Charging Drug Firms – NICE Proposals Could Make Markets Less Effective

What should public procurement be trying to do? Simply acquire the right goods and services needed to keep government running? Support wider specific policy objectives, such as getting the long-term unemployed back into work? Or contribute to economic success, growth and wealth creation for the nation? Perhaps the answer is "all of the above".

The last of those goals may seem like a bold aim but in fact government procurement plays a major role in the wider economy, whether it likes it or not. In the UK, government "procurement expenditure" accounts for around 15% of total GDP. That is not an unusual situation in developed nations, and is therefore a vital part of the overall economic picture.

Governments have recognised this to some extent in countries such as the UK and we have seen a number of initiatives, some successful, some less so, that try and encourage a wider economic effect; such as the target to use more smaller firms in the public sector supply chain. But it sometimes does look like there is a lack of joined up thinking when it comes to the unforeseen consequences of other policy decisions.

For instance, a recent report suggested that NICE - the body that approves new pharmaceutical products which can then be prescribed and used by the National Health Service - is going to start charging drug and medical products firms to test and approve their products. it is easy to understand why this suggestion has been made; government expenditure generally is under pressure, the country is short of money, so if part of the government is spending money on activities that ultimately benefit the drug firms, then isn't that reasonable? Here is the National Health Executive  website:

Pharmaceutical companies could face charges of up to £282,000 to have their medicines considered for use on the NHS, according to reports.

Proposals seen by the Sunday Times suggest that NICE, the body responsible for assessing new treatments for use on the NHS, is considering implementing charges of £99,000 - £282,000 for assessments, which companies will have to pay whether the bid is successful or not.

The problem is that this move would create another barrier to entry for smaller, younger firms and may actually work against innovation and support the creation of oligopolies and monopolies, which we can all agree would not be a good outcome. For a Glaxo or Roche, paying a couple of hundred thousand to have a drug tested and approved is nothing - a rounding error in their overall budget and finances. But for a smaller firm, it places another significant financial burden onto the business.

It is not an easy industry for start-ups anyway. The regulatory regime, whilst understandable from a consumer and patient protection standpoint, is another barrier or set of barriers in its own right. Yet the more difficult and expensive we make it for new drugs and new firms to get established, the more market power will be concentrated in the hands of the few giant firms.

This is what we mean by unintended consequences. We're not sure how far the remit of Gareth Rhys Williams (the UK government's Chef Commercial Officer) extends, but this seems like the sort of issue that he might want to take a look at - given that this move would certainly have commercial ramifications. One alternative suggestion is that the fee should in some way be linked to the size of the firm - that seems an option worth considering. Or maybe smaller firms could have a delayed payment scheme, perhaps  for a couple of years, so they have time to earn some money from the product before they pay NICE.

Anyway, we hope there might be some serious thinking here about markets and competition. As we said earlier, those issues lie at the heart of how the taxpayer and citizen can ultimately get value for money from supply markets.

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  1. RJ:

    Great idea! And while we’re at it let’s charge them to bid for responding to any tenders and get them to provide signing bonuses for any new contracts and get them to fund all expenses paid “conferences” for GPs to attend (oh, sorry, they already do that one). All playing into the hands of big pharma by the sound of it and don’t they realise that even if this is just a rounding error, it still gets built into the ultimate selling price of the drugs they buy.

    I do stand up for NICE in personal conversations as their job is nigh on impossible (having to weight cost/benefit decisions based around people’s quality of life or right to life itself is much tougher than anything I’ve ever had to manage in my professional life) but this sounds on the face of it a very short-term and relatively insignificant commercial proposal.

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