Drug audit overlooks real waste: The new report on the NHS pharmaceutical bill lost its way in the minutiae, writes Helen Kay

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The Independent Online
THE pharmaceutical industry came under fire yet again last week as the Audit Commission rolled out its recommendations for more 'rational' prescribing. The commission argued that if GPs reduced prescriptions of limited clinical value and, where possible, substituted generics or equivalent but cheaper brands, they could cut up to pounds 425m from a national drugs bill that reached pounds 3.6bn in 1992-93.

Predictably, the Association of the British Pharmaceutical Industry disagreed. It argued that to act on the commission's findings would ultimately only increase the health- care bill by putting more patients in hospital beds. The ABPI went on to say that wider use of just one class of drugs - ACE inhibitors, which are prescribed among other things for heart conditions - would save as much as, or more than, the commission's proposals.

In fact, the ABPI was being more than a little disingenuous. Although there is independent evidence to support the economic and clinical benefits of ACE inhibitors, they are a classic instance of 'me-too' manufacturing. Numerous pharmaceutical companies piled into the market with products that were minimally differentiated from those of their competitors. These manufacturers are hardly disinterested advocates.

But if the ABPI risked shooting itself in the foot with this argument, the commission has not exactly covered itself in glory either. For a start, the report is widely regarded as marginal. It is a bit like 're- arranging the deck chairs on the Titanic', one industry spokesman notes.

'What the report does is quantify something people were already aware of,' says David Dible, an analyst at SG Warburg.

'It focuses on the minutiae but you need to improve the efficiency of the whole set-up.'

Richard Platford, a partner in the pharmaceutical sector group at Coopers & Lybrand, agrees. 'The report is a bit of a disappointment. It's only tweaking at the corners of prescribing habits,' he says.

In fact, at pounds 3.6bn, drugs account for only 10 per cent of the total NHS bill - and distribution accounts for one-third of their cost. ' pounds 1.2bn goes in the distribution channel. It's a bit like being asked to pay a 32 per cent commission to the bank for a foreign exchange transaction,' says Mr Platford.

He believes the commission could have better spent its time examining the structure of the distribution channel. 'Do pharmacies need products delivered three times a day when those products have a nine-month shelf life?', he asks. He also points out that in trying to squeeze the last little bit of fat out of prescription habits, the commission has increased the risk of hospitalisation 10-fold.

But if the commission has taken a cost-conscious rather than a cost-effective route, its general emphasis on costs is clearly representative of a global trend. For the past 50 years pharmaceutical manufacturers have collectively enjoyed an unbroken run of profits amounting to 30 to 35 per cent of turnover - a profit level unheard of in almost every other industry. Only with soaring costs have these profits come under increasing scrutiny.

The pharmaceutical companies themselves insist that curbing revenues would damage their research and development, thereby jeopardising the success of Britain's second-biggest export business. 'Any future investment relies on profits from current sales. When returns are low, this has an effect on R&D,' says an ABPI spokesman. 'What you're really talking about is turning the UK from a high-research, export- led country into a low-research, generic importer,' he adds.

The argument is a well-rehearsed one but not entirely convincing. Pharmaceutical companies typically invest 25 per cent of their turnover in sales and marketing but only 10 to 15 per cent in R&D. 'If your marketing spend is double your R&D spend, the argument that your R&D will be damaged rings a bit hollow,' says one analyst.

Sir Richard Sykes, chief executive of Glaxo, is equally robust in his view that good products will always command a market. 'At the end of the day if you have a product that adds medical value, then you'll be able to sell it,' he says.

Irrevocable damage to the R&D base seems highly unlikely at this point, then. Even more unconvincing is the ABPI's claim that some pharmaceutical manufacturers may be tempted to up sticks if their profits are squeezed any further. Although one German company has announced that it will transfer from its domestic base to the more favourable regime in the US, the UK has not proved such a draconian operating environment. 'Pricing is transparent and the last price cut - 2.5 per cent - wasn't anything like as harsh as in Germany,' says Mr Dible. 'The Government has done a reasonable job of having a successful pharmaceutical industry and keeping the drugs bill down.'

Nevertheless, the pharmaceutical industry can legitimately point to its achievements. Four of the 20 biggest companies are British and, as Mr Platford dryly points out, the industry 'contributes considerably more to the economic and public health of the country than any City of London institution'.

It is also true that greater use of some drugs would cut the NHS bill, not boost it. The problem is that, with a highly emotive and politicised issue such as public health, rhetoric has too often replaced reason.

(Photograph omitted)