New methods of distributing medicines, involving exclusive deals between manufacturers and wholesalers, could cost the National Health Service hundreds of millions of pounds while reducing standards of service, the Office of Fair Trading said on Tuesday.

The OFT urged the government to change its pricing agreement with drug companies - the Pharmaceutical Price Regulation Scheme - to ensure that costs for the NHS do not rise as a result of new distribution arrangements.

The consumer and competition authority launched its market study of “direct to pharmacy” (DTP) schemes in April, after Pfizer, the drugs company, signed an exclusive deal for UniChem, part of Alliance Boots, to distribute all its products in the UK. Altogether the OFT received 482 complaints from pharmacies and doctors about the Pfizer-Unichem deal.

AstraZeneca and several other manufacturers are implementing similar changes, the OFT said, though only Pfizer has limited distribution to a single wholesaler.

In response, Pfizer said the arrangement with UniChem did not increase the cost of its medicines to the NHS. The US-based company also welcomed the OFT’s acknowledgement that “such schemes may also give rise to efficiencies in distribution.”

John Young, managing director of Pfizer in the UK: “Patient safety is our paramount concern. Our scheme has resulted in increased confidence in the secure supply of Pfizer medicines.”

UniChem added that the Pfizer scheme showed “excellent service levels”. “We are looking forward to engaging in a constructive dialogue with the Department of Health,” it said.

John Fingleton, OFT 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…Action is needed to prevent increases in NHS medicines costs and to ensure service standards pharmacies to patients are of a satisfactory standard.”

DTP schemes allow manufacturers to increase the prices paid by retail pharmacies (chemists shops) and control the distribution of their products, the OFT said. The manufacturer sets the prices paid by pharmacies and pays its selected wholesaler a fee for delivering their medicines.

This contrasts with the traditional model of drug distribution, in which manufacturers supply medicines to competing wholesalers, typically at a 12.5 per cent discount to list prices. The wholesalers then compete to supply pharmacies by offering their own discounts, which average about 10.5 per cent according to the OFT study.

The OFT has decided not to open a formal investigation of the drug distribution market under the Competition Act or to refer it to the Competition Commission.

Instead, it said the best way forward was for the government to take DTP arrangements into account as it renegotiates the Pharmaceutical Price Regulation Scheme with manufacturers. For example, list prices of drugs could be cut by an amount equivalent to the average discounts received by pharmacies.

The OFT also recommended that the government should agree minimum service standards with manufacturers for drug distribution. “Any deterioration in service levels should be reflected in the prices paid for medicines by the NHS,” it said.

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