In February, the Financial Times reported that, Britain’s Royal Surrey Hospital made £300,000 in profits last year by buying £4,600,000 of prescription drugs at prices arranged by the British government [gated, but registration is free] and then exporting them to foreign buyers. European Union laws make this practice perfectly legal, and the recent weakness of the pound against the Euro means that a drug sold at negotiated prices in England can fetch much more in Germany.
One in 10 UK pharmacies is arbitraging drugs and by May an estimated £40 million in drugs destined for the NHS were being diverted every month. Because manufacturers allocate supplies according to the price paid, shortages have developed in the treatment of cancer, high blood pressure, epilepsy, asthma, osteoporosis, and high cholesterol — despite official promises that “patients must come before profits.”
Until 2009, the United Kingdom used a variety of techniques, including rate-of-return regulation on pharmaceutical companies, to control spending on prescription drugs.
Danzon and Furukawa (2008) estimated that the UK price index for brand name drugs [gated, but with abstract] was about 75 percent that of the US. It was 30 percent higher for generic drugs, and more than twice as high for over-the-counter drugs.
However, the UK was slower to get new drugs to patients. For drugs launched in 1995-2005, the US put new drugs on the market in 4.4 months. The UK took 9.7 months. The diffusion rate in the UK, the rate at which the drugs are prescribed, was half that of the US 5 years after a drug was launched.
In 2009 the UK announced that it would reduce the price paid for branded drugs by 3.9 percent. On October 12, 2009, the Department of Health announced a further price cut of 1.9 percent. The British government’s Department for Business Innovation & Skills (yes, the government has a department for that), says that such arbitrary reductions will “enable drug companies to supply drugs to the NHS at lower initial prices, with the option of higher prices if value is proven at a later date.”
If past experience is any guide, the government is unlikely to ever find that higher value received justifies higher prices.