Generic Drugs

HC Deb 17 May 2000 vol 350 cc68-89WH

[Relevant documents: First report from the Health Committee, HC 105 and Government response, CM 4673.]

11 am

Mr. David Hinchliffe (Wakefield)

I am grateful for the opportunity for a brief debate on concerns regarding the cost and availability of generic drugs to the national health service, and on several of the points raised in the report of the Select Committee on Health that was published on 9 December. I express my appreciation to Professor Joe Collier, the Committee's specialist adviser on the inquiry, and to its Clerk, Dr. John Benger, and his excellent staff for their work on the report and their consistent work throughout the Parliament.

In recent years, the Health Committee has resolved to consider briefly some topical issues. Its attention was drawn to concerns on this subject by several hon. Members, especially my hon. Friend the Member for The Wrekin (Mr. Bradley), who might hope to catch your eye this morning, Mr. Deputy Speaker. He was active in expressing worries about what had been brought to his attention in his constituency. I should also mention the South Huddersfield primary care group, which covers two wards in my constituency. Its chairman, Dr. Bill Parker, and its chief executive, Mr. John Roebuck, drew my attention to the implications of the problems facing the group arising from generic drugs. Following representations, the Committee determined to take evidence on 4 November from a range of interested parties, including Government representatives.

Generic drugs are crucial to the national health service's drive to keep prescribing costs down. The performance assessment framework document from the national health service executive, "Quality and Performance in the NHS: High Level Performance Indicators and Clinical Indicators", describes generic prescribing as one of the high level indicators of performance. Generic prescribing grew from 11.5 per cent. of the NHS drugs budget to around 21.7 per cent. in 1997. The average generic prescribing rate for all practices was 63 per cent. by the end of 1998, and the Government have set a target of a 72 per cent. rate by the end of March 2002.

Our inquiry was prompted by a range of reports about huge rises in the costs of generic drugs. I shall give one or two examples, which are set out in more detail in the report. Amoxycillin cost 47p for 28 days' supply in September 1998, but a year later it cost £1.69, an increase of 260 per cent. Thryoxine cost 21p for 28 days' supply in September 1998, but cost £1.62 a year later, an increase of 670 per cent. The worst example which we found was Frusemide, which increased from 26p to £2.14 over the period, an increase of 723 per cent.

The scale of the problem was brought home by an excellent report on BBC 2's "Newsnight" on 19 October. With the co-operation of the BBC, we were fortunate to be provided with the raw data that informed the report, which showed that, of 464 commonly prescribed generic drugs, 132 had increased in price by more than 50 per cent. in the previous 12 months. The impact of that was devastating for health authorities and primary care groups, which were in their first financial year under the new structure. Croydon health authority has told us that any overspend on PCG prescribing budgets will impact on other areas of health services expenditure, because now this budget is cash-limited as part of the PCG unified Hospital and Community Health Service. Many hon. Members have spoken about the local implications of the increases. I met people from the South Huddersfield PCG last Friday; they told me that the projected full-year additional costs to their group were £248,000. To be fair, the Government have so far contributed £153,000 additional allocation to that group, but that high figure shows the extent of the problem. We have received evidence from other primary care groups. Birmingham PCGs anticipate an overspend of £800,000 on their prescribing budget, Manchester PCGs report an overspend of £604,000, even allowing for use of their contingency fund, and West Sussex health authority anticipates a deficit of £750,000.

The health service faced serious problems at a local level in the first year of the new operational PCGs. There was also an impact on individual patients, who had to come to terms with different packages, colours of tablets, dosage instructions and so on. That confused many of them, especially the elderly patients, and, inevitably, a great deal of NHS staff time has been used in explaining the changes to people who might not otherwise have understood them.

There has been no shortage of reasons advanced by different parties for the huge price rises. The generic manufacturers and industry representatives placed most emphasis on two factors. First, Regent GM, one of the largest manufacturers of generic drugs, closed suddenly after the Medicines Control Agency's findings that some of its drugs could have been contaminated by penicillin. At the time, that company had a market share of about 10 per cent. Secondly, there was a move away from bulk dispensing towards patient packs to comply with an EC directive.

Mr. Philip Hammond (Runnymede and Weybridge)

Did the hon. Gentleman's Committee come to any conclusions about the action taken by the Government immediately following the closure of Regent GM? It was easy to anticipate that that closure would have a significant impact on the market for generic drugs.

Mr. Hinchliffe

If the hon. Gentleman will bear with me, I will cover that point. As he knows, we took evidence on that matter, and the report referred to our thoughts on it.

It would appear that, as late as 20 October 1999, the Government accepted the two key reasons for the price rises that had been identified by the industry. That was made clear in a parliamentary answer that day from the Minister of State, Department of Health, my hon. Friend the Member for Barrow and Furness (Mr. Hutton), which gave the impression that those two reasons were central to the Government's understanding of the cause of the problem. The Committee concluded that the supply shock caused by the Regent closure might have been a catalyst for that problem, but could not be called the cause. We noted that it was significant that production levels had returned to normal but that prices had not. Our view, therefore, is that the industry overstated the impact of the Regent closure and that the Government may have been a little naive in accepting it as the major factor for as long as they did.

The patient packs question may be more complex. Government and industry agree that the move caused shortages of some products. In our report, however, we state that some products that were never in shortage underwent huge price hikes. The industry argues that it understood that the Department of Health had agreed a phased and orderly transition to patient packs, and that it had hoped for financial support for that from the Government. The Department of Health strongly rejects that suggestion. Ministers told us that it was "simply not the case" that plans had been agreed for an orderly transition. We felt that we could not take a view on whether the Government should have offered financial support for the transition but that the breakdown of talks had ultimately proved extremely expensive. The PSNC estimated that the cost of transitional support would have been around £20 million. Clearly, the cost to the NHS of the whole affair has been many times that amount.

We also criticised the Government for not giving a higher priority to ensuring that the transitional arrangements were properly co-ordinated. Even if the Department of Health is correct in saying that no formal agreement had been reached, the evidence we saw suggested that the industry could hardly be blamed for assuming that such an agreement was in the bag. Nevertheless, unlike the Department of Health last October, we were not convinced that any of these factors was in itself sufficient to explain the price rises that we had witnessed. The BBC "Newsnight" survey pointed out that of the 132 products surveyed that, had undergone price rises of more than 50 per cent., only 18 had been repackaged. We therefore looked elsewhere. The more the Committee studied this, the more we concluded that the operation of the drug tariff itself lay at the heart of the problem. This is a complex area, but I shall refer briefly to what we looked at and the basis for our concerns.

