CSU Funding Model Guidance

Developing Commercial Support forMedicines Management

V722 November 2010

Contents

Developing Commercial Support for Medicines Management Executive summary

1.The challenge

The use of medicines plays a vital role in the delivery of high quality care and accounts for over 12% of NHS expenditure. The pharmaceutical market is dynamic, with new medicines coming to market and rising demand for healthcare pushing expenditure. However, across the system expenditure is rising, particularly in secondary care where prescribing costs increased by 15.2% from 2007-2008.

A range of initiatives delivered from national to local levelsset out to manage the use of medicines effectively and achieve best value for money in a constantly changing market. There has been considerable success but there are still many well-recognised challenges and good practice is not always adopted systematically.

In a tough financial environment, these challenges need to be tackled effectively and must not be allowed to create barriers to securing better value for money.

2.The medicines management landscape

Arrangements for pricing and supply of medicines are complex and medicines shortages and product discontinuations have become increasingly prevalent for a number of reasons.

There is significant national interest and leadership in the most appropriate and cost effective use of medicines with the National Institute for Health and Clinical Excellence (NICE) to be put on a firmer statutory footing. The QIPP medicines use and procurement workstream is seeking to achieve additional potential savings of £475million a year by 2013-14.

The NHS Commercial Medicines Unit (CMU) provides the nationally accepted route for contracting of medicines for secondary care and has established strategic leadership in medicines procurement areas considered important to the NHS. Significant supporting structures have been developed at regional/ local level with highly effective pharmaceutical networks established. Specialist procurement pharmacists play a key role in co-ordinating local trust decisions and ensuring they are aggregated locally, thereby ensuring that the NHS CMU frameworks meet the requirements of pharmacists and clinicians within the NHS.

3.The opportunity for commercial support

Commercial support arrangements have been developed to respond to local need and this has resulted in a range of models to support commissioners and providers. There is an opportunity to explore whether commercial support could add value to the established systems, processes and expertise developed by specialist procurement pharmacists and the wider medicines management community,in order to drive further improvements in cost effective prescribing and to respond effectively to the needs of emerging clinical commissioners.

4.Developing the guidance

This guidance has been developed in consultation with senior medicines manage-ment specialists and other stakeholders. It describes the complex medicines management environment and recommendswhere commercial support functions should be developed to assist the work of specialist procurement pharmacists most effectively. Clear principles are set out for working in partnership and collaboration.

5.Recommendations

The functions that commercial support could provide are considered as core and non-core. Core functions are those viewed as priorities by medicines management specialists involved in the development of this guidance.Non-core functions may be consideredas options for development based on an assessment of local needs.

Commercial support functions for medicines management

Functions
Core / Business Intelligence and Modelling
Facilitation of Collaborative Working
Implementation support for national strategies
Adoption of Best Practice and Innovation
Non-
Core / Operational performance
Systems
Market Management

6.Anticipated benefits

It is important that the added benefit from commercial support to medicines managementbe measured in a systematic and reproducible way. Benefits will vary on a project-by-project basis but are likely to fall into one of the following areas:

■Financial (cost reduction and cost containment)

■Enablement (released capacity, improved capability, better information)

■Commercial risk reduction (decreased budgetary and supply chain risk)

■Quality (improved patient outcomes and experience, lower clinical risk)

7.Next steps

A number of projects have beenset up to develop best commercial practice in supporting medicines management specialists in areas considered to have potential for high impact when rolled out nationally. These projects will set out to develop systematic measures of success and learning will be shared nationally.

Developing Commercial Support for Medicines Management Introduction

The use of medicines playsa vital role in the delivery of high quality care and account for over 12% of NHS expenditure. In 2008-09, the NHS drugs bill was approx £11.4 billion,equivalent to around 12% of the entire NHS budget and the biggest single item of spend after staff. Of this around £7.8 billion was spent in primary care and £3.6billion in secondary care.

Approximately 75% of the total spend was on branded medicines and 25% on generic medicines (including appliances, testing agents etc.)This cost is increasing at a rate of about 5% per year and when associated costs such as monitoring and service costs areadded the true cost of medicines is much greater. Unintended costs may arise through adverse drugreactions, whichare estimated to account directly for 5% of all hospital admissions.[1]

Analysis of historical trends for dispensing volumes reveals that between 1998 and 2008 the number of prescription items dispensed within the community in England increased from 513.2 million items in 1998 to 842.5 million items in 2008 (an increase of over 60%).

