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Supply chain could inflate prices, says watchdog

Published on 12/12/07 at 10:14am

The NHS could face steeper prices on drugs due to manufacturers adopting a new restrictive distribution model, according to a report from the Office of Fair Trading.

The competition watchdog's report says the trend towards pharma companies using just one company to distribute medicines to UK pharmacies, first set by Pfizer, could edge out competitors and drive up cost.

In March this year Pfizer launched its single distributor deal with UniChem, saying the move would help to exclude counterfeits from the supply chain.

But rival wholesale companies and community pharmacists both stand to lose out under the system, and the OFT received 482 complaints from pharmacies and doctors about the deal, and began looking into the issue in April 2007.

It concluded the new trend of dealing 'direct to pharmacy' (DTP) could cost the NHS millions, as companies such as AstraZeneca and Eli Lilly indicated they would follow Pfizer's lead.

John Fingleton, OFT chief executive, said: "The changes to the distribution of medicines in the UK are among the most significant for many years and have given rise to real concerns."

Fingleton linked the investigation to the OFT's probe into the PPRS medicines pricing scheme, and said it represented further action to prevent increases in NHS medicines costs.

The OFT's remit also include looking into service levels provided to patients, and it said the government should persuade pharma to adopt minimum standards if it is concerned about a decline in service.

"Our recommendations give manufacturers the freedom to use the distribution models that suit them, while ensuring protection for patients and the NHS," Fingleton said.

The OFT consulted stakeholders from the industry, sent surveys to pharmacies, dispensing doctors, and full-line wholesalers to determine the impact of the distribution changes.

It also considered medicine pricing and distribution systems in other countries, including France, Germany, Sweden and the Netherlands.

But Pfizer's UK managing director John Young said:  "Patient safety is our paramount concern. Our scheme has resulted in increased confidence in the secure supply of Pfizer medicines since its introduction in March 2007 at no additional cost to the NHS."

The OFT also expressed concerns on the efficiency of a distribution system relying on one supplier, but decided not to launch a formal investigation, a sensible move according to Stephen Rose, partner at international law firm Eversheds.

He said: "Instead it will allow new distribution routes to develop and monitor the sector with the prospect of future investigation, if appropriate. A sensible and proportionate outcome."

He predicted the introduction of new distribution schemes by several companies in 2008.

It is the second time the OFT has recommended changes to pharma policy this year - it previously advised scrapping the PPRS in favour of value-based pricing, and the government has yet to decide whether they will follow that guidance.

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