New drug supply deals could cost NHS millions

New drug distribution deals between pharmacies and manufacturers could cost the NHS hundreds of millions of pounds, according to a new report published by the Office of Fair Trading yesterday.

The market study, which was prompted by drug giant Pfizer's agreement with Alliance Boots to cut out wholesalers and sell its prescription medicines direct to pharmacies and dispensing doctors, found the new agreements could lead to "significant" cost increases for the NHS.

The consumer affairs watchdog warned that such arrangements could have a "dampening impact" on competition in the wholesale sector, potentially leading to higher distribution costs and lower discounts to pharmacies.

The report recommended that the Department of Health modify its drug-pricing agreements with manufacturers to protect the NHS. The OFT also suggested that the Government demand minimum service standards from manufacturers.

John Fingleton, the OFT's chief executive, said: "The changes to the distribution of medicines in the UK are among the most significant for many years and have given rise to real concerns."

The NHS spends around 6bn a year purchasing branded prescription medicines from pharmacies, which until recently were distributed by a number of competing wholesalers.

Martin Sawer, executive director of the British Association of Pharmaceutical Wholesalers, welcomed the report.

"We're glad that a Government regulator has finally noticed our concerns about these agreements," he said. "It's over to the Department of Health now. We urge them to protect the interests of patients and ensure service levels at pharmacies."

A statement from Pfizer denied that its distribution model increases the cost of medicines to the NHS. John Young, managing director at Pfizer, said: "Our scheme has resulted in increased confidence in the secure supply of Pfizer medicines since its introduction in March 2007 at no additional cost to the NHS."

Pfizer was the first company to introduce a direct-to-pharmacy distribution agreement. Rival drug manufacturer AstraZeneca plans to implement a similar scheme next year, while Sanofi-Aventis and Napp Pharmaceuticals continue to use the traditional wholesale model.