Whilst the overall picture is one of increasing direct expenditure on medicines, this is not uniformly true across the whole health system. In primary care, total costs decreased by 0.7% from 2007- 2008. Within hospitals prescribing costs increased by 15.2% from 2007 to 2008 for medicines prescribed and dispensed within hospital. For medicines prescribed in hospital but dispensed within community settings via the hospital FP10 route, the increase over the same period was 5.2%.

It is likely that this upwards pressure on expenditure will continue for the foreseeable future driven by factors such as improving access to innovative medicines and increasing levels of ill health associated with a population that is living longer. The Quality Innovation Productivity and Prevention workstream (QIPP) for medicines has identified £475million of potential savings a year by 2013-14 through more efficient use of medicines in primary care, better medicines management in secondary care and supporting patients in use of medicines and reducing waste.

The NHS Commercial Medicines Unit (CMU) provides the nationally accepted route for contracting of medicines for secondary care and has established strategic leadership in medicines procurement areas considered important to the NHS. Highly effective pharmaceutical networks have been established at regional and local levels with specialist procurement pharmacists playing a key role in co-ordinating local trust decisions and ensuring they are aggregated locally.

Commercial support arrangements have been developed to respond to local need resulting in a range of models to support commissioners and providers. There is now the opportunity to explore whether commercial support could add value to the established systems, processes and expertise developed by specialist procurement pharmacists in order to drive further improvements in cost effective prescribing and to respond most effectively to the needs of emerging clinical commissioners.

Section One: Medicines management landscape

1. Medicines Pricing

1.1The Pharmaceutical Price Regulation Scheme (PPRS)

The National Health Service (NHS) spends over £9 billion a year on branded prescription medicines in the UK. The PPRS is the mechanism which the Department of Health (DH) (on behalf of the UK health departments) uses to control the prices of branded prescription medicines supplied to the NHS by regulating the profits that companies can make on their NHS sales.

It is a voluntary agreement made between DH and the branded pharmaceutical industry – represented by the Association of the British Pharmaceutical Industry (ABPI) – under Section 261 of the National Health Service Act 2006.

There have been a series of voluntary agreements with the industry since 1957 to limit branded medicine prices and profits, each lasting five years or so, although the details of these agreements have evolved over time to reflect developments in the NHS and the pharmaceutical industry.

The scheme seeks to achieve a balance between reasonable prices for the NHS and a fair return for the industry to enable it to research, develop and market new and improved medicines.

The 2009 PPRS agreement, effective from 1 January 2009, has the following key components:

A new non-contractual voluntary scheme providing stability and predictability in pharmaceutical pricing for the next 5 years;
A 3.9 per cent cut in the list price of branded medicines sold to the NHS from 1 February 2009 and a further price cut of 1.9 per cent in January 2010;
Subject to discussion with affected parties, the introduction of generic substitution from January 2010;
Action to support innovation so patients have faster access to new medicines that are clinically and cost-effective;
New and more flexible pricing arrangements that will enable pharmaceutical companies to supply medicines to the NHS at lower initial prices, with the option of higher prices if value is proven at a later date; and
A more systematic use of patient access schemes, which allow pharmaceutical companies to offer discounts or rebates that reduce the effective cost of a medicine to the NHS.

Most companies have signed up to the voluntary scheme. Those companies that have not signed up to the voluntary scheme are subject to statutory controls under the Health Service Branded Medicines (Control of Prices and Supply of Information) (No.2) Regulations 2008.

In summary, the PPRS:

Allows companies freedom of pricing for new medicines (new active substances) but requires companies to seek the agreement of DH for price increases, which are only granted if the reasons for the application meet the criteria for increases set out in the agreement
Requires companies with NHS sales of more than £35 million a year to submit annual data on sales, costs, assets and profitability and to repay the excess where profits exceed the agreed threshold

Provides significant support for research and development (R&D) and initiatives to encourage and reward innovation.

Further information is available on the DH website at

1.2Drug Tariff

NHS Prescription Services (SBS) produces the Drug Tariff on a monthly basis on behalf of the Department of Health. It is supplied primarily to pharmacists and doctors surgeries.The Drug Tariff outlines:

What will be paid to pharmacy contractors for NHS services provided either for reimbursement (the cost of the drugs, appliances etc which have been supplied against an NHS prescription form) or for remuneration (what will be paid as part of dispensing contract with local health trust for fees/allowances etc)
The rules to follow when dispensing
The value of the fees and allowances to be paid
The drug and appliance prices to be paid.

Category M: Around 90% of generic medicines (by value) are listed under Category M of the Drug Tariff. Prices for drugs in Category M are set by DH and are based on a calculation that incorporates the volume-weighted average prices charged by generics manufacturers in the UK based on quarterly surveys of transaction prices between manufacturers, wholesalers and pharmacies.

