§ The Minister of Health (Mr. Kenneth Robinson)I will, with permission, make a statement about the recommendations of the Committee under the chairmanship of Lord Sainsbury which inquired into the relationship of the pharmaceutical industry with the National Health Service. I apologise for the length of the statement.
This relationship is very different from the normal relation between industry and the Government as purchasers. The Health Departments do not determine the demand for the drugs paid for under the Service, since decisions as to what to prescribe rest with individual doctors. The hospital service apart, there is no contractual relationship with drug suppliers. Successive Governments have 44 been concerned about these problems and the associated issues of prices, sales promotion, research costs and patents, and we are greatly indebted to the Committee for its authoritative and balanced Report.
Many of its detailed recommendations related to the establishment and functions of a Medicines Commission, and our conclusions on nearly all of them have been announced during the proceedings on the Medicines Bill. The exception is the recommendations that responsibility for classification of drugs according to their efficacy should pass from the Macgregor Committee to the Medicines Commission, and that there should be a British Classification of Medicines. The Bill in its present form would enable these recommendations to be implemented, but the Government wish to consult the Commission before reaching a final decision on them.
We doubt the need for a separate Economic Development Committee for the pharmaceutical industry, as the Sainsbury Committee recommended, but propose instead to invite the Chemicals Economic Development Committee, on which the pharmaceutical industry is already represented, to establish a separate working party for the industry.
As the Committee suggested, certain patent questions have been drawn to the attention of the Committee on the British Patent System and Patent Law. The extension of the Crown use provision of the Patents Act to the general medical and pharmaceutical services, on which the Sainsbury Committee made a specific recommendation, will be considered further by the House during the passage of the Health Services and Public Health Bill.
As regards prices and profits, the Government accept the Committee's general conclusions that there are serious weaknesses in the present voluntary scheme for regulating prices of ethical proprietary medicines, and that the conditions under which these medicines are supplied to the National Health Service do not always ensure that prices and profits are reasonable.
The Committee recommended that prices should in future be regulated by a system of direct negotiation, based on 45 standard cost returns for individual products, and related to annual financial returns for each company showing the results of trading with the National Health Service. It envisaged that such a system would involve considerable addition to the Ministry's staff and recognised that it would be for the Government to decide whether this was the best use of additional Civil Service manpower.
There are practical considerations which would make it difficult to negotiate prices on a basis of standard cost returns, but, in any event, shortage of manpower would be a major obstacle at the present time. The industry is, however, willing to co-operate in alternative arrangements based on the annual financial return also recommended by the Sainsbury Committee, under which information, in far greater detail than hitherto, would be provided by individual firms about the overall costs and profitability of their business with the National Health Service, as the basis for price negotiations.
Subject to agreement on detail, we would accept a revised voluntary price regulation scheme on these lines, running perhaps for a minimum of three years. Although we reserve the right to reopen the question of Standard Cost Returns for individual products, the industry will have a chance to demonstrate that these new arrangements can safeguard the public interest.
The Committee also recommended that there should be no brand names for new pharmaceutical products. We share the Committee's view that there are disadvantages in the use of brand names in association with heavy sales promotion expenditure, but we believe that the abolition of brand names by Britain in isolation could well have more serious economic consequences than the Committee envisaged, and would in particular be likely to put British-based firms at a disadvantage in export markets.
Any amendment of the trade mark law also needs to take account of our international obligations. Before reaching final conclusions on where the balance of advantage lies, we propose to explore other possible ways of achieving the Committee's objectives, in particular, through greater restraint in sales promotion.
Present sales promotion involves a good deal of waste and total expenditure is 46 higher than is necessary for the main objective as far as the National Health Service is concerned, namely, informing doctors about available medicines. We accept that the industry should have a reasonable degree of freedom in promoting its products to doctors, but we shall expect a very substantial reduction in the amount of promotional expenditure, particularly that which is taken into account in assessing a firm's costs and profits under the revised price regulation scheme.
There will need to be further negotiations on this and other matters, but I am confident that the decisions taken by the Government will go far to remedy the weaknesses identified by the Sainsbury Committee.
§ Mr. Maurice MacmillanIs the Minister aware that we heard his statement with relief, indeed, in some places with approval, especially his decision not to abolish brand names in view of their importance in the export market and our agreements with other countries? Is he further aware that we do not altogether accept his link between brand names and promotion? I would like to ask him four specific questions.
