The NHS reimburses retail pharmacists and dispensing doctors for the medicines they dispense against NHS prescriptions.

Although the UK Government does not normally directly regulate the prices of pharmaceutical products, there are various mechanisms in place designed to ensure value-for-money for the NHS.

Branded Products – Pharmaceutical Price Regulation Scheme

The PPRS is the method by which the government seeks to control the prices of branded prescription medicines on which the NHS spends about £8 billion a year.

It is negotiated every five years between the Dept.of Health and the ABPI, representing the originators & innovative manufacturers who bear the industry’s R&D costs. The scheme comprises two main components: profit controls that apply to all the branded products sold by a company to the NHS, and price controls that allow companies freedom to set the initial price of new active substances but restrict subsequent increases to the price paid by the NHS.

In the case of generic medicines, the level of reimbursement available to pharmacists under the NHS is established by a system known as the "Drug Tariff", which lists on a monthly basis the reimbursement price for most generic medicines.

Reimbursement prices depend upon the category of the Drug Tariff into which each product is placed. The principal categories are:

Category A         Covered widely available generics prior to the introduction of Category M, with the price based on a weighted average of the List Prices from 2 wholesalers and 2 generic manufacturers. Now applies to less than 20% (by value) of generic products.

Category C         Medicines that are not readily available as generics, but whose usage is expected to increase (e.g. a branded product that is about to come off-patent);

Category M        Launched in April 2005, and applied to all generic drugs which are readily available and previously qualified to fall under Category A. The reimbursement price is calculated by the Dept. of Health based on information submitted by manufacturers.

The change from Category A to Category M is significant, in that the reimbursement price is now based on a calculation that incorporates the volume-weighted average selling price charged by all the relevant manufacturers.

The Category M tariff is reviewed quarterly, using data supplied by the manufacturers which includes the volume sold and net income generated for each generic medicine.

In this way, any changes to the drug tariff are closely aligned to market realities, and the NHS benefits from the mechanism of effective competition.