The Prescription Pricing Authority monitors the supply of a drug by two major wholesalers and three major manufacturers to ascertain the basket price. When two wholesalers or one wholesaler and two manufacturers declare that they have less than four weeks' supply of a drug it is placed in category D and the supplier is paid the price of the drug, which can be the brand name price, rather than the generic price. The flaws in that mechanism became all too apparent in the evidence to us. First, the four-week measure was outdated because most wholesalers now hold stock for 12 to 15 days. Secondly, it is up to the manufacturers and wholesalers who are monitored for the drug tariff to determine what levels of stock they maintain. We thought it unsatisfactory that the system relied on a few wholesalers and manufacturers who were free to determine levels of stock and thus could trigger category D status, which, in turn, had commercial implications for their industry.

In the year or so before we took evidence, the number of category D listed drugs rose from 30 to 192. An enormous burden was put on the Prescription Pricing Authority. In our view, it acted with commendable promptness and was among the first to realise the urgency of the situation. But that was at some cost: 140,000 overtime hours were worked between April and November 1999 and 230 more staff were recruited, at an annual cost of £3.2 million.

The final and most powerful factor in the equation was the nature of the generic markets. This was a commodity market, which the Minister admitted was not "working effectively at present". We felt that the flaws in the category D system, the fact that the drug tariff was slow to respond to trends between bulk and patient packs and the limited number of players in the generic market made the market ripe for manipulation. Who was manipulating it remains an open question. One group that was clearly fingered in the evidence to us was the short-line wholesalers. They moved in and out of the market with speed and were quick to spot trends. They were well placed both to corner stocks and to profiteer from shortages. Although we believe that they were well placed to exploit the market, we felt that they became the potential scapegoat for everyone else because they were the only major force not represented in oral or written evidence, as they did not have a collective trade body.

Mr. Hammond

Does the hon. Gentleman agree that short-line wholesalers also have the potential to lubricate the market and to act as a force for bringing in supplies from elsewhere whenever there is a shortage? In any market, players who duck in and out can enhance its working, as well as gum it up in other ways.

Mr. Hinchliffe

The nature of any market is exactly as the hon. Gentleman described. Our worry is that the current mechanisms created a shortage and allowed key players to cash in on that shortage. They were thus at an advantage and able to enhance their own interests at the expense of the national health service. We could not draw conclusions about the individual guilty party; the finger could be pointed at a range of people who had taken advantage of a difficult situation. We hope that we will learn lessons from what happened and, to be fair, the Government have attempted to draw conclusions from the difficulties that occurred.

Market manipulation, hoarding and collusion were not limited solely to the short-line wholesalers who were pointed out by several witnesses at the evidence session. The Government's recent consultation paper seems to agree with our conclusion that none of the original reasons cited fully explains the continued high prices in generics. The paper stated that the Government had not been made aware of any factors that would justify prices remaining at their current high levels for so long.

Our final conclusion drew attention to the absurdity of the current situation; we were assured that manufacturers took steps to block excessive orders, but that the wilier short-line wholesalers might buy up large quantities on a Saturday morning. The report stated: It seems to us entirely undesirable that the proper functioning of the market in generics should have to rely on companies having to refuse to sell their products and on management being present on a Saturday morning to prevent sales from taking place. We felt that the price rise of the past 18 months must have enriched many individuals at the expense of the national health service.

I come now to what has been done and what needs to be done; the first thing to remember is that most of the players in the industry told us that they were unhappy with such a disorderly market and would welcome more regulation and control. Thus the Government are in a strong position to act to avoid a recurrence. As I said, the Government did not grasp the urgency of the situation as early as they should have done; perhaps it is not surprising that they dissented from that analysis. In their reply to our report, the Government argued that at no time did they give a firm commitment to fund the transition to patient packs. They also maintained—contrary, in my view, to the evidence—that what the Pharmaceutical Pricing Authority noted in March 1999 was not what we termed a looming crisis but a rising trend in medicines in Category D. That explanation is less than adequate. However, the Government acted promptly to reform category D; eight days after we took evidence the Department met the PSNC and agreed modifications to the entrance and exit procedures and to reduce the stockholding period to two weeks. More important still, the Department has pledged to undertake a fundamental review of the operation of the generics market and the drugs tariff, which we greatly welcome. The proposals set out in the consultation document show that the Government have tackled the problem directly and taken wholly appropriate measures. Just as our report criticised the Government, I hope constructively and not without reason, it is right to pay credit to the thoroughness of their new approach, which I welcome.

I also welcome the proposal to fix the prices of generic medicines that fall within the scope of the scheme at a ceiling that corresponds to prices between November 1998 and January 1999. That is an appropriate response to those profiteering at the national health service's expense and is the only measure that will bring the market into line reasonably quickly. The improvements in data gathering will be invaluable in the longer term in giving the NHS a better feel for what is going on in the market.

The generics market has, in general terms, served the NHS well. The Committee was anxious that the real benefits of generic drugs were being dissipated by a sudden and apparently inexplicable crisis in the market. I hope that the Health Committee's contribution to the debate helped prompt the thorough measures now proposed. We feel that a properly regulated generics market that is free from the turbulence of recent months would benefit the generic manufacturing industry as well as PCGs, health authorities, patients and taxpayers.

11.19 am

Mr. Peter Bradley (The Wrekin)

May I take this opportunity to commend the Health Committee for arranging this debate and for the investigation that it undertook last year into this important issue? I welcome the opportunity, too, to play my part in exposing what I consider to be cynical and organised profiteering by some sections of the pharmaceutical industry—a form of profiteering that has driven many health authorities, including my own in Shropshire, and many health trusts and PCGs, to the point of bankruptcy, ironically at a time when investment in the NHS is at an all-time high.

Mr. Hammond

I am sorry to interrupt, but the hon. Gentleman makes a serious allegation. He used the phrase "organised profiteering". Is he suggesting collusion between companies?

Mr. Bradley

I am grateful for the hon. Gentleman's interest. I am scarcely under way; indeed, I do not believe that I have reached the first semicolon. As my contribution unfolds, he may have a clearer idea of my views.

The Government were elected on a pledge to restore the national health service, and we are now witnessing unprecedented levels of funding, including, this year alone, an additional £2 billion as part of a £21 billion package. That extra investment is intended principally to benefit patients and, indeed, people who work in the NHS. It is not intended to enrich already pretty affluent and successful directors and shareholders of drug companies. Too high a proportion of that new investment is entering through the front door of the NHS, only to disappear out the back as quickly as it arrives.

I am not arguing against the profit motive. Last week, in this very Chamber, when debating the conduct of privatised utilities in my constituency, I made the point that private sector companies are perfectly entitled to take a profit and to make their margins. However, in this sector, as in others, private profit should work in the public interest. I do not believe that that has been the case over the past couple of years in the NHS drugs market.