Part IX:New arrangements, as announced in April 2009 following the Part IX Review for the NHS supply of certain appliances in primary care require changes to the NHS Pharmaceutical Service Regulations, Directions and amendments to the Drug Tariff.

The Amendment Regulations - The National Health Service (Pharmaceutical Services) (Appliances) (Amendment) Regulations 2009 - came into effect on 1 April 2010. They can be found on the Office of Public Sector Information website. Where pharmacies and appliance contractors supply appliances, these amendment regulations make provision for new essential services including emergency supply at the request of the prescriber, and for certain appliances, a home delivery service, provision of wipes and disposal bags and provision of specialist advice. Appliance contractors will also be able to offer repeat dispensing and will be required to operate a system of clinical governance, similar to pharmacies.

The Pharmaceutical Services (Advanced Services)(Appliances) (England) Directions 2009 make the provisions for new advanced services to be offered by appliance contractors and pharmacies who choose to do so. The advanced services include customisation of stoma appliances and appliance use reviews.They can be foundat the link below.

A transitional period of nine months from 1 April 2010 gives pharmacies and appliance contractors sufficient time to ensure they are able to comply with the new terms of service by 31 December 2010.

Download An overview of the new arrangements under Part IX of the Drug Tariff for the provision of stoma and urology appliances, and related services, in primary care (PDF, 166K

1.3Payment by Results

Under the system of Payment by Results (PbR),most services delivered by hospitals are subject to a National Tariff. PbR uses a national tariff of fixed prices that reflect national average prices for hospital procedures.

There are a number of High Cost Drugs (HCDs) that are excluded from the Payment by Results (PbR) tariff. Excluding certain drugs means that additional funding can be locally agreed over and above the national mandatory tariff.

Factors considered by the HCD Steering Group for inclusion on the HCD list are:

•The drug and its expected associated costs of care are disproportionately high cost compared to the other expected costs of care within the HRG, which would affect fair reimbursement; and

•There is, or is expected to be, more than £1.5 million spend or 600 cases in England per annum.

Further information can be found on the DH website at:

Figure 1

2.Medicines Supply

2.1Background

The NHS comprises primary (community) care, secondary (hospital care) and tertiary (specialised consultant care eg cancer.)

Primary care

GPs write a prescription for drugs. The patient takes the prescription to a pharmacy where the drug is dispensed either for a flat rate prescription fee or on the basis of exemption, at no charge to the patient. Pharmacies are responsible for purchasing drugs either directly from manufacturers or through wholesalers. They are reimbursed by the NHS for the cost of these drugs.

Primary Care Trusts contract for services from GPs under the terms of the General Medical Services (GMS) contract. Cost effective prescribing is incentivised through GMS and local incentive schemes. Additional influence comes from guidance from national bodies (NICE), local formularies, PCT prescribing advice activity and other factors such as peer pressure, pharma marketing activity and patient pressure. Dispensing doctors may procure and dispense medicines.

Secondary and tertiary care

Hospital clinicians prescribe and drugs are dispensed by the hospital pharmacy. Hospitals are responsible for purchasing the drugs they dispense. They are not reimbursed directly but must draw on overall NHS revenue. (See previous section on Payment by Results). Patients do not pay any charge for drugs supplied during a hospital stay but charges apply on medicines associated with outpatient, A&E and daycase episodes.

NHS CMU working with NHS pharmacists provides a national programme delivering framework agreements for hospitals to call off supplies of both generic and branded medicines and manages arrangements to secure the benefits to be achieved during the transition from branded to off patent medicines.

Homecare

Hospital services may on occasion arrange for the supply and administration of medicines to the patient whilst in their own home.The use of homecare services is expanding, with more than120, 000 patients receiving their medicines via the homecare route within England. The value of medicines supplied by this route is estimated to be in excess of £500 million, and these figures are expected to increase as more clinical services move away from hospitals to the community.

2.2Supply Chain

Fig 2:Key relationships and dependencies in the supply chain

2.3Issues with supply

Medicine shortages & product discontinuations have become increasingly prevalent for a number of reasons that include:

CSU Funding Model Guidance

Page

Executive summary4

Introduction6

Section One:Medicines management landscape7

1.Medicines pricing7

1.1Pharmaceutical Price Regulation Scheme (PPRS)7

1.2Drug Tariff8

1.3Payment by Results (PbR)9

2.Medicines supply11

2.1Background11

2.2Supply Chain12

2.3Issues with supply10

3.Clinical and cost effectiveness: the role of NICE13

4.High cost cancer drugs13