October, 2010 -- Tijana Ignjatovic, strategic healthcare analyst at Datamonitor, comments on the impact of the CSR on the healthcare and pharmaceutical industry in the UK:
“Despite the coalition government’s promises that the health budget will be ring-fenced, the spending review announced today by the Chancellor George Osborne spells trouble for the healthcare and pharma sector.
“While the National Health Service (NHS) budget is to be increased from £104 billion this year to £114 billion (a 2.3% annual increase) over the next 4 years, the £10 billion rise would translate into a cut in real terms (should the inflation rate remain above the 2.0% target).
“This is at a time when the NHS spending needs to increase by 3.0% per year just to meet the growing healthcare demands of the ageing population and rising incidence of certain health conditions such as obesity.
“As a result, the NHS faces a funding shortfall of £42 billion over a period of 4 years (taking the annual inflation rate at 3.0% and a need to increase funding by 3% to meet growing healthcare needs).
“The NHS will also have to fund £1 billion per year worth of additional aspects of care that were previously covered by council funding. This is even before the real cost of the NHS shake-up is included, which by some estimates will be as high as £3 billion.
“Consequently, the overall funding deficit could be in excess of £49 billion.
“Should the NHS be unable to deliver on the expected efficiency savings target of £20 billion per year, this will effectively result in the cut in health services provided to the population.
“While the worst budget allocation to the NHS since the 1980s will undoubtedly have a negative knock on effect on the pharma sector through a squeeze on the health budgets, the real uncertainty will come from the substantial reorganization of the NHS proposed by the Health Secretary Andrew Lansley.
“In particular, the transfer of the commissioning power from the primary care trusts to GP commissioning consortia, in addition to the lack of clarity as to the future role of the National Institute of Health and Clinical Excellence (NICE), may have a significant impact on the pharma sales and marketing practices as well as negotiations regarding reimbursement of the existing and new medicines.
“Furthermore, the UK pharma industry is bracing itself for the potentially protracted and painful negotiation around the proposed value-based pricing that will come into effect at the expiry of the current Pharmaceutical Price Regulation Scheme at the end of 2013.
“However, there is some good news for the UK branded pharma sector.
“According to the Department of Health, the pledge to set up a cancer drug fund of £200 million per year remains, and the scheme will be funded from the efficiency savings. This is a much needed albeit a small boost to the UK oncology market, plagued by low uptake of cancer drugs.
“In addition, last week the Department of Health announced it was abandoning the idea of introducing automatic substitution with generics at the pharmacy level.
“Such a legislative change would have pushed up generics volume use by a modest 5% from the current 60% level, and led to a potential NHS saving of £49m (based on 2009 Department of Health data), but an even greater loss in branded drug sales for the UK pharma industry.
“Although this is a relatively small amount, it is significant in a market that is likely to be struggling for growth after the onset of the patent cliff from 2011.”
Tijana Ignjatovic is available for comment.
To arrange an interview or for further details regarding this release please contact Joe Dixon in the Datamonitor press office on + 44 (0)161 238 4083, or email jdixon@datamonitor.com
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