I acknowledge the pharmaceutical industry's contribution to our economy. It directly employs some 60,000 people, and it is argued that a quarter of a million people indirectly owe their employment to the pharmaceutical sector. Investment in research and development is £7 million a day, and that high investment must be redeemed through the market. We can take pride in the fact that six of the 25 best-selling drugs are made in this country. The pharmaceutical sector in this country earns £2 billion-worth of exports annually.

None the less, I am not happy about the power that pharmaceutical companies wield throughout the NHS or the stranglehold that they have seemed to have had in the past in negotiating with the Department of Health. Their powerful employment base and their research and development activities in this country give them undue leverage in such negotiations. Nor am I happy about the ways in which they can distort the medical research sector through their enormous financial clout. We have talked a lot about the market, and I am sure that we shall hear more about it this morning. It stands to reason that pharmaceutical companies have a vested interest in investing in research connected to treating conditions rather than preventing them. We can hardly blame the sector for taking an interest in that from which it will profit most, but it nevertheless has an undue influence on the general character of research in this country, which is much to be regretted. Moreover, there is a growing disquiet about the ability of the pharmaceutical sector in this country and elsewhere to patent the very means of life and death in the research being undertaken on genes. Lastly, but most serious in the context of this debate, it is my view that the drugs industry has systematically ripped off the national health service.

In an Adjournment debate last year, before the category D issue became evident, I drew attention to the cost of hospital-led prescribing. For many years, the drug industry has made disproportionate profit from the NHS by that means. The equation is simple. Drug companies provide branded drugs as loss leaders to hospitals, because they know that only 20 per cent. of NHS drugs are dispensed in hospitals and that 80 per cent. of drugs are prescribed or dispensed in the community. That is the catch. They hook the patient in hospital, and when discharged, the patient will tell a doctor that he or she now wants the drug that was prescribed in hospital, and that the consultant believed was the best for his or her condition. In many cases, general practitioners will prescribe the branded drugs. They may be unaware that the cost of those drugs in the community is astronomically higher than it is in hospitals, where, for example, Imdur costs 2.5 per cent. of its value in the community, and the popular drug Frumil costs 6 per cent. of that value. That is a cynical and calculated scam and it is all too effective.

The problem is serious. In 1997–98, the NHS overspent its drug budget by £69 million, which is the equivalent of about 4,000 grade D nurses. If generic rather than branded drugs had been prescribed, £66 million of that £69 million could have been saved, and patients would have suffered no discernible deleterious effects. Of 100 English health authorities, 78 overspent their drugs budgets—five by £2 million or more, and 34, including my local health authority, Shropshire, by more than £1 million. That is an intolerable drain on the NHS's budget.

I will briefly refer to a second problem. Dispensing doctors often load additional costs on the NHS, because their remuneration system contains an in-built incentive to prescribe branded drugs, which are more expensive than generic drugs. In 1998–99, even before category D became an issue, those two problems already cost Shropshire health authority £1.2 million. In 1999–2000, that cost was more than £1.5 million.

Last year, primary care groups were introduced in Shropshire and elsewhere. Primary and secondary health care sectors were working more closely together, and innovative software was introduced to help GPs to identify the best-value drugs that they should prescribe or dispense. There was at last an opportunity to reduce the NHS drug costs. The Government negotiated a 4.5 per cent. reduction in the cost of branded drugs through the pharmaceutical price regulation scheme, but ironically, just when it seemed that there would be good news for the NHS and its patients, the category D list issue loomed.

At the same time as the cost of branded drugs was to reduce, the cost of generic drugs escalated. My hon. Friend the Member for Wakefield (Mr. Hinchliffe) described the consequences of that. In autumn 1998, only 30 drugs were on the category D list of the generic drugs that were difficult to obtain. By summer 1999, 170 were on the list, and the number rose further to about 190. The cost of some generics increased by more than 700 per cent., and the drug barons claim that the closure of Regent GM was a major factor. That may have had an effect, but it is difficult to accept that the closure of one manufacturer in such a buoyant and profitable sector could have had such a disproportionate effect on the market.

Mr. Hammond

I thought that drug barons came from Colombia. The hon. Gentleman talked about a shocking 700 per cent. increase. Does he know what percentage of the NHS drugs budget covered the increase in the cost of generic drugs during that year? He will find that to be a less dramatic figure than that which he quotes.

Mr. Bradley

If the hon. Gentleman is going to mount a defence of the pharmaceutical sector later in the debate, I will be fascinated to hear it; he will be one of the very few outside the industry to have attempted that. The overall cost to the NHS of both generic and branded drugs has risen considerably in recent years. That has occurred for many reasons, some of which are quite acceptable, such as breakthroughs in drug technology and the availability of drugs, which we welcome. My argument, and that of the Select Committee, is that there was not a reasonable explanation for the increase in the cost of generics last year.

The argument about the switch from bulk supplies to patient packs is not credible either. It is difficult to accept that an industry as sophisticated, profitable and succesful as the drugs industry could not have anticipated better and planned more effectively for that transition, even if it were not without problems.

There is overwhelming circumstantial evidence that the market was rigged and that there was stockpiling and hoarding among wholesalers and pharmacies, if not by manufacturers. The cost to the NHS is at least £0.25 billion, and probably higher; perhaps the Minister will be able to provide more precise figures. That was a major blow to the primary care groups in their first year, at a time when they were seeking to establish confidence and extend and improve primary health care. It was a major blow also to their patients—the people who really matter in all this.

In Shropshire, the category D issue—the increase in the price of generic drugs—meant that the difference in the cost of drugs to the health authority between November 1998 and November 1999 was about 16 per cent. Between £2 million and £3 million is the price tag that Shropshire health authority has had to meet for the increased prices of generic drugs. That is without considering the additional and undue costs of hospital-led prescribing and dispensing GPs. I would estimate that, last year, Shropshire health authority lost from its budget £4 million to £5 million-worth of resources that should have been spent on front-line health care.

The Government have acted—I believe, belatedly, although I welcome their action. They provided £90 million last winter to compensate—at least in part—for the additional burden on primary care groups and health authorities. The Government are moving to cap drug prices, and we await with great anticipation the results of the OXERA review of the generics market.

Finally, there is a reference to the Office of Fair Trading last August and I, for one, am looking forward with anticipation to its findings. However, I will not be foolish enough to hold my breath, since I referred to the OFT an issue relating to this sector as long ago as 27 April last year, and I am still awaiting its response. I do not consider it to be in the public interest that, when serious issues such as these are raised with the OFT, it should take quite so long to come to a conclusion.

