Increase of nearly 50% in three years / Concern over profits of drug industry

Prescription drugs are costing the NHS almost 50 per cent more than they did three years ago, with a growing share of Britain's stretched healthcare budget boosting the profits of pharmaceutical companies.

Britons are swallowing more pills than ever before with a 22 per cent leap in the number of prescriptions issued since 1999-2000 to 632 million - more than one a month for every person in the country. The increase in costs, which has far outstripped the rise in prescriptions, is putting hospital and GP budgets under pressure.

The value of drugs prescribed to NHS patients in England rose by £2.3bn over the last three years to £7.2bn in 2002-3, a 46 per cent increase.

Opposition politicians expressed surprise at the increase, and Sir Nigel Crisp, the chief executive of the NHS, revealed he was in talks with the drugs companies over costs. The pharmaceutical industry has been at the centre of a controversy, as profits rise and directors are paid fabulous sums.

The Serious Fraud Office is investigating one instance of an alleged price-fixing cartel operated by manufacturers of unbranded generic drugs, which may have defrauded the NHS of up to £300m. The figures are revealed in Sir Nigel's report to the NHS, published yesterday, which showed big cuts in waiting times over the past six months and a shift in care from hospitals to GP surgeries.

The report says there has been a "huge increase" in the number of drugs prescribed in hospital and in the community, but says it is contributing to improvements in care, especially for cancer and heart disease. Prescriptions for statins, cholesterol-lowering drugs, doubled to 20 million last year and cost up to £300 a patient a year, but have helped drive down deaths from heart disease.

Asked if the NHS was getting value for money for its £7bn expenditure on drugs, Sir Nigel said: "That's a good question. We are in negotiation with the drug industry over where we are going with the Pharmaceutical Price Regulation Scheme [PPRS]."

The 30-year-old PPRS for controlling the prices of NHS drugs is renegotiated every five years and the current agreement runs to September 2004. The Department of Health agrees with the industry a cap on the profits the companies can make from the NHS, currently set at 21 per cent return on capital.

Andrew Lansley, a Tory Health spokesman, said ministers had to heed the fact that Sir Nigel himself had questioned whether the NHS was getting value for money on its drugs bill. He said: "These figures beg the question whether there is proper control of costs in relation to pharmaceuticals." He pointed out overall spending in the NHS was up 37.5 per cent, but activity in hospitals was only 5 per cent ahead. He said that raised the prospect of cost inflation.

The profit level of the PPRS is set high enough to support the UK industry, which is a big employer and important export earner, but low enough to offer a good deal with the NHS. But concern about the profligacy of the industry has grown. Earlier this year, GlaxoSmithKline sparked a row about corporate greed when it revealed it had agreed a severance deal worth up to £23m with its chief executive, Jean Paul Garnier, on top of his annual £2.4m salary in the event of his failing to deliver agreed objectives.

Yesterday, the company announced it had 20 potential blockbuster drugs worth £1bn a year each among 147 projects in the pipeline, which it said would drive future sales growth at a research and development meeting in London.

The Serious Fraud Office is investigating an alleged price-fixing cartel operated by manufacturers of unbranded generic drugs that may have defrauded the NHS of up to £300m. The investigation was prompted by sudden rises in the price of drugs including warfarin, used to prevent heart attacks, and penicillin. In March the American company Genzyme was fined a record £6.8m by the Office of Fair Trading for the way it fixed the price of its enzyme treatment, Cerezyme, prescribed for Gaucher's disease, a rare condition which can lead to disability and death. The cost of the treatment was up to £60,000 for an adult patient.