The goals of the PPRS

The agreed goals of the PPRS are to:

• secure the provision of safe and effective medicines for the NHS at reasonable prices;
• promote a strong and profitable pharmaceutical industry capable of such sustained research and development expenditure as should lead to the future availability of new and improved medicines;
• encourage the efficient and competitive development and supply of medicines to pharmaceutical markets in this and other countries.

In essence, the PPRS operates by restricting each company's profit to a target Return on Capital employed (ROC), after taking into account a series of allowances for expenses including research, marketing and administration. But no profits are guaranteed and there are tight restrictions on the circumstances in which medicine prices can be increased.

The development of the PPRS The transformation of the original Voluntary Price Regulation Scheme - first agreed in 1957 - into the modern PPRS began during Labour's 1960s administration. An Inquiry chaired by Lord Sainsbury established the principle of limiting the profits made on NHS medicines by identifying the relevant capital employed, restricting the associated costs and limiting the allowable return. It remained a negotiated agreement between the ABPI and the Health Department, rather than a statutory arrangement. Subsequent versions of the PPRS introduced progressively more sophisticated ways of regulating promotional spending and other costs, including those incurred outside the UK in relation to the production of NHS medicines. In the early 1990s the Scheme was further modified to exclude the supply of generic medicines. This shift reflected NHS developments such as GP fundholding, and the creation of enhanced financial incentives for prescribers, practices and hospitals to minimise medicine costs. The 1999 agreement was concluded against the background of new legislation. The Health Act 1999 gave the Government reserve powers to intervene - if and when necessary - independently of the PPRS to control NHS pharmaceutical prices and profits.

International pharmaceutical R&D expenditure 1996 -
click for larger

Source: ABPI

Notes:

Japan, Austria, and Ireland are 1996 figures.

Pharmaceutical consumption includes prescription medicines, OTCs, sales tax/VAT and pharmacists' remuneration.

Hospital medicines are excluded. They account for about 20% of all UK medicine spending, and a higher proportion in most other countries.