Whatever the OFT's findings are, it is essential that the Government ensure that this form of price fixing in the NHS can never happen again. The pharmaceutical companies are entitled to their profit, but they are not entitled to rip off the NHS. Whatever the OFT establishes, someone along the supply line got very rich very quick, and did so at the expense of my constituents. Every penny of the billions of pounds that the Government are now investing in the NHS on behalf of the taxpayer is precious. I look forward to hearing how the Minister will ensure that every one of those precious pennies is spent on health care for my constituents, for the Minister's and for everyone else's.

11.34 am

Sandra Gidley (Romsey)

As a new Member, I am afraid that I have not had time to read the report. Until recently, I might have had to declare an interest. However, I have now given up pharmacy. It may be of interest for Members to hear about my practical experience.

The big factor for me is the impact on the patient. There is no doubt that the change to patient packs—and possibly the closure of Regent—has had a real impact on patients. We have struggled to obtain supplies of drugs. A number of people had to go without their medicine for a few days because, in Southampton—where I worked—we could not get supplies. That is a worry on a level that is other than financial.

Nobody has yet mentioned an additional impact on the NHS. Previously, a lot of patients were issued private prescriptions by their GP because it was cheaper for them to get a private prescription for a generic drug than it was to pay £6—or £5.90, as it was last year—for an NHS prescription. Because of the big price increases, patients now find it cheaper to spend £6 on an NHS prescription. Obviously, that is another load on the NHS. I do not know how big an impact that will have—nobody has done any work on it—but it is another factor in the equation.

I doubt whether the drug tariff is bedtime reading for many hon. Members. However, I would be interested to see how it is to be updated with reference to the 14-day lead time. Currently, it is updated monthly. In the past, there has been a time lag between pharmacies' having to pay increased costs for the drugs and that fact being recognised and their remuneration coming through. In the past, the tariff system has worked against the financial interests of pharmacists. A system that responded more quickly would be in the interests of all concerned.

The introduction of patient packs was a complete fiasco from a professional point of view. There has been no standardisation on the size of pack and no move to encourage GPs to prescribe according to the size of pack. The resulting mess leads to confusion for the patient and has an impact on the pharmacist, who has to cope with the extra volume of stock. It may be too late now, but we must learn the lessons from that and plan for the future.

The hon. Member for The Wrekin (Mr. Bradley) was concerned about hospitals prescribing branded drugs, and said that that was being forced on to the community. That is not a problem. GPs these days are painfully aware of the cost of drugs. They understand that generic drugs will save them money and most are keen to get the best benefit from their budgets for their patients. That was a red herring; it does not happen in practice, and certainly not in my area.

Mr. Peter Bradley

I welcome the contribution of the hon. Lady, the newest Member of the House, and I congratulate her on her diligence in speaking again today, having made her maiden speech only last night. I provided figures in my speech that suggested that, before the category D issues arose, the cost to my health authority of the hospital-led prescribing scam—as I described it last year—was more than £1 million, and that that cost was replicated throughout the health sector. Seventy-eight of 100 health authorities had a similar experience. Surely her anecdotal evidence does not measure up to that statistical evidence.

Sandra Gidley

I admit that I can only speak for the area in which I worked. Yes, manufacturers provide drugs in their packs and the patients like to think that they are getting the same again. However, where there is a history of generic prescribing in an area, patients quickly realise that they often receive packs with different presentations. In the area that I represent, GPs are cost-conscious, and generic prescribing is the name of the game. Most of them have a little button on their computers which, when pressed, automatically generates prescriptions in a generic form. That causes some confusion with items such as baths oils, but, on the whole, it works in the best interests of the patient.

I agree with what has been said about dispensing doctors—I would, wouldn't I? The evidence shows that where doctor dispensing is the norm, the drug costs are higher. That should be looked at.

When prices are agreed for the drug tariff, surely the onus is on the Government. Twenty years ago, when I first qualified, the Government slashed the prices that they would pay for drugs such as valium and vitamins and targeted particularly a company called Roche. If they could do that then, and if they could encourage the 4 per cent. cut in drug prices a few years ago, I see no reason why, with the will, they could not do that today.

The onus should be on the manufacturers to justify the price rises. I do not believe that Regent was a major factor because the closure of a factory does not mean increased costs. It does not suddenly cost more to produce a drug just because somebody is not doing it. That is a difficult argument to follow.

There is no doubt that, in many cases, the packaging costs more than the drugs being supplied. That is a worry, but patient safety is a factor. We now have to enclose leaflets to explain to the public the properties of the drug and its side effects, which is welcome, but that cost has not been mentioned.

As an observation, I would say that the vast majority of pharmacists are honest. However, I know of cases where weaknesses in the drug tariff have been exploited. If the drug tariff were one's bedtime reading, one could make a lot of money. For some drugs it is necessary to endorse the pack size dispensed, which may be 28 tablets in a little box or a little bottle from a pack of 1,000. Pharmacists are supposed to say what has been given out. The costs are different and the vast majority of pharmacists will note accurately what is given out. However, some do not and there is no way of checking what has been supplied by the pharmacist. That should be tightened up so that those claiming the higher-priced packs can be checked. That would be beneficial for the profession and the public purse.

I welcome this debate. There is a problem, but we must be careful that we do not penalise pharmacists who have to suffer a time delay. Sometimes one has to pay more for drugs without getting the money back. That must be addressed. We must also address the need to keep prices down so that GPs, or whoever is paying for the drugs, can spend the money on other patient services.

11.43 am

Dr. Howard Stoate (Dartford)

I still hold some sessions as a general practitioner and, therefore, declare an indirect interest in the debate. I want to put that on the record.

There was once a time when the cost of drugs was of concern to only the Government. General practitioners had no interest in it because the budget was open-ended and there was no cash limit on the cost of drugs available to GPs. They could prescribe exactly what they chose in the interests of patients and it made no difference to them. That was undesirable in many ways. It did not foster cost-effectiveness or prompt GPs to look at their prescription habits. It did not prompt them to check wastage or compliance with patients or to look at the overall structure of what they were doing. They wrote the prescriptions and somebody else paid the bill.

That was a huge opportunity cost on the NHS. If there was inappropriate prescribing and wastage, and if GPs inadvertently used the most expensive version of a drug by branding it, money was used that could have been spent in other parts of the NHS to benefit patients in other ways. That was undesirable and, over the years, Governments have sought to address that problem by introducing various schemes to make GPs more cost-effective.

First, we had PACT—prescribing analysis and cost—under which, every month, GPs are sent a statement of the cost of their prescribing in relation to their colleagues and the national picture. That enabled them to see where they stood. They also receive an analysis of the percentage of generics used so that they can compare themselves locally and nationally. Also, the monthly PACT statement shows the target budget for the year so that GPs can assess whether they are overspending or underspending.

