Do generics offer significant savings to the UK National Health Service?

BACKGROUND The UK has traditionally had strong proxy demand-side measures favouring generic drug use, including prescribing guidance, financial incentives and encouraging generic prescribing. At distribution level, pharmacies are paid a salary for their dispensing work, based on volume dispensed, and procure generic products on the basis of discounts given to them by manufacturers or wholesalers. The supply-side has been subject to price regulation, and the recent requirement for manufacturers/wholesalers to report prices net of discounts to the DoH, indicate that reimbursed prices for generics may be higher than commodity level. OBJECTIVES To investigate the level of discounts off the Drug Tariff Price made available to pharmacies and, determine whether the NHS could have a better deal than currently from generic drug purchasing. DATA AND METHODS Data on net prices were acquired for different presentations of 12 generic molecules selected across different therapeutic categories and included in the 50 most selling generic prescription only products in the UK in the first quarter of 2005. For these products, 31 out of a possible 34 presentations (90%) were surveyed. The data sources were price lists of three leading full-line wholesalers (one national, two regional), out of a possible 11 full-line wholesalers (27.2%), and three leading generic drug manufacturers, out of a possible 15 manufacturers (20%). RESULTS Generic prescribing in the selected molecules was 94.6%, above the national average of 80%, and the total net ingredient cost (NIC) was 675 million pounds, of which 607.5 million pounds (90%) was generic. In 20 of the product presentations reviewed (64.5%), maximum discounts exceeded 60%, whereas in seven (22.6%) maximum discounts ranged between 50 and 60% off the Drug Tariff Price. Reimbursed prices for leading generic molecules are significantly higher than their pharmacy acquisition cost. CONCLUSIONS The NHS is reimbursing generics at too high prices and a significant proportion of the reimbursed price accrues to the distribution chain in a fashion that resembles an indirect subsidy. The NHS can improve efficiency as well as increase savings, by purchasing generics closer to their market price. This would require changes in the way pharmacies are reimbursed, for instance, by changing the way the clawback is calculated, or altogether abolishing discounts and introducing a fixed dispensing fee; it could also mean introducing transparency in the determination of Drug Tariff prices by the relevant stakeholders. As the cost per generic script is, in the majority of cases, below the dispensing fee, the current reimbursement system for generics results in a re-distribution from patients and the NHS to the retail distribution chain.