NHS drug scandal has implications for central procurement plans: Colin Cram explains what allegations of fraud in drug purchasing mean for government procurement strategies.
The revelations in the Daily Telegraph that drugs companies may have been colluding with pharmacists to overcharge the NHS should not come as a surprise. The alleged fraud involves "special" drugs that are prescribed when a clinical need cannot be met by a normal licensed medicine. Licensed medicines have their prices capped by the NHS. The unlicensed ones do not, which provides ideal conditions for fraud to take place. Among the allegations are that an invoice would show £600, while the chemist would pay just £300.
This would mean that chemists could claim £600 from the NHS. Also, it would almost certainly mean that the £300, in the example given, would be an extortionate price as suppliers would expect to make extra profits in return for taking the risk of fraud. Proposed alternative approaches are for firms to provide credit notes once the chemist has claimed the invoiced amount from the NHS or to pay an annual fee to chemists who agree to provide their prescription drugs.
The NHS has a history of problems with drugs companies. In 2003 it announced that it was to sue seven drug companies, claiming they colluded to fix the price of common prescription medicines. It alleged that the NHS was forced to pay over the odds for these drugs and was seeking £30m compensation.
This was part of a wider investigation and later expanded to a Serious Fraud Office investigation over possibly £150m of fraud due to inflated invoice prices. In addition, at least two companies chose to settle out of court.
One would think that the NHS would be only too well aware of the possibility of over-charging. However, it took a whistleblower to alert the Telegraph, which was able to investigate the allegations at the annual Pharmacy Congress. The cost to the taxpayer could be nine figures.
Let's put this in a wider context. A new procurement strategy is to be launched in the next few weeks for the NHS. This will focus on the £18bn annual procurement spend by hospital trusts (excluding the drugs used by them). Many of them have not been disciplined in their procurement and have often been putting effort into duplicating agreements by procurement organisations, set up with the encouragement of the Department of Health, to use the purchasing power of the NHS to obtain best prices. So there is a double whammy in that some trusts pay people to undermine the ability of these procurement organisations to obtain the best deals. At best they will shave only tiny proportions from trusts' procurement expenditure and they will undermine NHS purchasing power.
It is truly astonishing that there are no central procurement agreements for the several hundred millions of pounds – possibly more than £1bn of procurement – spent on "specials". Perhaps the trusts that can afford to spend money duplicating procurement agreements should have an appropriate amount of their funding taken away and transferred to fund the letting and management of procurement agreements for unregulated drugs.
More fundamentally, it may be time for an external examination of the NHS drugs bill. That of primary care (mostly chemists), amounted to nearly £9bn in 2012, which makes a total of £11bn altogether. The bill is falling slightly, but the cost-plus basis for pricing propriety drugs fills me with alarm. Cost-plus agrees a supplier's costs and then allows a reasonable profit margin before agreeing the price. It is very difficult to be sure that costs are reasonable and 30 years ago, when doing a study, I came across an example of huge cost inflation – effectively fraud. A bigger problem may be the wastage of prescribed drugs – estimated to be £300m a year.
Although the NHS is making attempts to address some of these issues, the apparent complacency over "specials" does dent one's confidence in its ability to do so effectively. It is beginning to look as if between £500 and £1bn could be shaved off the NHS drugs bill. This may be only 1% of NHS costs, but a £500m annual saving would pay for another 10,000 nurses. Perhaps it is time for the National Audit Office to make a fundamental examination of this issue. The Guardian
The revelations in the Daily Telegraph that drugs companies may have been colluding with pharmacists to overcharge the NHS should not come as a surprise. The alleged fraud involves "special" drugs that are prescribed when a clinical need cannot be met by a normal licensed medicine. Licensed medicines have their prices capped by the NHS. The unlicensed ones do not, which provides ideal conditions for fraud to take place. Among the allegations are that an invoice would show £600, while the chemist would pay just £300.
This would mean that chemists could claim £600 from the NHS. Also, it would almost certainly mean that the £300, in the example given, would be an extortionate price as suppliers would expect to make extra profits in return for taking the risk of fraud. Proposed alternative approaches are for firms to provide credit notes once the chemist has claimed the invoiced amount from the NHS or to pay an annual fee to chemists who agree to provide their prescription drugs.
The NHS has a history of problems with drugs companies. In 2003 it announced that it was to sue seven drug companies, claiming they colluded to fix the price of common prescription medicines. It alleged that the NHS was forced to pay over the odds for these drugs and was seeking £30m compensation.
This was part of a wider investigation and later expanded to a Serious Fraud Office investigation over possibly £150m of fraud due to inflated invoice prices. In addition, at least two companies chose to settle out of court.
One would think that the NHS would be only too well aware of the possibility of over-charging. However, it took a whistleblower to alert the Telegraph, which was able to investigate the allegations at the annual Pharmacy Congress. The cost to the taxpayer could be nine figures.
Let's put this in a wider context. A new procurement strategy is to be launched in the next few weeks for the NHS. This will focus on the £18bn annual procurement spend by hospital trusts (excluding the drugs used by them). Many of them have not been disciplined in their procurement and have often been putting effort into duplicating agreements by procurement organisations, set up with the encouragement of the Department of Health, to use the purchasing power of the NHS to obtain best prices. So there is a double whammy in that some trusts pay people to undermine the ability of these procurement organisations to obtain the best deals. At best they will shave only tiny proportions from trusts' procurement expenditure and they will undermine NHS purchasing power.
It is truly astonishing that there are no central procurement agreements for the several hundred millions of pounds – possibly more than £1bn of procurement – spent on "specials". Perhaps the trusts that can afford to spend money duplicating procurement agreements should have an appropriate amount of their funding taken away and transferred to fund the letting and management of procurement agreements for unregulated drugs.
More fundamentally, it may be time for an external examination of the NHS drugs bill. That of primary care (mostly chemists), amounted to nearly £9bn in 2012, which makes a total of £11bn altogether. The bill is falling slightly, but the cost-plus basis for pricing propriety drugs fills me with alarm. Cost-plus agrees a supplier's costs and then allows a reasonable profit margin before agreeing the price. It is very difficult to be sure that costs are reasonable and 30 years ago, when doing a study, I came across an example of huge cost inflation – effectively fraud. A bigger problem may be the wastage of prescribed drugs – estimated to be £300m a year.
Although the NHS is making attempts to address some of these issues, the apparent complacency over "specials" does dent one's confidence in its ability to do so effectively. It is beginning to look as if between £500 and £1bn could be shaved off the NHS drugs bill. This may be only 1% of NHS costs, but a £500m annual saving would pay for another 10,000 nurses. Perhaps it is time for the National Audit Office to make a fundamental examination of this issue. The Guardian
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