Some health authorities have introduced prescribing incentive schemes where practices that achieve a locally set target can recoup some money. For example, if a GP saves 2 per cent. on a drug bill this year, some money will go to the practice to spend on equipment or other patient services. That is welcome because it provides an enormous incentive for GPs to look at the cost of prescribing.

Mr. Philip Hammond (Runnymede and Weybridge)

I was interested to hear the hon. Gentleman's historical analysis of the increase in generic drug prescribing. Would he care to pay tribute to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) for his key role in setting off the trend dramatically to increase generic prescribing in the NHS?

Dr. Stoate

I will do that because, to be fair to the previous Government, they did address the problem. In fact, my next sentence was going to be in favour of fundholding. Fundholding introduced cost discipline on GPs and, to some extent, it was worth while. The problem is that fundholding was unfair and produced a two-tier service. It took resources away from some practices and gave them to others. There were clear losers as well as winners, but the principle was right in that it introduced a discipline for GPs. They looked carefully at what they were doing, analysed the effects and made sure that money was spent in the best possible way. I welcome that, from whatever Government it came.

We now have primary care groups, which represent the Rolls-Royce of reorganisation for GPs. Primary care groups embrace all GPs, not just those who are entrepreneurial enough to make a go of fundholding at the expense of their colleagues. The good news about that is that every GP now has a clear incentive to be cost-effective. The downside is that, just as GPs were getting used to the new unified budgets and to the idea that what they spent on prescribing could not be spent on referrals and so on, they were suddenly hit by the whammy of a huge increase in the cost of generics which, as has been mentioned, has spiralled out of control.

Some of the examples are striking. I shall give the hon. Member for Runnymede and Weybridge (Mr. Hammond) an example. It was estimated last year that about £200 million was spent on the generic problem. That equates to about 3 per cent. of the NHS drug budget—a significant sum. Three per cent. is a significant cost, particularly at times of low inflation, of which the Government can rightly be proud. We are talking about large sums of money and a significant impact on NHS costs.

That has caused a huge overspend and, as my hon. Friend the Member for Wakefield (Mr. Hinchliffe) said, it has caused massive pressure on the Prescription Pricing Authority, from which it has not yet recovered. For example, this week I received my PACT statement for December—over four months late. It is impossible for a GP practice or primary care group to budget properly for their drug costs if they are only now receiving statements relating to last December.

Mr. Hammond

I am glad that the hon. Gentleman has raised that—it was raised in the Select Committee report and it confused me then. Is the hon. Gentleman suggesting that GPs who are prescribing generically—in the cheapest and most cost-effective way—should change their prescribing practice, which could only mean issuing fewer prescriptions, in response to information that their budget is becoming overspent? Is that what the hon. Gentleman recommends?

Dr. Stoate

Quite the opposite. Most GPs are very cost-effective prescribers, and there are now many reasons for them to be so—primary care groups also have incentives to be cost-effective—but if they cannot judge what they are spending on an item because the response from the Prescription Pricing Authority is four or five months late, it makes it extremely difficult to set budgets. It makes it almost impossible to get involved in a meaningful prescribing incentive scheme, simply because the data are meaningless. One cannot equate what one is doing now with figures that may arrive many months late.

Of course all GPs have an interest in the increasing use of generics. As the hon. Member for Romsey (Sandra Gidley) rightly said, many GPs now have a simple conversion system on their desk, which is a welcome development.

I want to make a clear distinction between the manufacturers of branded and of generic medicines. It is not fair to blame the branded manufacturers. The vast majority of companies that manufacture branded drugs do not also manufacture generic drugs. We must not confuse the two. The generics manufacturers must shoulder their part of the blame.

Mr. Peter Bradley

I acknowledge the distinction that my hon. Friend is making, but does he not accept that in many cases there are links between the companies and that many of the ultimate owners own both branded and generic companies?

Dr. Stoate

I was of that opinion before the Select Committee conducted its inquiry, but the vast majority of the evidence that we received was that they are entirely different companies, owned by different people, although I accept that there must be some overlap. I want to ensure that we place the blame where it belongs.

Enormous difficulties have been caused for general practices, primary care groups and trusts. I welcome the fact that the Government made available £90 million last year to cover some of the overspend, but there are two problems: many primary care groups are complaining that they remain overspent through no fault of their own; and the money should have been spent on nurses, hospitals and equipment. The NHS could ill afford to lose that £90 million, so it is a great shame that the Government had to use it in that way.

Schedule D is well and truly overdue for reform. For all the reasons that hon. Members have mentioned, it is too open to manipulation. I do not want to point the finger directly, but any market that is effectively controlled by a basket of five suppliers and manufacturers, with a series of short-line wholesalers hanging out on the wings, is almost certain to be ripe for manipulation by one person or another. I would like to believe that the majority of people in the system are honest, but I cannot believe that they all are. There is far too much evidence that manipulation has occurred, with all sorts of distortions of the market, stockpiling and the deliberate running down of stock to force drugs onto schedule D. That is extremely worrying.

The Government have already suggested that they want to replace schedule D with a maximum prices scheme. That will go a long way towards solving the problem, but I urge caution. If we introduce maximum pricing—I have heard rumours that this is happening already—what is to stop manufacturers simply removing themselves from the generics market altogether and saying that, for the price that the Government are prepared to pay, they are not prepared to manufacture? That would have severe repercussions.

I currently chair the all-party group on pharmacy and I have discussed some of my worries with representatives of pharmaceutical groups and community pharmacists. The worry is that if manufacturers stop producing generics, the pharmacists will be in a very difficult position. They will have only three possible responses.

First, pharmacists could refer the patient back to the GP and say, "I'm sorry, we can't get the drug because the manufacturers have stopped making it in sufficient quantities at the price that the Government are prepared to pay. Go and get an alternative prescription." Secondly, they could say "I can't get the drug, but it's worth shopping around in case another pharmacist can." That would be very unsatisfactory for the patient. Thirdly, the pharmacist could dispense a more expensive version and bear the cost himself or herself. That would also be very undesirable and an unreasonable burden on community pharmacy.

The Select Committee is considering how to enhance the role of community pharmacists, who are clearly concerned about the problem. If generics became in short supply because the price went down too far, that would be a cynical manipulation of the market and would be extremely regrettable. What does my hon. Friend the Minister think we can do to prevent that, if we do indeed abandon schedule D and replace it with a maximum prices scheme?

I welcome this debate, which is on an important subject, and would appreciate a response to the points that I have raised.