First, with regard to the transfer of functions from the Macgregor Committee to the Medicines Commission, can he assure the House now that this in no way alters his previous assurances that the Medicines Commission will consider only relative safety, and not relative efficacy, when it comes to the issue of licences, and in no way can be used in the future to limit the doctor's right to prescribe or the chemist's right to fulfil those prescriptions?
Second, the right hon. Gentleman referred to the arrangements based on annual financial returns which, I understand, are to be voluntary. Am I right in assuming that they will give him information about the proportion of turnover to profits that the industry gets from its sales to the Health Service?
Third, when he comes to consider prices, can he give the House an assurance that he will bear in mind that an innovating industry based on research, like the pharmaceutical industry, requires a relatively high proportion of working capital to turnover, particularly if it is to expand successfully?
47 Lastly, on the question of patent rights, can he tell the House when the Banks Committee is likely to report and whether he will not consider postponing the question of patent rights from the further stages of the Health Services and Public Health Bill until the legislation on patent rights generally, which is foreshadowed by that Committee?
§ Mr. RobinsonI am grateful to the hon. Gentleman for his opening remarks. If I may take his points in order, certainly, the decision about the Macgregor Committee and the Medicines Commission in no way qualifies the assurances that I have given during the course of the Medicines Bill about comparative efficacy and licensing, or about the doctor's right to prescribe.
The annual financial returns will give us a great deal more information than we have had in the past. We have in mind that the information will be based on that which was obtained by the Sains-bury Committee as a result of its questionnaire to the individual companies in the industry.
Of course, I take the hon. Gentleman's point about research, as did the Sains-bury Committee. One recognises the importance of research to the industry, but I do not think that the necessity for research need justify some levels of profit which have been earned by certain companies in the past.
Lastly, on the Banks Committee, I understand that the Committee will not report until next year, but the Sainsbury Committee's recommendation about Section 46 of the Patents Act was as I said in my statement, a specific recommendation which it did not recommend should be referred to the Banks Committee, and we shall have to await the return of that Bill to the House from another place.
§ Dr. SummerskillWill not my right hon. Friend agree that it would appear that the Government have succumbed to strong pressure from the drug firms in that they have rejected the clear recommendations of the Sainsbury Committee to abolish all brand names and introduce specific measures to reduce prices?
§ Mr. RobinsonOn the last of my hon. Friend's two points, we are introducing quite specific measures with the 48 express purpose of reducing the prices of phamaceutical products to the Health Service.
On the question of brand names, my hon. Friend may be under a slight misapprehension. I would refer her to what the Sainsbury Committee said in its recommendation about brand names. It said only that abolition would perhaps tend to reduce the cost of medicines. The Committee's main argument was that brand names tended to extend the monopoly position beyond the period of the patent. Since the proposal was made only in relation to new drugs, it ought to be clear to my hon. Friend and the House that even had this recommendation been accepted the advantages to the Health Service would only begin to accrue after 16 years.
§ Mr. Dudley SmithIs the Minister aware that, far from what was said by the hon. Member for Halifax (Dr. Summerskill), the retention of brand names will keep British pharmaceutical products very competitive in world markets? Is he further aware that any drastic reduction in promotional costs could be damaging to the need to get vital information across to doctors and to the industry in the way of stopping the introduction of important new drugs?
§ Mr. RobinsonI have accepted that it is important that information should be conveyed to doctors, but I have also indicated that the general level of promotional expenditure in the past has gone far beyond discharging that necessity.
§ Dr. John DunwoodyWould my right hon. Friend agree that the use of a single accepted name for each pharmaceutical product has enormous advantages in the teaching and practice of medicine? As for exports, does he not agree that some of the most successful of our exports, like insulin, do not carry branded names and that many of those that do carry different names abroad from those by which they are known here? When he looks further at this, would he pay a little less regard to the views of the drug industry and a little more to those of other interested bodies?
§ Mr. RobinsonWe have considered a whole range of views on this. I think that my hon. Friend underestimates the possible adverse effects that this would 49 have in the export market. But certainly from the point of view of the costs of the National Health Service I would stress once again that there could have been no immediate benefit from acceptance of this recommendation, even if we had thought it desirable on other grounds.
