturer surpasses the target profit rate, it is permitted a 25 percent margin above the target rate, called the “gray area”. If the company earns more than the permitted "gray area” it must provide either reimbursement to the NHS or reduce the price. The PPRS does not address the pricing of generic products or products not reimbursed by the NHS (Lecomte and Paris 1998; Towse 1996; Bloom and van Reenen 1999; Burstall 1997; Burstall 1999).
Most prescription drugs available in the UK market are eligible for reimbursement from the NHS, but a few are included on a “Selected List” that prohibits government payment. Most drugs covered by the NHS are provided free of patient charge. Copayments are charged to certain segments of the population but more than half of all individuals are exempt. In all, only about 12 percent of prescriptions filled in the UK require a copayment, and for this reason copays contribute little in cost savings to the NHS drug budget (Towse 1996; Burstall 1997; Freemantle and Bloor 1996).
Another policy used in Britain to control drug spending targets doctors' prescribing of drugs (Towse 1996; Burstall 1997; Freemantle and Blood 1996). The NHS has introduced the Prescribing Analysis and Cost Information System (PACI) in an attempt to alter physician-prescribing patterns. This policy allows physicians to compare their prescriptions with a “theoretical” practice of patients with similar demographic characteristics. The practice guidelines are reported monthly. The PACT data have recently started to include price information on generics in order to encourage their use. Britain has also introduced voluntary drug budgets for general practitioners, called general fund holding practices.
Although the latest reforms in drug cost control in the UK have yet to be evaluated, the combination of control mechanisms is generally considered to have contributed to the fact that Britain has the lowest level of pharmaceutical expenditures per capita among the G7 nations (Burstall 1997).
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