11.55 am

Dr. Peter Brand (Isle of Wight)

Like my colleague the hon. Member for Dartford (Dr. Stoate), I declare an interest as a member of a primary care group. I am not as sure as he is whether such groups are the Rolls-Royce of primary care or whether we are developing a Rover—time will tell.

I congratulate the Chairman of the Select Committee, the hon. Member for Wakefield (Mr. Hinchliffe), under whom it is a pleasure to serve. The Select Committee system seems to be very effective, especially in relation to the health service, because quite often we have only to announce that we are to launch an investigation, and we get Government action even before we report. The Minister is clearly proud of that fact. It saddens me, however, that it took the Select Committee only one day's worth of evidence, plus a perusal of the written submissions, to come up with real problems and suggest real solutions, prompting Government action that was too late and too slow.

Our investigation focused not only on generic prescribing but on the bigger issue of the place of market forces in the supply of drugs to the national health service. At present, there is no such thing as market forces in NHS drugs procurement. We have an extraordinary system in which, if there is a cartel fixing prices, the Government appear to be part of that price-fixing ring, either as a willing victim or a dupe—I am not sure which. The evidence on which decisions are made is seldom published, and the way in which the tariffs are set and the pharmaceutical price regulation scheme produces its magic figure is highly secretive.

We have a nonsensical system in which the Department of Health is the licenser of the drug, promotes research and development and takes seriously its responsibility for supporting an industry that is important to this country, both economically and from a jobs perspective, but is at the same time the major purchaser of that industry's products. That system is long overdue for an overhaul. I know that the industry is not keen on introducing a further hurdle, but we must understand that there has been a massive escalation of drug costs in the past 10 years, not only in real terms—in cash terms, the cost has gone up from just over £2 billion to £5 billion—but as a proportion of NHS expenditure.

The point was well made by the hon. Member for The Wrekin (Mr. Bradley) that that is much to be commended in some instances, where there are now pharmaceutical ways of treating people rather than carving them up or relying on very restrictive life styles. As a clinician, I am extremely grateful to the pharmaceutical industry, without which we doctors would be much less effective—in fact, we would be totally useless.

The Government should consider experiences elsewhere. In New Zealand, the drugs budget was rising by about 10 per cent. a year, as tends to be the case here. A new contracting system was introduced that stopped prices surging ahead and slowed down the rise to 3 per cent. a year, which is probably a better reflection of the increased use of drugs.

We have a system in which a drug is licensed for use, but that licence does not automatically allow it to be prescribed in the NHS. There should be a separate round of contracting to determine which drug and which manufacturer supplies the NHS. That would overcome the problem to which the hon. Member for Dartford referred. If a manufacturer bids to supply a generic drug to the NHS, it will not move in and out of that market willy-nilly; it will be geared up for a big contract. A contracting round—presumably carried out annually, or on a rolling annual basis—would achieve value for money for the NHS. It is not clear that value for money and fair remuneration are achieved at present.

Mr. Hammond

I am fascinated by the hon. Gentleman's comments, but it flies in the face of all accepted principles of economics to suggest that having a single supplier and allowing other potential competitors to fall away would benefit the buyer. In the long run, that would be extremely detrimental to the buyer.

Dr. Brand

No, there is not a single supplier. There are multiple competitors and the reference price would be set in the contracting round. If other manufacturers wanted to compete by charging less than a particular price, we could ensure a supply of products—including branded products—at an affordable price. Research shows that the NHS drug budget could save more than £1 billion, which would pay for new drug development and ensure that new drugs were available without postcode prescribing. That could end the enormous anomaly of prescription charges.

We must either overhaul the prescription-charging system, which is based on clinical categories established in about 1950, or scrap it altogether. I think that we should scrap it because that would make life much simpler. The £300 million that it costs could be easily recouped by better contracting by the NHS. That would also move us away from the perverse incentive to which my hon. Friend the Member for Romsey (Sandra Gidley) referred; it is splendid that a knowledgeable professional has taken part in the debate. Doctors, such as the hon. Member for Dartford and myself, tend to speak on all NHS matters, but we must remember that others have a great deal of professional expertise.

We have a perverse system in which the rewards for pharmacists and dispensing GPs depend on the cost of the drug that they hand out. That cannot be a sensible way to run an economy. We must find better ways of rewarding our community pharmacists for their professional work. We rely far too much on their expertise as business men and shopkeepers who sell all sorts of other goods, which underpins their professional work. We must find a system in which they are rewarded for doing the right thing rather than for using drugs with high tariffs and high on-costs that give them a higher share of profit.

The drug industry has done tremendous things for clinical practice in this country and it is important to have an open scheme for ensuring that it has enough money for research and development. That could be done through the Medical Research Council, for example, and the Department of Trade and Industry should provide any necessary help with investment. The current system, in which the Department of Health is the main consumer and the supporter of the industry, has led to obfuscation and secrecy, which, in the 21st century, is no longer suitable.

12.5 pm

Mr. Philip Hammond (Runnymede and Weybridge)

This has been a useful and well-informed debate. We must view the problem in context. The hon. Member for The Wrekin (Mr. Bradley) used some inflammatory language and spoke about price increases of several hundred per cent. There have been large percentage increases in the price of individual drugs, but the hon. Member for Dartford (Dr. Stoate) put that in context. We are talking about a problem that has added between 3 and 4 per cent. to the prescription budget and perhaps 0.5 per cent. to health authority allocations overall. I would not deny that that is a significant problem, but using inflammatory figures such as 700 per cent. does not help to achieve a solution.

Mr. Bradley

Is it not a fact that the cost of Frusemide increased by 720 per cent. in a short time? That is not inflammatory; it is inflationary.

Mr. Hammond

The hon. Gentleman's fact is indisputable, but it is important to understand that we are talking about a 3 or 4 per cent. increase in the overall prescribing budget. That is a significant figure, which we must address, but not a catastrophe of the proportions that bandying around figures of several hundred per cent. might suggest.

I congratulate the Select Committee on its extremely well written and coherent report, which provided a helpful analysis. I found it extremely useful, especially in pointing up the weakness of the operation of category D of the drug tariff in terms of the method of entry and exit and the lack of incentive for a pharmacist to prescribe the cheapest possible available category D product that meets the doctor's prescription.

The hon. Member for Isle of Wight (Dr. Brand) hit the nail on the head when he said that the United Kingdom drugs market is managed. When we hear phrases such as "market manipulation", we must remember that we are talking not about a free and open market but about a market that is managed by virtue of there being only one overwhelming buyer. The solution that the hon. Gentleman proposed would make the problem that he identified worse, not better.

To bring the tone of the debate back down from some of the extremes that have perhaps been reached, we should acknowledge that we are debating structural defects in a managed market. That is a matter not of honest or dishonesty—words that have been used this morning—but of market players responding to signals from the market. Those signals may be false and may lead the market in the wrong direction.

