The office of Fair Trading is to investigate allegations that the National Health Service has been subjected to a multi-million pound rip-off by drug companies.

The office of Fair Trading is to investigate allegations that the National Health Service has been subjected to a multi-million pound rip-off by drug companies.

The high-powered investigation into the recent soaring cost of unbranded, or generic, drugs supplied to NHS hospitals, pharmacies and GPs' patients has been ordered by Alan Milburn, the Health Secretary. It will be announced today by Lord Hunt, a junior minister in the department.

The Health Secretary has also called in a respected economist to carry out a more far-reaching inquiry into whether the NHS gets the best deal from the way the market in unbranded drugs is structured. This could trigger a massive shake-up in the way that the NHS is supplied.

Ministers suspect that middle men in the warehousing sector of the drugs industry have been hoarding supplies of generic drugs to drive up prices. They became alarmed when the cost of many generic drugs, which are normally far cheaper than their "branded" equivalents, more than quadrupled over the past year.

The price of generic drugs such as amoxycillin, an antibiotic used mainly to treat chest infections, has risen from 47p for 15 tablets to 169p in the past 12 months, a rise of 260 per cent. Thyroxine, which is taken for thyroid deficiency, has risen from 19p to 87p since last year.

A Department of Health spokesman said: "The supply of generic medicines has been a market which has worked in the NHS's favour in the past. Prices came down steadily over the last five years until the recent price increases. Ministers are concerned about the price rises. They want to ensure there is no rip off of the NHS."

The problem has been compounded by a shortage of supplies, meaning that hospitals and family doctors are often being forced to prescribe the branded versions, which can cost up to five times as much.

Mr Milburn is bidding for a big increase in the health budget before the general election but as a former Treasury minister responsible for public spending, he is determined to keep the £5bn NHS drugs bill as low as possible.

The British Generic Manufacturers Association, which represents more than 70 per cent of the companies, said the increase in prices has been driven by the lack of supply.

The all-party Commons health committee is carrying out its own short investigation into the spiralling price of generic drugs after pressure to investigate from one of its members, Howard Stoate, the Labour MP for Dartford and a family doctor. The MPs will be taking evidence from Lord Hunt and drugs industry leaders, health authorities and GPs.

Ministers said last night that about half the NHS drugs bill was accounted for by generic drugs but it was unclear how much was being wasted on artificially inflated prices.

"We think it could be really quite serious," said a senior ministerial source. "That is why we need an inquiry."

The soaring cost of generic drugs is one of the main reasons why some primary care groups have already exceeded their drugs budget for the year. The Government fears that a continued rise in prescribing costs could upset their plans to improve the health service.

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