§ Mr. CrouchI note the Minister's statement about his attitude towards patent law and the question of drugs, because I am concerned about the possible withdrawal of patent protection to the holders of such patents for such inventions. Does he not consider that the application of Section 46 of the Patents Act is a rather blunt instrument to deal with the problem which he faces, and, instead, would not a system of arbitration be a belter solution than the application of such a blunt instrument?
§ Mr. RobinsonI am not sure how blunt the instrument is, but I have always made it clear that it is an instrument of last resort. There are grave difficulties in the way of the kind of solution that he suggests. I would remind him that what this House did on the Health Services and Public Health Bill was not to establish any new principle of any kind. The principle was established. All that we did was what Sainsbury thought logical, and on which I agree, and that is to extend the protection that the Crown has at the moment for the hospital service to the general medical and pharmaceutical services.
§ Mr. PavittIs my right hon. Friend aware that he has gained the approval of right hon. and hon. Gentlemen opposite at the expense of the disapproval of a number of hon. Members on this side of the House? By his rejection of the eight key points on standard cost returns in place of a voluntary system, the Association of British Pharmaceutical Industry has had more influence on him than his hon. Friends.
Is my right hon. Friend further aware that we would like an early debate to consider whether the refusal to appoint a separate "Little Neddy" and merely having a working party is not inadequate? Will he look further at the whole question of brand names, because this is the kind of point where the Sainsbury Committee has made a moderate and mild recommendation which he has seen fit to reject?
§ Mr. SpeakerOrder. A long supplementary question cuts out someone else.
§ Mr. RobinsonWhen my hon. Friend says that the Sainsbury Committee had a very mild recommendation on brand names, I would agree with him. The Sainsbury Committee did not claim that very much financial benefit would follow acceptance of its recommendation.
On the question of standard cost returns, I would ask my hon. Friend to read again what the Committee said. It suggested that the additional staff that would be required for this would perhaps amount to a whole division in the Ministry. It is clear that at a time when we are holding back Civil Service manpower it would be quite impossible to increase the staff of my Department to that extent.
Further, there are grave practical difficulties about treating these matters on the basis of standard cost returns for individual products. But I am sure that the annual financial returns will equalise the negotiating positions of the two sides in future price negotiations. I do not think that the Sainsbury Committee suggested that anything should be imposed on the industry if agreement could be reached.
§ Mr. FortescueThe Minister said that his Department would expect substantial reductions in promotional expenditure on medicines. Could he assure the House that that does not mean that the Ministry will interfere directly in the marketing policies of pharmaceutical companies?
§ Mr. RobinsonNo. This is not direct interference. By this statement, we have put the industry on notice that we shall expect substantial reductions in promotional expenditure, and, in particular, in the levels of promotional expenditure which are allowed for in National Health Service drug prices.
§ Mr. WhitakerWhat figure does my right hon. Friend consider a reasonable rate of return of profit on drugs? Second, in view of the fact that the prescription of brand names in place of cheaper non-proprietary equivalents has cost the country several million pounds unnecessarily since the war, what new measures is my right hon. Friend taking to prevent this abuse?
§ Mr. RobinsonOn reflection, I am sure that my hon. Friend would not expect me to suggest a particular figure as a reasonable level of profit—
§ An Hon. Member: Why not?
§ Mr. Robinson—for the entire industry, because different circumstances may require different degrees of reasonableness. As for brand names, I understand that my hon. Friend is suggesting that there might be considerable savings if we were to have unbranded exact equivalents prescribed in all circumstances. I have answered Questions to hon. Members and, I think, to my hon. Friend showing that that is not the case and that the amount of savings if exact equivalent non-proprietary versions were prescribed by doctors, would be only about £1 million a year.
§ Mr. WhitakerBut why not save that amount?
§ Lord BalnielIs the Minister aware that we feel that in the interests both of the industry and of National Health Service he is right to resist proposals to place the industry in a stricter framework of Government control? In particular, may I assure him that we welcome his decision to proceed with a modified voluntary price regulation scheme instead of the proposed standard cost returns scheme, because that would stifle initiative and hinder efficiency in the industry.
§ Mr. RobinsonI am quite sure that as a result of the Sainsbury Committee's investigation of the industry we shall have a more satisfactory voluntary price regulation scheme in future than we had had in the past.
§ Mr. SpeakerOrder. We must get on with today's business.