Mr. Bradley

I certainly did not say that anything dishonest or illegal has happened in the market—nor did I hear other hon. Members say that; but does the hon. Gentleman nevertheless accept that there has been manipulation and that that has cost the NHS and patients who depend on it a considerable sum, which should have gone into front-line health care? That is a serious matter, and it is not diminished by the fact that the companies or individuals who have rigged the market have behaved within the law.

Mr. Hammond

On reading the report of the debate, the hon. Gentleman will find that the words "honesty" and "dishonesty" have been used, but I readily acknowledge that the Select Committee report has identified a defect in the way in which the market operates. We can all agree that the market has not operated and does not operate properly, but, to achieve the targets on which we all agree, it is important not only that the market in generic drugs operates properly but that the Government's target of significantly increasing the percentage of generic drugs in the mix is met.

Paragraph 14 of the Select Committee report talks about delays in feedback. I had an exchange about that with the hon. Member for Dartford. It would be bizarre to suggest that GPs should change their prescribing practice as a result of the feedback that they got from the Prescription Pricing Authority. I accept that, from a budgeting point of view, they need that information, but, from a prescribing point of view, I hope that they do not need it if they are already prescribing generics.

There is no doubt that, under the present system, the overspend has impacted on GPs and on their budgets. I wonder whether the Minister has given any thought to whether, given the nature of the managed market in prescription drugs, it might be better for the system of GP budgeting to be based on the drug tariff in place at the outset of the budget period—together with a considered measure of what inflation is likely to be in that period—so that it is the Government who take the risk of dramatic fluctuations in prices from the posted drug tariff at the outset, rather than that risk being borne by GP practices and primary care groups, which have no way of inputting to the management of the economy in drugs and are thus vulnerable to a risk that they cannot control.

I have read the Select Committee report and it is evident that the Government did not know what was going on in relation to the generic drug marketplace in 1999. When they did find out, they failed to act effectively. Ministerial answers, with the benefit of hindsight, clearly provide an inadequate explanation of what was going on.

I think that we have agreed that, whatever the arguments about the continuation of higher prices in the market, there is no dispute about the events that triggered those changes in the marketplace: the closure of Regent and the patient packs fiasco. The first was a problem that the Government did not precipitate, but which had clearly predictable outcomes. I would be interested to hear from the Minister what the Government did in the immediate period after the closure of Regent—and, indeed, in anticipation of the Medicines Control Agency's closure of Regent—to deal with what were entirely predictable consequences.

In the case of patient packs, when I was first appointed to the Opposition Front-Bench health team, one of the first functions that I attended was the British Generic Manufacturers Association dinner in the summer of 1998, at which Baroness Jay was the speaker. I was surprised by the genuine sense of anger among the people to whom I spoke about what they saw as a complete volte face by the Government. They had given them a clear and long-term indication, both at political level during the time of the previous Administration and at official level, that they supported and condoned the move towards developing patient packs in accordance with the European Union directive, and changed direction 180 degrees when they came into office.

It is a problem for which the Government bear full responsibility. It is an example of staggering Government incompetence and an abdication of Government responsibility for moving the industry into compliance with the EU directive in a timely way. The industry was forced to implement the directive independently. Ironically, the switch of supply to patient packs is likely to leave short-term shortages of bulk supplies. Because there is a marketplace of sorts out there, short-term shortages of supply will lead to an increase in prices and opportunities for brokers. I use the term "brokers" rather than "short-line wholesalers" because, in many senses, they share the same characteristics as brokers: they are players who come into the market to seek to arbitrage defects in the workings of the market.

The inevitable conclusion from reading the Select Committee report is that, in seeking to save £20 million, the Government have precipitated a chain of events that has cost the NHS many times that figure. I say with respect to the Chairman of the Select Committee, the hon. Member for Wakefield (Mr. Hinchliffe), that I thought that paragraph 31 of the report, which is a gentle criticism of the Government's actions—or inactions—was a model of understatement. I could almost sense the clenched teeth as I read it. I know that Ministers would agree that the hon. Gentleman is not always as gentle in his comments on Government policy.

Again, it was ironic that the Government, who have made so much of the bureaucracy around the extra-contractual referrals regime that was implemented by the previous Government—which generated some few thousands of pieces of paper per health authority—should be responsible for a bureaucratic explosion in the activity of the pharmaceutical pricing agency. We understand from the Select Committee report that 230 additional pen-pushers were taken on to process the extra paperwork that the fiasco has generated. A total of 140,000 hours of overtime were incurred, which sits rather ill with the Government's commitment at the last general election to cut bureaucracy in the NHS and redirect resources to patient care.

I hope that the Minister will tell us about the Government's ideas for reform of the drug tariff system. I hope that she can tell us what the current status is of the fundamental review that was set up by her noble Friend Lord Hunt. The review is due to report in the summer, but the document published by the NHS Executive on 20 April, which indicated a set of proposed maximum prices, appears to many people to pre-empt the outcome of that review. I would be grateful if the hon. Lady could clarify how we should interpret the publication of that document.

It seems that the maximum price approach is precisely the wrong one for the Minister to pursue. Examples from around the world and across history show that imposing maximum prices on a market where there are shortages will simply starve the market of product. Although the decision on how to proceed must be one for Ministers, they can be sure that we will hold them to account if the result of their reforms of the drug tariff system is to make supplies of certain drugs unavailable in the UK, or—perhaps more realistically—to push the UK into being the swing marketplace for producers, which they sell into only when demand is low elsewhere, or when they happen to have surplus production capacity, so that patients in this country cannot be sure of the continuing availability of drugs.

This is a sorry story of Government incompetence, which has been hidden behind an elaborate conspiracy theory. The Select Committee's report was a good job of work, if understated in its criticism of the Government. The danger in reacting too late to the situation that the Select Committee has identified is that the Government will do what they have done already in the patient packs situation, and, in trying to save some money for the NHS, will introduce a regime which, in the long run, costs the NHS more and damages the interests of patients and GPs.

12.18 pm

The Parliamentary Under-Secretary of State for Health (Ms Gisela Stuart)

I am grateful to the Chairman of the Select Committee on Health, my hon. Friend the Member for Wakefield (Mr. Hinchliffe), for initiating what is a timely debate. I pay tribute to the use of Westminster Hall. It gives us an opportunity to discuss Select Committee reports and to recognise their significance.

The Select Committee was quick to recognise the significance of last year's events in the generics market. The report on its inquiry made an important contribution to that debate. We certainly had its recommendations in mind when we developed our recent proposals for setting maximum prices for generics. I welcome the opportunity to provide some more details.

I am surprised at the comments by the hon. Member for Isle of Wight (Dr. Brand), who said that it took the Government too long—they were too late—in the same breath as welcoming the Government's swift action. I hope that, in the course of the explanation that—

Dr. Brand

Will the Minister give way?

Ms Stuart

There is very little time and I should like to outline the position, but the hon. Gentleman cannot have it both ways. It seems that we responded quickly, but also too late.

As the Select Committee's report says, the reasons for what happened during previous years are by no means clear. A measured and appropriate response had to be given at the time. Hindsight is a wonderful thing, which we all sometimes wish we had, but the Committee assessed the circumstances fairly. I wish the comments of the hon. Member for Runnymede and Weybridge (Mr. Hammond) had been as measured and considered as the Committee's response.

We regard the increase in generic prescribing rates over a number of years as a success story for the national health service. It is widely accepted that non-proprietary or generic drugs are as effective as, and in general cheaper than, their proprietary or branded counterparts. That is why we are taking action to secure higher rates of generic prescribing. The proportion of generic prescriptions in England increased from 43 per cent. in 1992 to 63 per cent. in 1998. I am sure that my hon. Friend the Member for Dartford (Dr. Stoate) will be pleased to learn that we too are committed to ensuring that every penny spent in the NHS is focused on patients.

The increase to which I referred has allowed us to channel money, and we are determined to build on that success. Indeed, we have set ourselves the fairly ambitious target of increasing the average generic prescribing rate to at least 72 per cent. by the end of March 2002, and we are well on the way to meeting that target.

Our policy of encouraging generic prescribing depends on a reliable supply of old and new generics, which must offer value for money. We believe that that can best be secured through a soundly managed and fully competitive generics market. I must take issue with the economic analysis presented by the hon. Member for Isle of Wight about how we can square the circle in this regard: how can a sole purchaser exist alongside competitive forces?

By and large, the system has worked well, but last year it clearly failed. In response to that failure, in December we commissioned a fundamental review of the generics supply chain from Oxford Economics Research Associates. The hon. Member for Runnymede and Weybridge asked what action we were taking. When the first soundings were coming in, we were assured by the market that the situation was temporary rather than long-term, but we began discussions. It was then suggested that the market was not competitive. We referred the matter to the Office of Fair Trading, and are still awaiting its report.

When it became clear that the situation was not temporary, we took two steps. One was the long-term review, whose objective was to decide whether the existing arrangements best served the NHS, and to consider possible alternatives. OXERA's work on the fundamental review is well under way.

Our priority is to safeguard the position of the NHS, and services for patients. Last year's price increases in the generics market put substantial and, we believe, unwarranted cost pressures on the NHS. The cost to the NHS in England is expected to be some £200 million in 1999–2000. My hon. Friend the Member for The Wrekin (Mr. Bradley) described the pressures placed on primary care groups and health authorities. The Government intervened, and provided an extra £90 million to deal with the pressure immediately. Some of that will have to be absorbed by contingency funding.

I do not subscribe to the view of the hon. Member for Runnymede and Weybridge that we should change the budget for primary care groups and primary care trusts, taking the drugs budget out. I think that we are talking about the allocation of, as it were, a whole envelope. When things happen unexpectedly, as they did last year, the Government provide extra funds.

We had to intervene, because it would have been irresponsible not to do so, but it must be recognised, given the nature of the market, that we do not intervene lightly. Logic suggests that in commodity markets prices can go up as well as down. A number of factors were involved, many of which have been mentioned today. I will not go into details, but we are responsible for ensuring a secure supply chain. That means that the number of permanent players in the market must be fairly fixed: movements in and out of the market would not be conducive to permanent supply. That is why we are talking to the industry, and why we are removing category D, which has clearly contributed to the instability.

The fundamental review will allow us to make strategic decisions about the future shape of the market. We are talking to all the interested parties: this is a genuine consultation. At the same time, it appears that there is continued pressure on the NHS, and I think it important to describe our short-term response. That involves negotiating with industry—consultation will end on 24 May—on the imposition of a maximum price range for generic drugs. We propose to use powers provided by the Health Act 1999—subject to parliamentary approval—to introduce maximum prices that will be applicable across the United Kingdom, which will be reviewed in 15 months' time.

Mr. Hammond

Will the Minister give way?

Ms Stuart

Ever so briefly.

Mr. Hammond

Having given the hon. Member for Isle of Wight (Dr. Brand) a lesson in economics, will the Minister tell the rest of us what normally happens to supply in a marketplace when a product is priced at a certain level, and someone imposes an artificially much lower price?

Ms Stuart

As the hon. Gentleman said earlier, this is a managed market. In a managed market, mechanisms must be introduced to allow the industry to operate, and also to allow the NHS to secure safe supply. I therefore do not think the question entirely relevant.

As I have said, there is a short-term review and a long-term review, and they are working in tandem. Members have asked how the two interact.

I welcome the hon. Member for Romsey (Sandra Gidley). It is delightful to work with a new Member, especially when it is another woman: we do not have enough of those. The hon. Lady raised two significant points on the basis of her experience as a pharmacist. She mentioned patient behaviour, and control of prescribing by pharmacists. We will take her points on board, and feed them into the long-term review that is being conducted by OXERA.

I thank my hon. Friend the Member for Wakefield for his succinct and precise summary of the Committee's findings. My hon. Friend the Member for Dartford described the PCT arrangements as a "Rolls-Royce": I consider that equal to Rover—as a Member whose constituency is next to Longbridge, but not in any other context. He described the difficulties, but also the benefits, of the system, and explained how we should manage it in the interests of all players. He expressed concern about what would happen if manufacturers simply said that they would not go on producing. That is exactly why the long-term review and the consultation with the market are genuine. This is a two-way relationship. If we exclude the last year—which was really quite unusual—it is possible for the long-term arrangements to be successful, and we will build on that.

It was suggested that the introduction of patient packs was a major contributory factor. There is no evidence for that. Let me put on record, however, that we have not left it to the industry to comply with a European Union directive that was introduced in 1992. The directive requires the provision of a patient leaflet, and also the provision of certain information on the label. That cannot be equated with a patient pack. We are complying with the directive. The previous Government thought patient packs were the way forward, but the present Government gave no indication to the industry that we would pursue that. However, I would by no means describe our disagreement with the policies of the last Government as a U-turn.

We need to recognise the tremendous importance of pharmacists, but also the Government's responsibility to ensure that the market is successful, and that NHS patients are supplied with drugs as and when they are needed—but at a price and within a structure that give us, as taxpayers and as a Government, value for money. I believe that the two reviews—the short-term review on maximum price, and the long-term review—will deliver that.